The NFT space is in its infancy and the majority of projects, collectors, and endeavors are grounded in outdated mental models. “Web3” (or crypto) will look far different in 10 years than the current landscape and so too will many of the most successful NFT projects.
I’m strongly convinced that over a long enough timeframe, the winning models in Web3 will be open and collaborative, not siloed and closed. Value will accrue accordingly.
In Web3, value creation and the ability to capture revenue operate differently than in Web2. Middlemen and rent-seekers generally will have less sustainable competitive advantages and are much more easily disrupted. Similarly, those who attempt to create walled gardens or clutch at unnecessary outdated copyright protection will generate weaker network effects.
The existing set of copyright and licensing structures were created in a world where blockchain and NFTs did not exist. IP theft, fakes, and copies have been plaguing creators for as long as commercial endeavors have existed. The internet amplified this issue as the effort necessary to “steal” or copy digital work is minimal. Right-click-saving is a simple 2 step process. Pre-blockchain, the only answer to effectively solve the issue has been legal protection. Establishing copyright and licensing protection was a necessary way of protecting a creator’s future revenue streams.
With blockchain and NFTs, stringent copyright and licensing protection is instead a hindrance to long-term success.
Clear Unfalsifiable Provenance and Provable Ownership
The combination of clear, unfalsifiable provenance and provable ownership means that the market knows exactly who created a particular NFT and exactly who owns that NFT at any given moment. The market can simply “check the chain” to clear up any possible confusion. Therefore, fakes and copies aren’t threatening to an artist or collection. Actually, NFTs benefit from the proliferation of fakes, copies, and especially derivatives.
Fakes, copies, and derivatives drive increased network effects by increasing possible market awareness. It’s also validation that a project is desired or valuable, and leads to amplified network effects for the original art or project. Collectors and the market will (generally) place an increased premium on the original. The original NFTs are a better status symbol or flex and way of being at the center of the community.
Secondary Market Fee Accrual
With NFTs, projects and artists don’t only generate revenue via the initial point of sale. Successful projects with high trading volume capture a great deal of revenue through secondary market fees. As the primary NFT exchanges have considerable network effects (easiest place to find buyers and sellers without networking), this will likely be a sustainable model for quite some time, regardless of whether some owners attempt to circumvent the exchanges.
This is an understated fundamental shift from how prior art markets operated and moves the emphasis from value extraction at the initial PoS to value extraction over the long term. It is an incentive to build continued value, continued demand, and continued community benefits.
Yes, many projects are quick cash grabs, but the most successful projects will be optimized to create sustainable demand long-term.
What does this have to do with CC0 and non-CC0?
A necessary ingredient of successful internet companies, blockchain protocols, and NFT projects is the ability to generate network effects. Every new user, creator, collector adds value to the network and every lost participant decreases the value of the network. In Web3, reliance on network effects is amplified. In an open-source world that punishes attempted silos, possibly the only truly defensible moat is the ability to generate strong communities.
Community is king.
In many ways, buying an NFT is equivalent to buying a community membership. Collectors of 1/1 pieces by a particular artist develop shared bonds of taste and have a mutual incentive to work towards their collected work becoming more valued by the market. Community membership is even clearer amongst generative collections, especially PFP/Avatar NFT collections, where community members adopt shared and tribal identities.
In 2021, this concept became explicit with the success of Bored Ape Yacht Club. From the date of mint, the Ape community has been extremely strong and tribal. Members have leveraged social media to grow each other’s followings via #apefollowape, have acquired high-profile celebrities, athletes, and musicians that further amplify the brand, and have built auxiliary services and businesses like niftytailor.com, derivative projects, and comics that generate increased network effects. The team and community have hosted many in-person events (Apefest, ape meetups across the world), created exclusive merchandise that demonstrate community membership, and have hosted digital gatherings. Yes, the team as had extremely high-level execution of their innovative roadmap, but the community is the project’s dominant asset. It’s aspirational for many in the NFT space to be a member of the BAYC community.
Creating an initial community isn’t necessarily all that challenging. Projects have figured out a rather repeatable formula of hype tactics, roadmaps, and so on to generate initial interest and FOMO. However, building a sustainable community is a much greater challenge and it’s vastly more important.
How does a community grow? How does a community retain members?
Continued growth from external demand is important, but retaining members is far more important. Growth doesn’t necessarily lead to retention but retention tends to lead towards growth. Higher retention means fewer sellers. Having fewer willing sellers generates higher floors (membership entrance fees) and higher floors generate increased aspirational demand. Higher retention also leads to members having more time to develop lasting bonds via collaboration, communication, memes, etc, which strengthens community identity. The longer someone is a member of a community, the less likely they are to leave.
All community members are valuable to a projec, but not all equally so. Certain types of members come with a premium. First, vocal and active community members who market the community externally are a primary driver of long-term growth. These members are the loud voices in the room that expand the marketing funnel. Second, community members who are active internally to create a welcoming community. These members are the members who strengthen internal bonds and create the unique atmosphere and shared identity of the project. Third, community members who are builders (developers, artists, memers, writers) increase the membership value via auxiliary network effects. All strong projects in the NFT space have the first two types of premium community members. You can see dozens of prolific Punks, Apes, Cool Cats, Fidenza enthusiasts marketing their communities on Twitter and other platforms. And in each of these projects’ internal channels, you’ll find OGs actively working to welcome and educate new and potential members.
