NFTs — Value Extraction or Creation?

Beeple (b. 1981)

In March of 2021, Christie’s auction house sold its first NFT for $69 million. Everydays — The First 5000 Days, a compilation of 14 years of daily digital artworks by the artist Beeple, set the stage for what could be the next big thing for art collectors and, more importantly, verifiable ownership of art through blockchain technology.

NFTs are not new. The first one was created in 2014. But to have the backing of one of the oldest and most prestigious auction houses in the world certainly feels new. How much of this is hype and how much is legitimate still appears up for debate, as most of us try to grasp the trillion-dollar market opportunity that is the metaverse. Everyone from Reese Witherspoon to Snoop Dogg a.k.a. Cozomo de’ Medici is building NFT collections. Not only that, but major support is being brought forth for women and POC with inclusive communities like World of Women — recently represented by entertainment veteran Guy Oseary.

We have seen big companies get into NFTs as well. In late 2020, NBA Top Shot launched officially licensed collectibles of famed video moments in professional basketball history. Adidas jumped in by issuing POAP (Proof of Attendance Protocol) for fans attending an event virtually or IRL, and is now set to release a collection with Bored Ape Yacht Club, Gmoney and Pixel Vault. Just last month, Nike acquired the metaverse fashion company RTFKT.

To get a better grasp on common misconceptions around NFTs and blockchain technology, we spoke to subject-matter experts who, in very different capacities, are currently involved in the NFT industry. Chris Hougland is an art collector and NFT entrepreneur representing emerging artists that are new to the NFT space — he provides resources and training through a new residency program and exhibition space. Sean Sullivan is a partner at the international law firm, Davis Wright Tremaine, where he works at the ​​intersection of digital technology, intellectual property, blockchain integration and consumer interaction in media and entertainment.

RTFKT Space Pod

Space Pods, created by RTFKT, are the start of your home in the metaverse. Use it to display your favorite artworks or collectibles, share it with your friends — these base pods are the beginning of the future development of the Clone multiverse civilization. Treat with care, make it your home.

Designed by RTFKT and Jarlan Perez. 2021.

“If you are looking at NFTs as an investment then you are doing it wrong.”

According to NFT agent Chris Hougland, after NBA Top Shot, “it was very clear that there were fan communities devoted to digital artists, who were putting together animations and still images focused on different blockchain and crypto communities. They were making NFTs out of these works, and selling them for really huge amounts of money.”

“The traditional art-world ecosystem of patrons — the vertical stack of art consultants, gallerists, curators and the artists themselves — was completely foreign to the artists, designers and creators that were springing up out of nowhere, basically on Twitter, and globally.”

Around the same time that NBA Top Shot was making headlines last year, crypto artist Emily Yang, a.k.a. pplpleasr, auctioned off and sold a DeFi (Decentralized Finance) animation after a group of people came together and organized on Twitter. With a background in 3D animation, having worked in places like Pixar and Dreamworks, she had gathered a significant fan base online.

“The people who bid for her piece had never met each other but were fans of her work. They incorporated a legal entity called a DAO, a Decentralized Autonomous Organization, whose sole initial purpose was to bid on and win this piece and donate it to charity,” says Hougland. “Within a week, they whipped together over half a million dollars worth of Ethereum.”

Stay Free (Edward Snowden, 2021), the NFT Emily Yang purchased for $5.5 million, donating the proceeds to the Freedom of the Press.

“She’s the original DeFi artist, and everyone in the crypto space knows her impact,” said PleasrDAO’s Chief “Pleasing” Officer, Jamis Johnson in an interview with Foundation last April. Since then, Yang has appeared in Forbes 30 under 30 list and has helped fund and support AAPI causes and Freedom of the Press.

Collector DAOs like these are changing our understanding of crowdfunding. As a member of a DAO, you can collectively own and help fund the work of underrepresented artists and movements, for example, in the NFT art space. Plus, the purchase is made communally, making the financial contribution much more approachable than an otherwise unfeasible amount.

“This all seemed much more fascinating to me than the headlines around numbers that things are being sold for. There’s real power to build community, around artists, aesthetics and themes,” says Hougland, “And very different from the corporate-style NBA project where you’re working with content that already has a huge fan base. Who knows how much the players themselves are actually getting paid? Whereas in the case of NFTs, it’s the designer, the songwriter, the artist, the sculptor, the 3D animator — it’s written into the smart contract itself, what portion of the sales proceeds they will get, and they get royalties every time the piece is sold again. Something pretty revolutionary that could transform the economic viability of young artists making a career out of art.”

This is why we believe it’s important to understand the ethos behind NFTs creating value rather than looking to make a quick buck. “If you are looking at NFTs as an investment then you are doing it wrong. I wouldn’t look at them as investment vehicles. That’s not what they’re meant to be,” says intellectual property lawyer and NFT collector Sean Sullivan. “There are three use cases for NFTs: in the art context, creating a generative piece of art or leveraging existing photographs; in the gaming environment where people own NFTs, increasing their value and then selling them on those markets within the game; and in the media ownership of an IP portfolio, whether it be in film, television or comics.”

The important question, according to Sullivan, is: “What use case do you want to make of an NFT? What are the items that you would want to leverage and sell as an NFT?” Because practically anything could potentially be tied to its verifiable ownership. “All that the NFT is, is a token that lives on a blockchain that points to something that lives elsewhere, whether it be a digital file, or your couch sitting in your room that I’m selling to you. All I’m doing is representing the sale of it through the transfer of my token to you. It’s almost like a title to a car. You’re not getting my car when I send you the title until you come and pick it up. But you still have a record of ownership of that car.”

Monarchs (2021) is a limited edition series of 888 generative NFTs by Eric Hu and Roy Tatum. Each artwork features a unique one-of-a-kind butterfly with varying wing shapes, colors, bodies, and patterns.

If it is that simple, though, why is the user experience so daunting? According to New York-based Art Director Eric Hu, what happened with Web2 is that we got used to everything being handed to us in the most easily manageable terms, with overly curated web experiences and algorithm-led decisions. Just think of the amount of apps we use to make our lives easier.

“I don’t think we should treat people like they’re five years old and something’s going to be too difficult for them. People are smarter than we give them credit for,” says Hu. “Sometimes if you tell them exactly how something is made, it actually helps them make better decisions.” Ultimately, just as there was with the first iteration of the internet, there is still a lot of skepticism and mistrust surrounding its second coming — and there should be, since Web3 is bound to change.

What about the ecological downsides? Both Sullivan and Hougland believe these are overplayed and overblown.

“Many of the companies that I work with,” says Sullivan, “will do an analysis of the environmental impact before they enter into agreements with platforms that are doing NFTs. A number of the companies I work with have looked into the studies on this, and they mandate that any operator they work with use as environmentally friendly a mechanism as possible for minting of their NFTs.” Hougland agrees that it is “not an unsolvable problem. Some of the smartest people in the world right now are working very, very hard on transitioning away from the electricity-intensive model. A year from now, it’s not even going to be talked about anymore.”

Next up in our NFT series — a preliminary POV from Dims. on how NFTs can create realistic value for emerging furniture designers, while delivering unprecedented access and engagement to a global community of design devotees.

This is a roundup of primary research conducted by Dims. on the fast-changing landscape of blockchain and NFTs. Sign up for more timely updates.