Where will the PFP NFT project go after the speculative frenzy?

Original author: Teng, researcher of Delphi Digital

Translation of the original text: The Way of DeFi

PFP NFT is in a bad situation. Although they used to be the darling of NFT, they have been hit hard in recent months.A boring ape was worth $400000 at its peak; Today, it is worth $100000. At this point, there are good reasons. The speculative enthusiasm that triggered dopamine has faded, so PFP has been trying to find its proper position in the world.

投机狂潮后,PFP NFT项目该何去何从?

Nobody expected them to explode like last year. PFP (Personal Profile Picture) is the digital identity that we bind with us through NFT. They are not only a picture, but also a token representation of community, culture and social members. At least, we think so.

Since our rose colored glasses have been put away, we must figure out: what is the next step for PFP in the NFT field? How do we deal with these ugly monkey photos?

All PFP projects need to seriously consider the following three things to survive.

1. How to transition from Web3 to the real world?

Today, most PFPs are similar to exclusive country clubs. Entrance fee? 7 ETH or any floor price today. These country clubs bring like-minded people together in a socially friendly environment. Country club membership entitles you to certain privileges, such as free access to facilities, invitations to exclusive events, and voting on important decisions.

It's cool. As a "country club", PFPs can do many interesting things for their members. Free hoodies, bodypacks, pilot jackets and limited edition merchandise - everyone loves free stuff. In the web3 world, geeks and degenerates have become cool people, and they can shape the club in the way they like.

投机狂潮后,PFP NFT项目该何去何从?

But as an exclusive "country club", you will always be trapped in your important echo chamber. The hard fact is that web3's native audience is small and niche. Ask your average friend if he or she has heard of Doodles, Azuki or Clone X. The answer is no, almost every time. According to the number of wallets purchased, fewer than 300000 people may be active in the entire NFT field today. Even less, because many people use multiple wallets.

Today, PFP has little cultural significance in the world. They may disappear completely tomorrow, and the rest of the world will not cry for losing them.

投机狂潮后,PFP NFT项目该何去何从?

If PFPs want to be culturally significant, they must go out and create a culture that the world wants to embrace. Entering people's minds, they can focus on:

  • television

  • film

  • pop music

  • fashion

  • game

  • Entertainment/YouTube/TikTok

Each of these verticals is highly competitive, and there are corpses of failed companies everywhere. Building a strong and defensible IP is not easy. Success requires a magical combination of luck, opportunity, money, deep expertise and hard work. When I see that the team's vision for launching NFT collections is to produce movies, animes or games, I will hesitate, but no team member has profound expertise and experience in the industry.

PFP has something that web3 companies do not have: a tool to cultivate a highly engaged and loyal fan group (NFT), who will create and promote with you. They can use this superpower and their communities to bridge the gap and make it a constant mainstream consciousness.

2. How do you establish a sustainable source of income?

PFPs such as Azuki, Clone X, Doodles, Cool Cats, Moonbirds and Bored Apes earned more than US $10 million in royalties in the past year. This is the net profit, and the cost of sales (COGS) is 0. They are lucky - they are in the right place at the right time.

投机狂潮后,PFP NFT项目该何去何从?

Source: NFT Insights of Delphi Digital

However, since the second quarter of this year, NFT trading volume has declined sharply. This also means that royalties have slowed down to a trickle, as they are a direct function of transaction volume. In view of the macro headwinds in the global market, we are unlikely to return to the good times of ultra-high royalties in the near future.

For the PFP team in 2021/early 2022, I prefer to regard their past royalty income as their financial fund-raising activities, rather than representing the real source of future recurring income. What's worse: the royalties of creators are tending to zero, while X2, Y2 and other markets have taken royalties as an option to increase purchase demand.

The PFP team must go out like any other startup and try to find new sources of sustainable income. They can't wait for royalties any longer. Some possible business models I have been considering include:

  • Grant intellectual property/artwork licenses to large and small brands. E.g. UNIQLO Hoodies

  • Create a new product line. For example, commodities and consumer goods (Bored Apes coffee, does anyone know?)

  • Sales of digital collections with certain practicality, similar to the skin of Fornite/Legue of Legends.

  • Content and Media Production Company

  • Subscription Service

But in fact, the sky is the limit. We will soon see which teams have business sense and desire to develop from a humble JPEG collection into a real technology+culture business.

3. How do you bring value back to your community?

投机狂潮后,PFP NFT项目该何去何从?

Venture capital is strengthening its NFT game. Moonbirds raised $50 million in August, while Doodles only raised $54 million this week (valued at $704 million). Obviously, some VCs like JPEG. This is good news for these PFPs. It provides them with the power to go out and expand their brands. Consumer goods companies need to spend a lot of marketing funds to achieve growth, otherwise they will be left behind.

This leads to a question: Are NFT holders really part owners of the brand, or are everyone we advocate about community ownership just a facade?

When can we see the VC fundraising of the NFT team, at least part of the investment involves the purchase of NFT?
Now it is clear where the priority of value appreciation is (equity holders>NFT holders)

When VC comes in, the priority of the company for value-added will naturally shift to the equity owner rather than the NFT holder. After all, investors paid huge amounts of money for equity and did not own any NFT. They need 10 times the return on investment.

In extreme cases, some PFPs become like traditional companies:

  • NFT is used to raise seed money and use this success to raise more venture capital funds.

  • The idea of community ownership has become a meme. NFT buyers are regarded as "customers" rather than "co creators".

  • More NFTs were sold to the community because they enthusiastically bought the company's next widely publicized NFT airdrop. The community becomes a source of income.

  • Community driven programs - fan art, legend creation, IRL parties - become similar to user generated social media content. The creators spent hours creating wonderful content on Instagram: but in the final analysis, all the financial value was returned to the company, and the creators could not get any money.

  • NFT eventually becomes a digital collection in the creation of the universe, such as the limited edition Luke Skywalker movable doll (only 10000 pieces)

Twitter user @ 4156 succinctly summarized this in his tweets:

The founder is definitely casting bait and wandering around here. Sell it to you with the meme of the agreement ownership, and then use the hype to keep it at an overestimated value, while claiming that NFT is always a product.

I may become too cynical here. Most importantly, PFPs must recognize that their communities first brought them where they were. Today more and more people are beginning to understand that NFT owners have much less (legal) rights than they thought before - we are still in the early stages of figuring this out. Today's regulations make it difficult for NFT owners to become shareholders and share profits. But at some point, I believe that the gap will be closed, at least to some extent.

At the same time, there is a social contract between the founder and the community. This means that the team needs to constantly find ways to give value back to the community in a real way. Otherwise, trust will be lost. This is a landslide.

Whether the PFP team supports the spirit of co creation/ownership of web3 and the community, or follows the traditional path of entrepreneurship equity VC financing, it is a philosophical decision. For me, the real magic happens in the former.