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| By Chris Coney |
Have you ever wondered how creators of NFT collections make money?
Or have you ever wondered how on Earth the value of an NFT collection could ever possibly be sustainable over time?
These were some of the first questions that arose in my mind when NFTs burst onto the scene.
But having studied them closely and made some investments myself, I can now share with you the answers to these questions.
Now, I have to keep this within a certain scope, lest things get too complex. So, I’m going to stick to NFT collections that are self-contained communities. During my research, I actually bought some OG-Rexes that were created by the Jurassic Punks project, so I’ll use this collection as my example.
If you go to OpenSea.io and then type “OG-Rex” in the search box, you’ll be able to see these NFTs in the marketplace.
The creators of this collection designed the 3D models for the T-Rex and all the accessories. Then they used their computer generate 7,777 variations using the available ingredients.
Those 7,777 NFTs were sold for 0.1 Ethereum (ETH, Tech/Adoption Grade “A”) apiece.
We call that minting, which is when the NFTs are actually created on the blockchain. This is designed to be somewhat random and to simulate the excitement we used to get buying packs of trading cards.
Initial collectors paid 0.1 ETH for an OG-Rex but had no idea which combination of traits each would have. This was to create a certain amount of fairness in the distribution as everyone has an equal chance of getting the NFTs with the most unique combination of traits.
Assuming the collection sold out at the minting event, the creators generated 777.7 ETH in revenue. With Ethereum trading around $3,000 at the time, the creators received $2.3 million in revenue.
That’s not bad, but it also isn’t a strong business model, is it? It’s more of a one-hit wonder.
And here’s where the key feature of NFTs shine through, and it’s the reason they’re going to totally transform the art world in particular. Not only do the creators get the proceeds of selling an NFT at the minting phase; they also receive a royalty each time one of their NFTs is traded.
The royalty is set by the creator, but it’s typically 5%.
This creates the incentive for the creators to continuously add value to their products after minting to keep demand high and promote sales on the secondary market … benefitting holders all the while.
So, how do creators add value to existing NFTs? Let me now draw your attention to a simple model I’ve created:
At the bottom of this value triangle is the first layer, the assets that make up the collection.
Above that, you have the story around the collection as the second layer. Without a story, the OG-Rexes are just pictures of T-Rexes. You can read the full story on the collection’s OpenSea page.
The third layer of added value is what I call affinity. By that I mean there are certain groups of people out there that just absolutely love dinosaurs.
The fourth layer is exclusivity. There are only 7,777 Rexes in existence, so even the ugliest Rex is only one of a finite number.
The fifth layer is community. The more active and engaged the community, the more value there is around the asset that gives access to the community.
The Bored Ape Yacht Club NFT collection really nailed this one. That community now holds live meetups exclusive to Bored Ape NFT holders. The OG-Rex club right now has 2,600 members in it.
The sixth layer, Raptor airdrop, is specific to OG-Rexes.
The OG-Rex is the male dinosaur, and the artists plan to release a Raptor collection as the females. The current plan is to gift the raptors by airdropping them into the wallets that own OG-Rexes at the time.
While the Raptor airdrop is unique to OG-Rexes, the idea of airdropping further assets isn’t. Plenty of other projects utilize airdrops to add value to their collections.
The seventh layer is employment, referring to the utility of an NFT; how it could be used.
The creators of OG-Rexes have launched a talent agency with the explicit purpose of getting work for the Rexes in the metaverse. There was a casting call for Rexes in smart wear to model some metaverses watches.
And that brings us to the final layer of added value: metaverse events.
I don’t know what form these will take yet as various metaverses are currently in development and just starting to roll out. But we know that it’s likely that there will be events or special offers only available to OG-Rex owners.
Now, this model isn’t conclusive, nor does it limit what can be done. Creators can — and likely will — dream up more wild and wonderful ideas to add value to their ecosystems.
But for now, it’s a fairly accurate representation of how creators have been adding value to their existing projects and creating a business model off their NFTs.
And as an NFT holder, you’d benefit from the continuous drive to add value.
Until next time,
Chris Coney
