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I believe we are nearing the end of the first wave of NFTs that has been defined by the spectacular rise of art-based collectors’ assets.

Is FOMO (the fear of missing out) driving the cross-industry adoption of NFTs? As NFTs, crypto and Web 3.0 branch out and reach deep into our lives, Kevin Susman, VP of Brand & Communications at MATRIXX Software, explores whether making people fear that they’re missing the wave is a good enough business model to drive growth, acceptance and, ultimately, adoption.
In response to a recent article I wrote about NFTs, someone pointed out that my focus was on art-based assets. In fact, they were right, and I wanted to elaborate on why. I believe we are nearing the end of the first wave of NFTs that has been defined by the spectacular rise of art-based collectors’ assets. Of course, many of those launching them are trying to deliver value beyond just a piece of digital art. Airdropped benefits and private discord channels are the norm, as are exclusive “digi-physical” goods – which are just a fancy name for SWAG. But when it comes to actual utility, while many were using their proceeds as seed capital for some grander, IP-based business, there are a lot of JPGs that were designed to appeal to a new class of “art collector” investors that blockchain had enabled.
The prevailing narrative of the art and collectibles-based NFT is that blockchain offers new ways for everyday people to become art collectors. And don’t just take my word for it. To the true believers, everyday people wanted to support visual artists. Even if not everyone wanted to support artists, the upside potential was so huge that you should become an art collector, regardless. This entirely rational belief was justified by the total number of crypto wallets – a mere 68 million total as of February 2021 – and comparing it to the total population of 7.8 billion people. The answer was seemingly right in the data – so many normies left to come into web3. It’s obvious, as NFTs go mainstream, WAGMI. The problem, of course, is that, throughout history, the opportunity for everyone to become speculative art collectors has always been there. It’s just that, as almost every artist who’s ever lived can attest, most people are not, in fact, art aficionados and could care less about investing in and supporting artists. 
See More: NFTs: Functional Innovation or Cyber Weapons of Mass Destruction?
If people weren’t interested in supporting artists, what were they really interested in? Everyone wanted to be the next Bored Ape Yacht Club. And who wouldn’t? People looked at what the team at Yuga Labs did and dreamed of the big returns that they could get. The thinking was clearly – if they can catch lightning in a bottle, so can everyone else. That’s the rallying cry of web3, after all. For a while, that seemed true-ish. Headlines were plenty of the huge amounts of money in the NFT market. And good for them, by the way. The challenge, of course, is that the NFT market is exceptionally small and very niche.
How small? Remember that stat about crypto wallets? Now consider that, as popular as they are in the public discourse, the most successful NFT project on the market, BAYC, only has 10,000 bored apes in existence. But don’t start there. Consider the total number of market-makers, and maybe you’re looking at a market consisting of 15000 people worldwide?  For perspective, Apple sold 84 million iPhones in Q4 of 2021, so they sold the same number of iPhones as Bored Apes in about 13 minutes, which in fact, is the whole point of a niche brand. They can be exceptionally lucrative, as BAYC has proven. But niche brands aren’t about scale. They are about exclusivity and status powered by scarcity.  
Monetizing scarcity is not a sure thing. The market is full of stories of businesses that tried and failed to leverage scarcity to deliver big returns. But those who do succeed in riding hype to success instantly find themselves faced with a different problem on how to extend that success. While most businesses want to substantially grow their customer base to a global scale, precisely why NRR is so important for investors, scarcity businesses are the opposite. Across every collectible brand, their value is built entirely on maintaining an imbalance between supply and demand – a scarcity that powers the perception of exclusivity. Exclusivity then becomes the currency of value, and the more exclusive, the greater the FOMO. The greater the FOMO, the more valuable the product becomes. In plain English, because it’s super-rare, someone will pay you more tomorrow than you paid for it today. However, for the business monetizing the FOMO, this creates an almost inescapable trap. To increase enterprise value, they need to expand their addressable market. But to maintain asset value, their expansion is limited because they need to maintain scarcity.
Complicating matters, even for those projects that choose to hold the line on their scarcity, there’s a larger, macro problem. The ever-increasing supply of art-based NFTs is driving an overall dilution of demand – too many projects, not enough investors. In the first wave, the stories of exploding values provided the necessary hype to fuel the FOMO. But as this first wave comes to an end, the overall supply-demand curve is evening out as more and more people pile in on the seller-side to try and make some money. Too many competing assets, not enough “collectors.” Ironically, the flood of VC money into the space will likely only accelerate this trend. The result? There are an increasing number of stories of projects that aren’t selling out or whose NFTs are depreciating. With each story of disappointing returns, each reminder that the same laws of physics govern crypto as everything else, the more it will chip away at the FOMO that fueled the first wave in the first place. The more it does, the harder it will be for all the projects to endure. Will some survive? Absolutely! And the rest?
As Lydia Hylton of Bain Crypto told The Information, “… it will be necessary for NFT developers like Yuga Labs, creator of the Bored Ape Yacht Club, to build new products like games or metaverse experiences to retain interest.”  This is what Yuga Labs mentioned as part of their funding round announcements. And while I’m holding out hope that they and others will succeed in pivoting to more sustainable and scalable business models as the first NFT wave end, many will not survive the pivot to becoming global, IP-powered brands. Not because they can’t – of course, they can – but because building a business built on scarcity and building one built on scale are entirely different, and absent the hype boost that accompanied the first wave of art-based NFTs, the teams may not have the IP that can deliver. The brutal reality is that catching lightning in a bottle is hard. While many of these projects succeeded in making that catch the first time around, turning that spark into a fire will be a hurdle that many (most) of the winners in the first wave of web3 will fail to cross.
Do you think the perceived scarcity and a deep sense of FOMO have been driving the NFT-crypto wave? Tell us on LinkedIn, Twitter, or Facebook. We’d love to hear from you!

VP of Brand & Communications, MATRIXX Software
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