NFTs have two main sources of value: collectibility and utility. These characteristics are both subjective and oftentimes not easy to define. Understandably, two people may assign very different valuations to the significance of an art piece or the benefits of going to a conference such as VeeCon. This is why it can be helpful to have a framework for understanding why specific NFTs have value.
An NFT may have collectible value for a number of reasons. First, an NFT may be desirable due to its historical nature if it was created prior to the current adoption cycle of the industry. Second, people may want to collect a specific project because it represents some level of technological innovation. Third, an NFT may be collectible if it was launched by a significant brand or culturally relevant creator.
A little history lesson. ‘Crypto art’ was perhaps the first true use case of NFTs. Most projects that launched between 2014-2019 were art-forward collectibles such as Rare Pepes, Curio Cards, and CryptoPunks. Being early artifacts of the blockchain, these collections remain very much in demand. Market participants assign significant value to them because of their OG status. Moving further down the timeline, there are certainly a select group of art projects thriving in today’s market such as Fidenza by Tyler Hobbs and Where My Vans Go by Drifter Shoots. While many NFTs have value exclusively due to their collectible nature, most digital goods launched in today’s environment derive their value from utility.
NFT utility comes in many different forms. The two most widespread examples are token-gated access to content and IRL (in real life) events. A plethora of projects, such as Kevin Rose’s Proof Collective, create content exclusively for holders. In other words, you can only access and consume specific content if you own a Proof Collective membership card. Additionally, most commonly during the largest Web3 conferences, NFT projects will host parties and large events that are only open to holders. In terms of IRL utility, some brands will allow NFT owners to claim limited-edition merchandise which typically have substantial resale value.
To address the other common types of utility, let’s use the Bored Ape Yacht Club (BAYC) as an example. BAYC has a history of rewarding holders in a number of ways. Most notably, they've conducted multiple successful airdrops. Airdrops are events where the team behind a project sends additional NFTs, or fungible tokens, to wallet addresses that own a specific asset. ApeCoin was the largest BAYC airdrop of this market cycle. Each Bored Ape owner could claim 10,094 $APE tokens per ape, which equates to $38,000 today. These tokens can be used to participate in the ApeCoin DAO, also known as a decentralized autonomous organization. Owning any amount of $APE tokens grants holders the ability to propose ideas and vote on various initiatives related to the project. Directly participating in governance is an increasingly popular source of utility among NFT projects.