Why Are People Spending Thousands of Dollars on NFT Avatars?
There’s more to them than speculation and silly pictures
I recently wrote an article about the most common misconceptions about NFTs. One of these is that the highly popular avatars, like CryptoPunks and Bored Ape Yacht Club, don't give their owners any more than what you see on the surface - a silly little cartoon face. This naturally leaves some people wondering why anyone would pay thousands of dollars for such a thing.
The thing is, most of these avatar projects actually offer a lot more value than the artwork itself. Your NFT wallet functions as a key that unlocks a range of benefits depending on the project. No, a screenshot won't work. And no, you don't need to be a millionaire to participate. Most NFT avatars cost less than a thousand dollars, and some significantly less.
I will outline some of the most common and popular benefits below, knowing full well that I'm missing a ton of cool things already out there or currently being developed by one of the many great teams in the space. I'm not trying to provide a comprehensive list but rather just show you that NFT buyers, and perhaps you, are paying for a lot more than a jpeg.
I'm mainly talking about the popular generative avatar projects here, although many other types of NFT projects are bought for similar benefits. Some are even made specifically to provide some of the utility described below, just without an avatar as their visual representation.
As always, none of this is financial advice. In fact, I'm writing this specifically to point out that NFTs aren't just bought as speculative investments. That being said, there's absolutely no denying that many collectors do buy NFTs at least partly as investments.
The investment case for NFT avatars
The investment case that can be made for NFT avatars is undoubtedly a strong motivational factor for many buyers. Why they might be good long-term investments come down to a series of factors, the main ones of which I'll summarize here and explore further in a separate article.
- Historical and cultural significance. Many people believe that certain NFTs will remain important brands and historical artifacts in the future, much like rare sports cards, celebrity memorabilia, and other extremely valuable collectibles from the physical world.
- Valuable IP. Because of many avatar projects' goals of becoming important media brands with their own comic books, movies, games, and toys, some investors compare these avatars to the original drawings of Mickey Mouse or Donald Duck.
- A bet on the artist. Many generative avatar projects have some really talented artists behind them. An avatar created by such an artist could turn into a great investment if the artist goes on to achieve the success and status that collectors believe is possible.
- All the above. I'll wrap up the investment case by mentioning a new type of avatar collection that's gained lots of attention recently. Projects like Zombie Cats and Head DAO give owners of their avatars fractional ownership of a portfolio of other NFTs, typically so-called blue chips like CryptoPunks, Bored Ape Yacht Club, and Cool Cats. Buying one of these avatars is a direct bet that the most valuable NFT projects will keep increasing in price.
Now, with all that money talk out of the way, let's dig into what's probably less apparent if you haven't yet gone down the NFT rabbit hole yourself.
Being part of a community
As soon as you buy your first NFT avatar, change your profile picture on Twitter, and join a couple of NFT Discord servers, you immediately become part of the NFT community. Because the field is still so new and so small, and with so many outside haters, there's a real sense of "we're all in this together" among people in the NFT space.
You will also become part of your chosen avatar project's own little community. The best projects have really strong and welcoming communities because of everyone's shared interest, not only in NFTs as a whole but in the art, values, and goals of a specific project.
Furthermore, many projects have Discord channels that are only accessible to owners of their avatars. These will often serve as forums for high-quality knowledge sharing on specific topics or just fun and casual talks among people with shared interests.
Some projects also have more structured and regularly occurring events like live audio or video sessions for their communities, or even PixelBeasts' weekly co-working session at their virtual PixelBeast Cafe.
Whatever form it takes, the community, networking, and contacts that can be developed from owning a given NFT avatar can certainly be worth paying for.
Social status and flexing
While any NFT avatar will make you part of the community, flexing a Bored Ape or a CryptoPunk does more than that. They're the digital-native version of real-world status symbols like a Lamborghini, Rolex, or Basquiat.
Because people around you know and recognize these brands and their price tags, showing that you own one is essentially a way of telling people that you're rich. People who don't care about physical luxury goods and spend most of their time online anyway can now show off their expensive NFTs instead of Instagram photos of their yachts.
To be clear, I know of many Punk and Ape owners who aren't in it to show off. They either bought them for one of the many other reasons laid out in this article or did so before they reached their current price levels. In fact, having minted a CryptoPunk in 2017 shows you're an OG in the space and is arguably cooler than buying one for $500k right now. Regardless of when and what you paid for it, we all know what it's worth now anyway.
Even though NFT avatars provide a lot more value aesthetics, many people are undoubtedly still buying them for their looks. It's also one of the criteria for me before I buy a new NFT avatar that I plan on holding for a long time. It needs to look cool and be something I would actually want to show off and display in some way.
It's less about the artwork being objectively "beautiful", if such a thing even exists, and more about it being interesting, unique, and just cool in some way. Some of the projects in my own collection that do this for me are G'Evols by KidEight, Incognito, Sad Girls Bar, and pixel art like cMyKatz and Obits.
World of Women, Cool Cats, the BAYC, and 0N1 Force are just a few of the many other projects that are highly popular partly because of their artwork. And with all the amazing artists that can suddenly make a living off of their work thanks to NFTs, cool new collections are being launched every day.
