Building Authentic Brands with NFTs - The Inside Scoop

How NFT communities are redefining brand-building approaches

I’ve spent the last two months diving into non-fungible tokens (NFTs). I’ve made some money, and some new friends, but most importantly, learned how media and fintech have become unexpected partners in a wave of innovation that will redefine how brands and communities are built.

Before leaping into the significance of what NFT projects are doing, I want to break down the meta and outline what differentiates a successful NFT from the rest of the market. Generative Profile Picture (PFP) projects are a great example of a quickly adopted and higher-priced (therefore presumably higher value) NFT, that has kickstarted this wave of brand-building innovation.

The Generative PFP Project

These are computer-generated images that tend to have been released in the 10,000 range for their initial launch. 10,000 is a somewhat arbitrary number; too small, and a project limits the size of its community; too large and there’s too much supply for it to be valued. When a project achieves a certain price level and hence exclusivity, a project with a supply of fewer than 10,000 tokens then starts to be seen as exceptionally rare.

While there are dozens of these projects released daily, there are outlier success stories with a high floor price and hence a high level of exclusivity, making them more valuable to their communities. Well-known examples would be Cryptopunks, BAYC, and the Cool Cats. These were some of the earliest projects to see adoption as a social status symbol, with some mainstream influencers like musicians, The Chainsmokers, and basketball player Stephen Curry buying into the communities.

These generative PFP projects tend to follow one of three approaches to brand-building, to great success in a very short period of time:

1. A headless brand

There’s been a wealth of articles written about centralized brands vs headless brands - this is one of my favorites.

In basic terms, if every customer has an incentive to promote a brand, that brand becomes decentralized unlike mainstream, corporate-owned, and operated brands. In the NFT space, every holder of the NFT project is incentivized to contribute to brand-building efforts, as when the value of the brand goes up, the demand for the associated token goes up - and so does the value of that token. This is a powerful incentive for the brand’s most loyal followers, who reap financial gains as the brand grows in popularity.

A great example of this would be the Doodles NFT project that launched in mid-October. Due to the simple yet rather iconic nature of the art, influencers in the crypto space bought the NFTs to use as profile pictures on Twitter. This created virality and the Discord community almost doubled to more than 8,000 members in just a few days.

I predict that many of these headless brands will eventually form Decentralised Autonomous Organisations (DAOs). Their most loyal fans will be NFT holders who vote on the decisions the brand makes, including things like product design, brand direction, and future token launches.

2. A brand without a product

For a brand new PFP project, a buyer purchases an NFT and the art that comes with it. But often they are investing with the expectation that the brand and community built around the initial set of NFTs released will increase in value over time. The team’s background, art style, and Discord group indicate the type of brand and community that will develop over time.

It’s remarkable how commonplace it has become in the NFT space to build a brand before having a product. However, this is really what brand-building is about; it has very little to do with physical goods. Despite how successful this approach can be, there are not many brands that have built a cult-like following independent of a specific product outside of the NFT space. A good example of this would be Razer, which produces computer peripherals for gamers. “Give us the Razer Toaster” was a famous Facebook group started by fans after a tweet by the Razer founder in response to a fan’s request implied some possibility of it happening. Razer fans get excited about anything Razer produces outside of computer peripherals, but the same is not true to many other computer peripheral brands which would struggle to call their customers “fans”.

Mainstream adoption of NFTs will probably be driven by established brands first. They will likely be used as an engagement tool for existing superfans, where holding an NFT gives exclusive access to limited edition product releases or events. A great example of this would be TIME magazine’s recent NFT launch. As NFT adoption becomes more mainstream, new brands have the opportunity to start with a base of very engaged superfans first. Their NFTs become the reason to connect, even before the first product launches.

3. Fair market value for a community

This is the concept that most fascinates me in PFP projects. Some later add utility elements to their tokens, such as voting rights in a DAO that has a treasury. However, many remain as non-utility tokens that act solely as a key to a community. If you hold the token, you can access the community’s Discord server, in-person meetups, merchandise, future releases, and more exclusive, value-adding products and services.

The value of the token increases as the perceived value of being part of the community increases. There could be various reasons for this, including bragging rights, networking, or just plain fun. Regardless of the reason, the token price is essentially:

• A transparent entry price to the community that is market-determined and traded live. The dollar (or ETH) value of the entire collection is essentially the fair market value of the community.
• Correlated with but separate from the value of the legal entity or business behind the community. Let’s take an illustrative example, that may or may not be true. The combined market cap of Cryptopunks could be higher than the enterprise value of Larvalabs, the company that created them. If Larvalabs were to dissociate themselves from the Cryptopunks, the community could theoretically take the project forward on their own in a new direction that would determine a new value for the community which could be higher or lower.

Hockey stick growth for brand recognition: the NFT approach

These trends will become increasingly more mainstream as the world sees how NFTs can be used for building out new and established brands in innovative ways.

To get there, we need better infrastructure in the Ethereum ecosystem, regulatory clarity, and widespread adoption of the web3 mindset - that virtual items can be outright owned and not merely rented.

The future will see a broad variety of small, independent organizations and creators with powerful community-driven brands and non-linear upside potential.

This article is part of The Gaming Metaverse Writing Contest hosted by HackerNoon in partnership with The Sandbox.

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