The Bull Case for Solana NFTs
The Role of NFTs in the new age of the internet
The dawn of cryptocurrency made a way for internet users to transact value globally, instantly, and without a third-party intermediary. The implications of this technological advancement are incalculable, but so far it has only made a small dent in the world that it is sure to move altogether.
With the advent of NFTs, the same ability to transact value internationally and instantly applies, but with a new key concept: sociality.
To understand the importance of sociality, one has to look no further than his local pub. One study describes the social value of these establishments:
"One of the most important contributions pubs make to local community life is that they act as hubs for the development of social networks between local people. Our national opinion poll found that outside the home the pub scored the highest of any location as a place where people meet and get together with others in their neighborhood." - Muir, Rick. Pubs and Places: The social value of community pubs.
To understand the monetary value of socialization, we can consider Facebook, a social networking site which grew from a $63 billion valuation to over $1 trillion in the last 10 years.
With NFTs, enthusiasts have found a way to purchase not just a piece of art, but a ticket into an exclusive community of like-minded people. Furthermore, the ability to buy, sell, trade and collect art pieces from various creators with differing styles and rarities has become a game and a hobby of its own.
Sharing wins, losses, and laughs in the online “pubs” has created social and monetary value for the community, even during volatile price discovery fluctuations as these newly formed social networks determine their own worth.
Fighting FUD
With JPEGs selling for tens of millions of dollars––are we in a bubble?
It’s difficult to say. Typically, economic bubbles are formed by periods of wild speculation with dramatic rises in asset prices which greatly surpass their intrinsic value. While this definition might resemble the recent 2021 bull run for NFTs, there are a few factors which must be considered:
Traditional bubbles are driven by mainstream adoption and widespread hysteria (e.g., the 1920’s stock market bubble, the 1990’s dot-com bubble, the 2007-2008 housing market bubble). NFTs have hardly scratched the surface of mainstream adoption, as most of the world remains skeptical of “digital art." It’s estimated that there are less than 500,000 NFT users worldwide (which would only be 0.15% of the US population, in contrast to the 68% homeownership rate in 2007 and the 61% stock ownership rate in 1999).
In the above-mentioned examples, bubbles were characterized by over-leveraged loans that had been issued by major banks. Presently, no known institution would issue a loan for the purpose of purchasing an NFT, and no crypto trading platform allows leveraged trading for NFTs. While they may be volatile, NFT prices have not been inflated by leveraged buying nor are they at risk of forced liquidation.
Economic bubbles are typically defined as “asset prices greatly exceeding their intrinsic value.” However, since most NFTs are not dependent on intrinsic value to begin with (i.e., not tied to real assets or revenue streams), their prices should not be evaluated in the same manner as commodities or equities.
It seems more fitting to evaluate NFTs as Veblen goods. Investopedia offers the following definition for Veblen goods:
“A Veblen good is a good for which demand increases as the price increases, because of its exclusive nature and appeal as a status symbol. Very expensive products, such as designer jewelry, pricey watches, yachts, and luxury cars that are marketed as being ‘exclusive,’ or which convey the appearance of success, can be classified as Veblen goods.”
An interesting observation is that the demand for many NFT collections increased after their prices surged. The ability to display one’s acquisition by updating his or her profile picture on social media (hopefully soon to be verified by social platforms) has further driven the demand for expensive NFTs. Many successful projects have become a "Rolex for the internet" as buyers seek a symbol of status.
The bottom line: although the parabolic rise in NFT prices might resemble some characteristics of a “bubble,” their Veblen nature and the lack of leverage or mainstream adoption preclude this asset class from the traditional definition of financial market bubbles. Price appreciation has mainly been driven by a small and eclectic (yet quickly growing) community, raising their own valuations as they exchange with each other how much they believe each NFT is worth.
How early are we?
As of September 2021, it was reported that ~90% of adult Americans have heard of Bitcoin, while only 22% of Americans (~46 million people) have ever bought or held Bitcoin.
Meanwhile, less than 2% of the world's total population is reported as ever holding Bitcoin or other cryptocurrency.
Here are a few additional statistics from September 2021 to give you perspective on the size of the Solana NFT space:
106 million Bitcoin users worldwide
12 million Ethereum users
3.5 million DeFi users
1 million Solana users
300,000 Eth NFT users
50,000 Sol NFT users
On the adoption curve, that would place us right about here:
If you think you’re early for owning Bitcoin which went live in 2009, imagine how much earlier we are on the NFT frontier, which less than 0.5% of crypto users have adopted.
The Crypto Punks (considered by most to be the OG NFT collection) were minted in mid-2017 and didn’t really begin gaining traction until 2021.
Solana NFTs only started about 6 months ago in July 2021.
So yeah, we’re early.
To compare the size of the Solana NFT space in relation to the entire Solana economy, confer the chart below which Grayscale published in September 2021:
The Future of NFTs
Perhaps the most exciting thing about the NFT space is that nobody knows what to expect or how its future will take shape. All we can do is speculate on potential use cases as the network grows.
Some possible uses for NFTs include:
Gaming items and accessories
Event tickets
Digital media copyrights
Video/music streaming ownership & royalty sharing
Loyalty programs for businesses/services
Fundraising for entrepreneurs/startups
Club memberships
Proof of ownership for real assets
Official voting in organizations/governments
We believe there will be thousands of applications for NFTs which we can’t even begin to imagine.
One thing we can be sure of is that Yawww will play a pivotal role when all these use cases of NFTs are executed on Solana.
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