NFTs (non fungible tokens) are the gateway to Web3. NFTs are unique and can be anything digital (drawings, music, 3D models, generative art, game characters, tweet). The most popular NFTs currently are CryptoPunks and Bored Ape Yacht Club (BAYC). These are generative art pieces that have gained popularity and become part of the pop culture of Web3. NFTs (non fungible tokens) have so far been constrained to pretty JPEG pictures. Predominantly they have been focused on digital art and collectibles. I strongly believe that NFTs are the digital properties for Web 3.0. Playable NFTs are the natural upgrade and need to provide the owners with entertainment value, economic value, digital identity and social status and finally collectible value.

Entertainment Value

Entertainment value comes from NFTs being used in Web3 gaming as 3D avatars, in game weapons like swords where the owner derives entertainment value out of owning these NFTs. The use case here is the same as the current digital purchases in mobile and console gaming. According to NewZoo Global Games Market Report, 2021 the gaming market currently is around $176bn. There is a lot of entertainment value to be provided as all Web2.0 games upgrade to the Web3 experience.

Economic Value

Economic value consists of intrinsic economic value and future economic value. Intrinsic value is the economic value that can be derived from the NFT currently. Economic value of a commercial property which can be rented at 7% rental yield currently (intrinsic value) as compared to a commercial value in an area which can’t be rented today but the view is that the area will develop quite a lot and become valuable say 10 years from now (future economic value). NFTs too will have intrinsic and future value. Future economic value is what dominates NFTs currently. The ecosystem designers have not focussed on the economic intrinsic value yet but this is set to change eg. owning an NFT of goddess Laxmi which captures the best interest rate on your Bitcoin or Ethereum holdings and increases the value of your portfolio. The same NFT can also be used for derivative strategies on Ethereum where annual interest rate of 50% can be achieved by doing futures – spot arbitrage like it is being done in the equities market. This will give intrinsic economic value to the NFT.

The future economic value is proportional to the network effects of the ecosystem that the NFT belongs to. More people who come and use the digital ecosystem, the more valuable the ecosystem will be and the more valuable the NFT representing the same would become. In property investments, location becomes one the most important criteria for value as location determines the network effect (connectivity, jobs around, shopping places, community living/work in the location). In digital properties like NFTs, each ecosystem will be a country in itself and its value will be determined from the economy the ecosystem designers are able to create for the community.

Digital Identity and Social Status

Digital identity and social status are quite intertwined. In our real lives, how we look (primarily determined by the genetic lottery), our name (given and family name) forms our identity. In most cases, we don’t determine what our identity is. Also aesthetic factors, belonging to a particular community become over indexed as personality, value of the people are harder to determine as they need longer interactions with each other to determine the same. In the absence of such interactions, most of us are incorrectly judged by our looks, family names, place of origin as being our identity. NFTs change that. Belonging to a certain project, holding an NFT art speaks volumes about one’s personality, value system and interests. Most importantly belonging to a community is now personal choice based. The value of Bored Ape Yacht Club and Crypto Punks NFTs, some of which are valued above $1million each, is derived from the desire to have these digital identities and what the community represents. From these digital identities also flows social status. Belonging to a community which is aspirational for everyone makes one more desirable, and hence gives a higher status in the Web3 space. Owning a CryptoPunk at millions of dollars, not only represents one’s digital identity but also their high status in the Web3 society today and status is invaluable.


Collectible Value

Most people understand that NFTs are valuable for their collectible value. The value of a collectible is derived primarily from their rarity and popularity. If something becomes part of pop culture, it will become valuable as it becomes desirable. The collectible value also derives value from network effects as does future economic value. It is, however, more a reference to the art of the NFTs than the economic value. It represents the opinion, the story, the culture, the history, the thought process behind the NFTs and the ecosystem. A Monalisa painting is valuable for its history and its popularity derived from its significance and the relevance and significance of Leonardo da Vinci, its artist.

I am sure that playable NFTs are the future and they will need to provide the owners with entertainment value, economic value, digital identity and social status and finally collectible value. Anything short of that will lose its relevance in the Web3 space.

(The writer is Founder, Totality Corp)