You've probably heard that Meta (formerly known as Facebook) is going all-in on the metaverse with a hiring spree in Europe and a recent name change. While a clear definition of the metaverse doesn't exist, most people agree that it probably includes an immersive 3D experience in the virtual world where people meet, hang out, go to events, and play games with each other.
Many NFT projects are already working on 3D versions of their avatars for their owners to use in the metaverse. Just like we use our 2D avatars as our identity on Twitter and Discord, we will be able to use our 3D avatars as our identities in virtual worlds like Decentraland, Sandbox, and Cryptovoxels.
Some are working on games as well where NFT owners will be able to play with or as their avatars, whether in 2D or more immersive 3D games. Axie Infinity is the leader in NFT gaming with daily sales volume north of $20 million. While it may not be an actual avatar project, it's easy to see how other collections can turn into games and give very concrete utility to the avatars.
Rumble Kong League is one of my go-to examples on this topic. They're creating a 3 vs 3 basketball game where their Kong avatars will be used as players. Many people who buy these are doing it just as much for the game as for the art, community, and other aspects mentioned in this article.
NFT avatar projects typically get around 5% in royalties from sales on the secondary market. Some projects choose to give a share of these to their owners.
What's even more interesting in my opinion though, is the NFT projects that give you a share of the revenue from actual businesses. Here my go-to example is the Gambling Apes collection.
In addition to making for a good profile picture, each of their 7,777 ape avatars makes you a co-owner of an online casino as well as a metaverse casino in Decentraland currently in development. All owners of a Gambling Ape will receive a share of the casinos' profits. While I do love the artwork, I probably wouldn't have bought an ape if it hadn't been for the business case.
A utility token is simply a kind of cryptocurrency that's distributed to owners of a given NFT on a regular basis to reward long-term holders. These tokens can be used for different purposes within the NFT project's ecosystem, such as buying or breeding to create new NFTs, or serve as lottery tickets to win rewards or as currency in future games or the metaverse.
Utility tokens can also be traded among NFT owners, enabling you to profit simply from holding or staking your NFT. CyberKongz pays out 10 $BANANA tokens to their holders every day. Staking an Anonymice yields 1 $CHEETH per day while cMyKatz pays out 1 $MIECE. Cool Cats will launch their $MILK token soon and many other projects will follow.
There are lots of NFT avatars that will serve as your ticket to more NFTs in the future. Some projects launch new exclusive collections only for their existing owners. Sometimes owning a certain NFT will give you a discount on an upcoming launch. Sometimes you'll even get new NFT avatars and other artwork airdropped for free.
I've personally gotten no less than four such NFT drops within the last month with Skvllpvnkz, Sad Girls Bar, CryptoPolz, and OnChain Wine all launching free companion NFTs for their holders. These are by no means my first of this kind, nor will they be my last.
A few NFT avatar projects even have this as their main value proposition, either by creating new NFTs internally or through collaborations with some of the best artists in the space. The REMIX! Club is one example of this.
Supporting a cause
You'll see lots and lots of NFT projects that donate a certain share of their revenue to a good cause. However, some projects have this as their main focus. World of Women was one of the first avatar projects to really highlight the importance of diversity and more female representation in the NFT space and tech more broadly. BlankFace focuses on mental health awareness via donations to mental health programs among other initiatives. There are more than a few animal-themed avatar projects supporting wildlife and living conditions for their respective animals.
You can probably find an NFT avatar project that stands for something that's important to you and supports a cause you want to be part of. Buying such an NFT will both be a direct donation and something you can use to show your support and raise awareness of the cause.
Many projects offer some extra benefits to their owners which I personally don't see as enough in and of themselves to justify a purchase. I know I'm not alone in weighing these things in when evaluating NFT projects though, so I figured they were worth mentioning. I can also easily imagine projects being successful by making one of these benefits their primary focus.
Rewards and competitions. It's pretty common for NFT projects to host regular raffles or competitions of various kinds, rewarding their owners with free NFTs or crypto payouts. For some, you won't need to do anything for a chance to win while other competitions require a little more active involvement. In any case, they're great for you as an owner and also strengthen the long-term viability of a project by incentivizing and rewarding engaged, long-term holders.
Merchandise. Branded merchandise is another popular trend in the NFT space. Projects with a strong enough community launch their own clothing and accessory lines and give their NFT owners exclusive access or a discount. I know of several projects that have sold out merch drops like these in no time.
Exclusive events. Because of the importance of community and the strong ones forming around certain projects, events - both in the analog and the virtual world - are quite common and popular occurrences. This will undoubtedly become an even bigger part of the space with the maturation of the aforementioned metaverse, VR technology, and 3D versions of these NFT avatars.
I hope this article has given you an idea about why people are paying so much money for digital avatars. The punchline is that the digital avatars aren't just avatars. The NFT is rather a key that unlocks a range of different benefits, from community and support of a great cause to metaverse and gaming utility to earning cash or tokens.
It's still extremely early days for NFTs and I'm excited to see how the space evolves over the next few months. I hope you'll be along for the ride!
Originally published at techmoneyculture.com on November 2, 2021.
UX Designer, investor, and NFT nerd, writing about innovation, investing, product design, and culture ✍️