However, NOT all of these projects have the third type of premium member.
TLDR: Successful NFT projects rely upon strong network effects and communities. It follows then that projects, in theory, should want to reduce friction to network effects as much as possible.
Drivers of Retention
Drivers of Sustained Community-Driven Growth
Ok. Again, what does this have to do with copyright options?
CC0 (creative commons - no rights reserved) is the most liberal copyright licensing under which a creator or artist releases any copyright to the piece of art or collection, thereby making the art or collection under the public domain in as many jurisdictions as possible. CC0 allows for anyone to then use the art for commercial or other purposes and does not need to give attribution to the original artist, team, or creator.
Examples of CC0 NFT projects: Cryptoadz, NounsDAO, Timeless
Non-CC0 is a catch-all term for all other licensing options. Non-CC0 options exist on a spectrum: some allow some commercialization, some allow none.
Examples of non-CC0 NFT projects: Cryptopunks, BAYC, CloneX*
*Each of these has varying degrees of copyright protection. Larva Labs disallows commercialization by owners and the public, CloneX allows up to $1m of commercialization for a percent of the collection, and BAYC allows businesses to be built around an NFT provided the owner owns the NFT
What is allowed under CC0 that is not allowed under non-CC0?
The most relevant fundamental difference between CC0 and non-CC0 licensing structures regards the ability to commercialize the project. Under CC0, anyone can commercialize the collection - owners of the individual NFTs, the original creators, and the public. Under non-CC0, depending on where it exists on the spectrum of licensing, either the creators or owners are the only ones that can commercialize the project or develop partnerships with other entities.
If a project’s long-term success depends on sustained network effects and community, it should therefore want a structure that maximizes long-term network effects.
Non-CC0 copyright is a clear point of friction.
First, every new business (a derivative project, an adjacent NFT project with symbiotic elements, an offline branded business like a coffee company, etc) created around an existing NFT project expands market awareness of the original project. Each new business has its own economic incentives to market its product, which benefits all associated with the original product. If these businesses are successful, it also has positive network effects that attract others to build around the original project. It can be a highly positive feedback loop. Instead of one team building a project, a CC0 project in essence can have dozens or hundreds of teams working to grow the project.
Second, every new business built around a project makes the original project stickier. Owners who have commercialized their NFT or the original collection are unlikely to sell without harming their own business and other owners become less likely sellers because they get to experience the continued benefits of the adjacent businesses’ network effects.
There’s also less friction for existing businesses to use successful CC0 projects in their own business efforts. The benefit of not having stringent copyright is that an existing company doesn’t have to worry about legal red tape or negotiating with a team or artist. A CC0 project can then benefit from existing successful projects network effects if they choose to use the NFTs.
A non-CC0 collection on the other hand adds friction at each of these points. Even if they allow some amount of commercialization (ex. Clonex up to $1m for a percent of their collection), ambitious builders are disincentivized from spending their time and energy building. With a non-CC0 project that creates no cap on individual commercialization (ex. BAYC), builders still run the risk of not being able to establish legally compliant partnerships with other companies or projects. And ultimately, builders that elect to create around a non-CC0 project run the risk of the project changing terms in the future.
Where will the builders choose to launch businesses and adjacent NFT projects?
There is no such thing yet as a singular metaverse. There are dozens of metaverse projects, soon to be hundreds. One promise of NFTs in the metaverse(s) is that they can be transportable amongst worlds. Avatars, skins, and items will have utility in many different projects simultaneously. Instead of having avatars and items in every different metaverse, a user could choose to bring assets with them everywhere they go.
NFT projects, especially avatar/pfp collections, companions, and items, have an obvious incentive to be easily used in every possible metaverse project. For CC0 projects, that is as simple as the metaverse project allowing integration. For non-CC0 projects, it’s not crystal clear how exactly the mechanics of integration will need to operate. Does the metaverse project need to establish a partnership with the non-CC0 NFT project? If the metaverse project has other established relationships with competitors of that non-CC0 project, will they want to be integrated? If a metaverse project adds a non-CC0 project to their world without consultation, will they face legal consequences?
The owners of CC0 projects benefit from not being walled off from the metaverse(s), while many non-CC0 community members will be left begging their teams to develop partnerships. Immediate utility will lag.
Both CC0 projects and non-CC0 projects initial start and success will be team-dependent. However, over the long run, CC0 projects have superior mitigation to team risk.
If a project’s success is mostly dictated by the success of a team, then the project is at risk of failure if:
A CC0 project might share some of the same risks, but the ability for community members and NFT owners to commercialize and build around their NFTs gives substantial resiliency to an already established CC0 project. If the team leaves, dies or gets too rich to care, the community can keep building and providing value. Individuals can also form DAOs that can create their own vision and efforts to sustain and bolster the project.
Non-CC0 projects likely won’t survive if a team abandoned the project unless the project’s value is not dependent on continued team efforts (Punks, Fidenzas, 1/1 art).
This is a view over a long time horizon. It is not a thesis that states non-CC0 projects can’t be successful. Over the next few years, especially as most mental models are still grounded in Web2, many successful projects will take the non-CC0 route. That is their right. Being non-CC0 does not automatically lead to failure, it just creates a more difficult mountain to climb. CC0 projects, likewise, will not automatically be successful. It’s neither necessary nor sufficient for success.
However, CC0 projects are far more likely to find proliferation and longevity in a world that thrives on open and collaborative endeavors.