NFT projects have caused complete madness in the crypto market

The craze for purchasing Bored Apes, Cryptopunks, Pudgy Penguins, and other NFT projects has caused complete madness in the crypto market over the past month.

Commentators like Kevin Roose in the New York Times ponder whether owning a unique avatar from these digital art drops could manifest into a new, monetizable expression of an individual’s online digital status, perhaps combining the social value of a Twitter checkmark with the speculative value of a diamond ring. Others discuss how these new identities will build hierarchies in the metaverse, that online world to which we are all supposedly migrating. 

To understand why this phenomenon inspires such futuristic visions, it is also important to see what is needed from humanity’s past. We must acknowledge that it fits into the deeply rooted connection that art and iconography, since the Christian cross, have always had with the human need for belonging.

The application of that deeply ingrained connection between art and community with the new world of online markets in unique digital assets is what gives this trend far greater prospects for economic disruption than the ICO concept ever had. Add decentralized autonomous organizations (DAOs) into the mix, and that potential is further amplified.

A sense of belonging

The boom in NFT communities is an extension of millennia-old social behavior. Both artists and buyers strive to build a strong feedback loop between the appeal of their NFT works and the creation of increasingly stronger social ties.

Those who succeed will not only increase the value of the underlying NFT collection but will also create a sense of belonging, as well as a desire among outsiders to cross the ‘road’ and enter the club. Thanks to the magic of digital assets, success directly translates into financial payout.

It is a powerful combination. As anyone who has studied cryptocurrency trends understands, organic promotion by a self-motivated community base is the best way to generate token price appreciation. In NFT communities, this FOMO (fear of missing out) is even more heightened, as membership provides both the satisfaction of belonging to a club and the ability to flex one’s individual status through a unique avatar.

In such an environment, price becomes a very clear measure of community success. The prices of NFT collections that generate the most publicity rise the most. The question is: Does this reflect market demand for art, or is the strength of the community the key force driving the price?

These forces cannot be separated from one another. The value of art and membership is fundamentally linked.

NFTs and DAOs: A powerful combination

The idea of constructing a DAO, where management of joint investments, software projects, or philanthropy is governed by smart contracts rather than administrative and bureaucratic decisions. 

What emerges is a completely new idea of what constitutes a business, a new theory of the company, one that could have a profound impact on innovation and creativity.

As DAO NFTs grow and continue to reinvest the revenues from their success into new digital or artistic projects, it is easy to imagine how an explosive development process will be initiated.

Just look at the impact of ApeDAO, a collectively owned investment fund that aggressively acquires NFTs and has become one of the market leaders. Last month, it “swept the floor” of the Bored Apes Yacht Club market, picking up dozens of NFTs at low prices, which increased the value of the entire collection, in which it holds significant stakes, along with other NFT projects. ApeDAO provides a link to its collection, which is currently valued at over $7 million. Such a strategy encourages increasing activity in this industry.

This does not mean that many NFTs have not become overvalued at this current stage or that people buying at current levels will not buy at more favorable prices. There are many risks that could lead to turbulence in that process, and the worst-case scenario is that the tokens of some NFT projects potentially contain characteristics of securities, exposing them to legal action. For now, NFTs are uncharted territory for regulators.

But the larger point is that this hype, which may seem so frivolous to some, contains enormous transformative potential. Ignore it at your own risk.

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