Sustainable business models for NFT communities

Why NFT projects should look beyond secondary royalties...

Gil Hildebrand

Dec 1, 2022

Happy Thursday! ☕

Building a strong NFT community takes time, know-how, and capital.

With the bear market in full swing, NFT projects might feel especially strapped for resources, but that doesn't mean you have to stop building. Stepping outside the confines of secondary market sales can help NFT projects find creative solutions to generate revenue.

In this week's edition, I explore alternative revenue models NFT communities are embracing to stay the course and keep growing during tough economic conditions.

This Week’s Topic

📈 Sustainable Business Models for NFT Communities

NFTs are where camaraderie meets code and finance. Generating a decent sum in primary and secondary sales is a good start, but what are the best ways to sustain your NFT business beyond the initial drop?

The problem: In the early days of NFT mania in 2021 and the first half of 2022, many projects believed they could rely on secondary royalties to pay the bills and make a profit. And for a while, it worked. But the music stopped very quickly and now collections are lucky to sell out their initial drop.

Why it matters: Web3 enables entirely new business models that were not possible before, but you can also use web2 strategies to drive revenue. When planning out your NFT project or looking to drive additional revenue, you should consider both the long-term vision and tactical strategy to be successful.

Ways forward: We’re seeing a few projects lean heavily into IP licensing with NFTs, aiming to build immersive worlds like Disney or Marvel Universe. Creators can now grant ownership to their biggest fans through licensing, while still maintaining control and oversight on the overall direction of the project.

Doodles allow holders to merchandise their NFTs up to $100,000 in sales. For example, Coffee Doods, a group of Doodles holders with Coffee Head NFTs, aims to become a well-known coffee brand.
Gary Vaynerchuk’s VeeFriends partnered with Macy’s to release collectible toys.
Azuki is focused on fashion and streetwear by partnering with existing brands.
But in this new tokenized world, how can NFT projects embrace web3-native business models?

Other brands are exploring a membership or subscription service model. Shopify is venturing into this use case with token-gated commerce to give a brand’s token holders “exclusive access to merch, experiences, and more.”

Another option is to launch a fungible token in conjunction with your NFT project that could serve as a royalty reward. Bored Ape Yacht Club did this with their $APE token, giving APE holders ownership over the direction of the BAYC community.

Learn more about the fungible token approach from Tara Fung, co-founder of Co:Create, who joined the Decentralized Ops podcast to talk about sustainable business models for NFT communities.

The Bottom Line: NFTs unlock entirely new revenue models and it’s critical to be deliberate with how you monetize if you want to create a sustainable long-term business.

From the DeOps World

📚 What we’re reading

Parallels between Railroad Mania in 1848 and Crypto in 2022

David Phelps shared his analysis on how the 2022 crypto bubble and FTX debacle are a tale as old as time.

The railway would birth an accounting revolution, not only because it standardized business operations, and not only because it was so transformative a technology as to explode business assumptions of the time, but because unauditable accounting made the whole thing fail first. Parallels! It goes without saying: the FTX debacle never would have happened were FTX on-chain, where every 17 year old etherscan sleuth could diligence their operations.

Read the entire essay in Phelps’ newsletter

Was 2021 just a giant Ponzi?

The contagion from FTX runs deeper than anyone expected with Genesis and DCG now affected. David Hoffman from Bankless explains his theory on why crypto might have been operating under one big Ponzi scheme.

Listen to the Bankless episode

“On-chain accounting is the future”

The Chief Security Officer at Coinbase, Philip Martin, laid out a few different proof-of-reserve approaches including Self-attested proof-of-reserve (PoR), Third party audited PoR, and Self-attested PoR-and-liability (PoRL). Coinbase also announced a $500,000 developer grant for teams to help advance the state of on-chain accounting.

Dive into the full blog from Coinbase

A new community for finance professionals in crypto

🚀 CryptoCFOs is live

CryptoCFOs is a community that helps financial professionals build their practice and crush revenue goals to seize the once-in-a-lifetime opportunity that is web3, DeFi, and crypto.

Gilded ProAdvisors will get access to the private CryptoCFOs community with focused discussions on the latest in crypto, tax, and accounting news and development in addition to educational resources to help propel their firm into the future of finance.

Check it out!

That’s all for this week. Thanks for reading and I’ll see you next Thursday.

Cheers,
Gil

Brought to you by Gilded 💡

This newsletter is strictly for informational purposes only and does not constitute financial, investment, or tax advice. As always, do your own research.

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