“If you have seven figures in JPEGs…”
Deeze doesn’t have to finish the thought as he scrolls through his gallery of NFTs. The 27-year-old collector doesn’t have his camera on, but his profile photo is an NFT avatar with a hoodie and 3D glasses blowing bubbles from a pipe. It’s an aesthetic he searches for across NFT projects.
Deeze tells me on Zoom that he’s a mid-level IT employee, whose day job is not all that demanding. During the pandemic, he used his free time on some light degening, making a good amount of money in crypto yield farming. And now he’s all in on NFTs, so much so that he can’t even remember all the shit he owns. One thing he is certain of ̶ they’re worth a lot. Like seven-digits a lot.
There’s no doubt… a ton of money has been made in NFTs. Some detractors sniff that these new forms of art are just glorified JPEGs and have no real reason to be on a blockchain let alone fetch such eye-watering prices.
Boundaries of Art and Technology
There’s no doubt in my mind that some of that money has been made on projects pushing the boundaries of art and technology in a lasting way. The very definitions of art and tech are now in flux.
“The NFT in NFT art is not a trend, but rather a necessary cornerstone to the emergence of digital art as a commercially viable asset class,” Annissa, head of operations at $WHALE, told The Defiant.
But there’s also no doubt that a lot of money has been made on garbage. And that’s reminiscent of the ICO boom in late 2017 and early 2018.
Deeze knows it. As he scrolls through his NFT collection, he recounts his experience with the different projects. “CryptoSergs, that didn’t do well,” he said. “Avastars, those aren’t recent, but it’s a project I’ve grown more unfond of, but I still hold them.” Yet, he’s also got three Crypto Punks, the group of which he says he wouldn’t sell for under $5 million.
What appears to be the biggest perpetrator of this mentality today is the limited-run, avatar-based NFT collectibles. Nearly every other day, there’s a new drop of 10K semi-generative art NFTs that sell out in less than an hour. Inspired by the smash NFT avatars Crypto Punks ̶ which, fun fact, weren’t actually minted on the blockchain ̶ there are now apes, dogs, bulls, aliens, skulls with crowns, pixelated humans, etc.
And some of it feels like a hype-drunk money grab, just like the ICO boom felt.
“Like ICOs, 99% of these NFT projects will go away,” said cryptograffiti, a crypto artist that prefers Bitcoin but has created a number of Ethereum-based NFTs.
Where’s the Innovation?
Yet, it wasn’t just the pseudo-Bitcoin Maxi who was skeptical. Even full-on NFT enthusiasts ̶ think Gmoney, Deeze, Aftab Hossain (aka: DC Investor), $WHALE ̶ estimate up to 99.99% of the space will fail. So virtually everything.
And although that may be an exaggeration, in the crypto space today, it does hold some weight.
On one hand, the NFT boom looks a lot like the ICO frenzy of a few years ago. In those days, entrepreneurs and projects sold tokens that were basically copies of other tokens with different branding to make insane amounts of money. But it was all a dream, or a delusion.
Fast forward to NFTs and check out the avatar space and what do you see? Entrepreneurs and projects selling NFTs that are basically copies of other NFTs with different branding to make, insane amounts of money.
Feel free to challenge, those statements. The thing is, they’re not judgements, really, they’re facts. This is what happened and what’s happening again. Just ask Gmoney, the well-known NFT collector, trader, and entrepreneur.
“I got into crypto in 2017 and saw the mid- to late-ICO boom, and looking at avatar NFT projects, I see a lot of the same stuff,” he said. “I don’t see a lot of innovation ̶ they’re all copying the same mechanism and just making their own version of it.”
But on the other hand… ICOs were sold on lofty and outrageous promises. From DentaCoin, a crypto token for the dental industry (yes, like teeth, in your mouth) to KodakCoin, a token by venerable photography company Kodak for managing digital rights that NEVER launched. Then there was EOS, the largest of the ICO rounds at more than $4 billion (not a typo), that touted itself as an Ethereum killer and is now, like, I don’t know, who talks about EOS anymore?
The Flipping Game
NFTs aren’t being sold on those same wild promises of future utility.
Yes, yes, yes… there is obviously a speculative nature to NFTs as a whole, and of course these avatar-based projects, launching weekly, seem like a bubble. You can see the action as NFT whales scoop up a dozen or more of these drops initially and then immediately flip them for quick paydays.
The flipping game is more transparent in the NFT space than the opaque ICO one, DC Investor says. On these more centralized marketplaces, outside observers can track wallets and know who the whales are buying up a quarter of the supply. But, he continued, because they’re bringing liquidity to the market, they’re tolerated a bit more than whales were in the ICO boom.
Still, DC Investor continued, “It seems like an unhealthy dynamic for a social community.”
In several of these NFT projects’ Discords, there is a growing obsession with the floor price. In the NFT space, the floor price is the cheapest price a single piece of artwork is going for. “It’s a quick metric to assess the financial health of a given collectible,” he said. “But focusing on that fungible value can invite short-term participation.”
