NFTs are Stuck in Web2 (Kuba's Version)

Happy Thursday! Welcome to Ownable, a weekly newsletter on the ownership economy and onchain creators of the new internet. Human-curated & opinionated.

This week, I’m sharing my first essay in a series of biweekly deep dives, which aim to synthesize my observations and spark new ideas. The weekly edition headlines review will return next week. Enjoy!

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Betting on mainstream

While the crypto and NFT markets have continued to spiral down over the past 12 months, many builders (including myself) continue building web3 consumer products.

What we’re betting on is that much more value can be created from bringing the mythical “mainstream” from outside the ecosystem than catering to the fixed pie of degens.

In terms of the “how”, I believe NFTs are the best shot to onboard mainstream users onchain (despite some bad press), simply because more people care about culture and social signaling than financialization.

What keeps me awake at night, however, is the mainstream demand (collector) side that we haven’t yet been able to crack. Many platforms either shut down, abandon their users, or pivot away from web3 to web2 as they realize users won’t demand or care about things that already work well in web2.

Understanding the mass consumer

When you think about NFTs as a novel business tool for creators, artists, and brands, the value prop is quite clear. As a creator, you can find or segment your 1000 superfans, derisk from web2 algorithms by “owning” a direct relationship with your audience, and experiment with more sustainable monetization models than ads and brand deals. As a brand, you can collect zero-party data and target new demographics when internet cookies get discontinued.

All this sounds great, but the missing piece is the consideration of why the mainstream internet user (rather than the early adopter) would consistently show up to interact with these NFTs – given that it requires nontrivial onboarding effort compared to any web2 app or platform.

The inconvenient truth is that mainstream users won’t adopt new products just for philosophical or political reasons. Mass users are inherently lazy and follow a path of least resistance. The best motivators for them to go the extra mile are either financial incentives or 10x functional (or emotional) improvement over what already exists. Ambiguous buzzwords like ownership, exclusivity, community, and above all – the mythical “utility” – feel abused in marketing comms and conferences and too empty to convince the mass user.

(F)utility today

There are two indisputable niche consumer use cases for NFTs, which I won’t contest here - financial speculation (similar to stocks or meme coins) and collectability for superfans (just like mail stamps, Beanie Babies, or high art).

However, when we look at all the other NFT utility cases today, I argue that the mainstream is getting just a refreshed marketing flavor of the same fundamental benefits that already existed, and therefore the ratio of benefit to effort for the mainstream user is insufficient for NFTs to cross the chasm. Let me share three examples.

Loyalty

I won’t argue on the value of loyalty programs and their gamification in general. I do argue, however that as of today, we have discovered too few “10x” mainstream use cases which could not be operated just as well with email.

Transparency of your earnings and redemptions is readily available on credit card portals and brand apps; moreover, communities like TPG help cross-compare the value of points or perks across the ecosystem.

Interoperability between brands already works in web2: Amex has points transfer partners; Delta Airlines has points partnerships with Starbucks, Lyft, Instacart, and Ticketmaster; meanwhile, Nike’ SWOOSH ‘Virtual Creations’ NFTs are in fact non-transferable outside its ecosystem, and can only be used with official curated partners (like EA).

Security and fraud in walled gardens are a worse bet for a hacker compared to permissionless ecosystem since points and redemptions can be centrally deactivated or reversed.

Reward redemptions from onchain to IRL require a mailing address and an email account to track and ship, as in the case of Starbucks Odyssey NFT free drinks benefit (I got vouchers in the email-based Rewards app) or branded merch (shipped to address), or ETH Denver NFT ticket which was ultimately sent to me as a QR code in an email.

Call-to-action incentives, such as customer referrals, purchases, reviews, and sign-ups, are also possible with plenty of web2 e-commerce plugins.

Content

Today, when collectors spend money on tokenized digital creations (e.g., visual art, music, text) - most of which can be also accessed for free on the web - they receive the utility in the form of either speculative scarcity, pure fandom collectability, and perhaps a spot in the favorite creator’s CRM database. For exclusive paywalled content, web2 subscription-based services such as OnlyFans or Patreon (now integrated with Spotify) work just fine.

Perhaps acknowledging the limited mainstream appeal, NFT platforms borrow from the existing web2 solutions in the hopes of replicating demand-side engagement, for example, Sound.xyz tokenized public comments similar to Soundcloud’s email account-based track comments.

Retail

Customers who shop with online retailers may want to connect directly with a brand after the purchase, for example, through an NFT claim via QR code inside the package. However, since the blockchain-based supply chain never took off, the main utility a user can get from a post-purchase relationship is a warranty or personalized marketing.

As we’re not yet able to send (and read) notifications to NFT holders as easily as to emails or mobiles, the entire NFT claim step could potentially be skipped with email-based retail QR code providers like Brij or Beaconstac.

The future is 10x

To accelerate great innovations, I think our minds should shift in directions well beyond replicating the web2 experience and utility for end users. I’m particularly excited about a couple of 10x consumer utility opportunities.

Social signaling

Collectibles are uniquely solving the problem of provable scarcity for social signaling and self-expression in virtual communities powered by digital assets. Reddit’s Collectible Avatars are already providing clear social utility in subreddits and act as connective tissue between users and creators. Moreover, with young generations spending only more and more time online (e.g., 3 hours a day on Roblox), the social value attributed to provably scarce digital goods will only continue to grow and it will cost just as much to brag about an original Gucci bag online as offline.

Deeper, more frequent interactions

NFTs are a much more attractive form factor to collect, track, and centralize engagement between the creator’s or brand’s many online channels and the same unique fan. NFTs rewarded for micro-actions or micro-transactions across the web and collected into a dozen “coffee card” tiles dynamically unlocking a new experience are simply a much more fun and trivial experience than tracking a dozen scattered emails or posts from your brand or creator.

Fandom “cookie”

NFTs and onchain records can solve for information asymmetry between audiences and creators across platforms, serving as a fandom “cookie” to distinguish superfans from occasional followers and speculative bots. This could significantly improve the allocation of scarce unique assets like event tickets or 1:1 meet & greets to those who care the most - by relying on the provable fandom history instead of the shallow algorithmic social media feed.

Multiplayer co-creation

While still nascent, NFT primitive offers the potential to co-create novel engagement and media formats through permissionless multiplayer experience. As an alternative to bribing your audience with cashback or vouchers, it provides a chance to experiment with cheaper, non-monetary formats yielding better ROI by tapping into consumers’ emotional attachment and psychological ownership.

Closing out

The NFT markets are not immune to fundamental economic laws. The path forward is to balance this equation.

On the price side, we must reposition digital collectibles for the mainstream and induce smaller and more frequent interactions (akin to TikTok’s gang gang phenomenon). To drive the cost of effort down, we should radically abstract away any web3-native frictions (like “deploying protocol”, “testnets”, or “transaction approvals”) so that anyone can start experimenting without a steep learning curve or PR concerns.

On the utility side, we should drop the illusion that email-parity utility and perks are good enough to push NFTs into the mainstream, and instead start obsessing about the mass user’s dilemma: “Is there a 10x benefit for me to make the effort?”.

Otherwise, just like with the dreaded abundance of work meetings, they’ll wish it could have been just an email.

Question, feedback, or collab? Send me a note.