2022 is the year of utility. Investors are buying into projects expecting to get some sort of value in return. Creators have been rushing to create tokens and white list marketplaces in order to keep up with consumer demand. Here’s the issue though. Can you name more than 3 projects that have released a bunch of utility and remained successful? Cool Cats pivoted and released a game and token and immediately lost 80% of its value. Bored Apes released land and a token and both have since lost value. People will pay $60,000 for an Azuki that does literally nothing but will sell a Cool Cat at the same exact price because they released a token and a game. By releasing utility you are giving the market an objective way of valuing your project. By doing this people are realizing your project objectively doesn’t have much value. Adding utility is one of the biggest mistakes a project can make.
There are several reasons people invest in projects: sense of belonging, FOMO, social status, but most of all- to make money. Here’s the thing though, the first three reasons there are immeasurable. You can’t calculate the value of those. For Bored Ape Yacht Club, the project slowly grew a strong community, which led to a sense of belonging, which led to social status and higher prices, which led to intense levels of FOMO, which led to astronomically higher prices. Emotions are impossible to measure. Emotions lead to people buying without thinking twice and spending way more than they can afford. Emotions lead to prices skyrocketing at parabolic speeds. You know what doesn’t lead to parabolic prices? Logic. By introducing mechanics to an NFT project with measurable value, you’re introducing mathematical equations that people can use to objectively value your NFTs.
Let’s take Cool Cats for an example. Cool Cats was a 17 ETH NFT project with literally no utility. It was just a social movement with a strong community of like minded individuals. Then they introduced game mechanics and tokenomics. They released their MILK token, a partner project called Cool Pets, and then eventually a P2E game that tied them all together. The game was delayed, the pets took forever to reveal, and when everything finally released, people dumped their MILK token for actual money and the entire ecosystem absolutely tanked. Now put yourself in the project creator’s shoes. They had an NFT project that was a bonafide blue chip and one of the most highly valued in the space. The NFT had literally 0 utility. Did nothing. Then “utility” becomes the buzz word of the day so the creators take their treasure trove of cash and carefully create an entire game experience around the project. People see they can make money playing the game so they start calculating how much they can make with the MILK token and peg the value of the project to the token and game. The game launches and people sell the token. The price of the token goes down and the rest of the project goes with it. The Cool Cats creators gave the market a formula to calculate value for a project that was built on pure emotion before. Investors used this formula and found out their project wasn’t worth nearly as much as they thought it was.
If you give people a formula to calculate the value of a project they will calculate it. If there is no formula they are going to base their decisions on emotion. People tend to throw around a lot more money when it’s based on emotion rather than logic. If there’s no way to base your decision on logic, people will use emotion instead. But if you introduce ways to calculate value based on logic, it makes decision making a lot more formulaic, which will probably lead to users not spending tens of thousands of dollars on a JPEG. So what is the lesson to be learned here? You can’t create utility for your NFT project unless you’ve modeled out how this utility will make your project more valuable and maintain that value. If you are releasing a token for your project, how will that token grow in value? If you are releasing a token that you’ll just inflate to $0, your project will go to $0 with it. If you are just going to keep releasing companion drops that dilute your ecosystem with uninspiring art, your prices will go with it. Any utility you release needs to do nothing but add value to the project. A token for the sake of a token or a new PFP for the sake of a new PFP is not considered value.
Which brings me back to a point I made in a previous article about Bored Ape Yacht Club and Otherside. Before the release of Otherside, BAYC made it to 140 ETH purely based on emotion and FOMO. People wanted the social status of holding an ape. Now with a token releasing and a game coming soon, the formula changes. It’s not based on pure emotion anymore. Yuga Labs will need to make sure this game ecosystem somehow someway keeps hundreds of thousands of dollars of value in the main NFT’s. In a world where AAA games like Grand Theft Auto goes for $60, I have absolutely no idea how they’ll keep $400,000 of value in their now game focused ecosystem. It’s an absolutely massive gamble they are taking here. Utility isn’t as easy as releasing more stuff. It’s a delicate economic balance a lot of NFT creators are not prepared to handle. If you can’t create millions of dollars of value with utility, you’re better off sticking to making the value pure emotion.