Focusing on the floor price means the community is concentrating on profit. They’re either flipping or trading out of the project if they double, 5x or 10x their investment. Or they just want the ego boost that comes from their crypto net worth ballooning. It’s a vicious cycle that tends to lead a few to dump, and the rest to be stuck holding depleted bags. And not only that, but by pushing the floor price up, the projects wind up pricing out aspiring collectors.
Sure, it’s not a perfect metric. With a floor that’s mooning signals there’s still demand for an NFT collection. It doesn’t signal anything about the long-term performance of the project. It doesn’t tell you whether the developers will continue iterating on the concept. It doesn’t tell you whether people a decade from now will think the art is any good, or whether that floor will fall out from under everyone tomorrow.
Frothy as Hell
According to most estimates, there are between 10,000 and 15,000 accounts that hold NFT avatars, making the space pretty small. Some might contend that as the number of avatar projects continues to increase it will eventually become unsustainable.
They’re probably right: The momentum we’re seeing now seems frothy as hell, and it’ll evaporate eventually, especially if we move into a crypto bear market.
Gmoney agrees that NFTs are in “mania territory. But he also had another take. “The average American buys 59 garments every year,” he told The Defiant. “When I play Fortnight, people change skins all the time, every game. Just because I have one avatar, doesn’t mean I’m set. The same way I don’t wear the same clothes everyday, in a digital world, I will want to be perceived differently by the world on different days.”
And let’s not forget, art is a different beast than a new token offering. It’s an emotional, aesthetic proposition that doesn’t lend itself to objective measurement, no matter how many gallerists and auctioneers and appraisers weigh in. Even the traditional art world has to be seen as the most irrational asset class on earth.
So who dares pass judgment on people who engage with these NFT art projects even if the value of their purchases go to zero? What if they’re just happy to have been involved?
“Three years down the road, though, with NFTs, I’m going to look in my wallets and it’s going to at least make me laugh,” Deeze told The Defiant. “My ICO shitcoin with a ticker that I can see on Etherscan, that doesn’t make me laugh, but NFTs will at least make me laugh at my mistakes.”
I concur. I have a few NFTs ̶ one is part of Stefano Contiero’s Frammenti collection on ArtBlocks ̶ and while I’ve gotten a couple of bids for it recently, and could earn a profit, I have no intention of selling the piece because it’s beautiful and unique. I bought it, like the crazy Sylvester the Cat by Famo on my bedroom wall, because I love it. If the floor price increases, nice bonus, but the speculation isn’t what I’m in it for.
As cryptograffiti said, if you’re buying NFTs as an investment vehicle, hoping to reap beaucoups cash, many people are going to get burned. “But to support artists you like and further the digital art movement, that’s valid and something entirely different,” he said.
And like Deeze and I laughed about, if my years in the crypto space have taught me anything, it’s that even shit goes up in a bull market, so you might as well just HODL.
But saying everything is a scam ̶ which is such a big part of the crypto mentality ̶ does a real disservice to the people and projects out there that are really innovating.
And there are some truly groundbreaking NFT projects.
Cryptograffiti mentions Async Art, a project that creates digital artwork that’s split into layers so that owners can add and subtract strata, sometimes with other part-owners, so it’s an organic, ever-changing artwork that can look different on any given day.
Bored Ape Yacht Club, which exploded out of nowhere, built a clubhouse for its NFT holders and recently launched its Bored Ape Kennel Club, which allows every one of the 10,000 apes to mint a dog companion.
Other projects, like the newly minted Polymorphs, which also let you “re-roll” your NFT avatar to change their look, are building out DAOs for their NFT holders.
And one of my favorites: CryptoTrunks. The NFT project allowed 19,500 people to mint pixelated trees for free (you still paid ETH gas fees). The artwork was rendered using Chainlink oracles that used your ETH wallet information into generative art.
According to the tongue in cheek website: “We look at your transaction history to calculate just how much you’ve fucked up the environment. The size of your trunk is representative of how much damage you’ve done, so you can display to future generations how badly you’ve screwed them over.”
But the project is quite serious about saving the environment. It’s offsetting the project’s footprint by investing part of the proceeds into reforestation, as in real trees planted in real land.
Separately, Reuben, the lead artist, and Will, the lead developer at CryptoTrunks, were less sure of the connection between NFTs and ICOs. The speculative nature of NFT art is indeed mimicking that of the traditional art world. But many of these NFT projects are acting as community hubs for people in search of peers who believe art has value, and can bring about positive change, Reuben says.
And that last part, that’s what will keep some projects alive. Others may slowly lose value and the public attention. “The projects and communities with staying power in the future will be those rallying around ideals more than just aesthetics,” Reuben said.
Will added, “I think you can see that most of the community here is much more about ‘rolling’ something cool that represents them, than they are about speculating on NFTs. For me it’s the art and the democratisation of a new kind of art that matters.”