A pattern is emerging for successful NFT projects, with the end-point being a super liquid NFT set.

Navigating the wild and unpredictable NFT market can feel like a dizzying game of chance, where new projects and creators appear out of nowhere, and it's hard to know which will soar and which will flop. But as the market matures, a roadmap to success is emerging, unfolding in four distinct phases: ascension, endurance and separation, course correction, and super liquid systems.

These phases tend to manifest after an NFT experiences an initial surge in pricing, and they offer clues as to why some works and NFT sets skyrocket while others crash and burn. Creating and maintaining a successful NFT set is no easy feat, it requires a team with a bold vision, the nimbleness to navigate a constantly-shifting landscape, and the tenacity to weather the challenges that arise at each stage. But the goal at the end is worth it: super liquid NFTs. These rare sets act as the cornerstone of the NFT market, and over time, they could become the backbone of the entire crypto ecosystem.

PHASE 1: ASCENSION

The first core phase in the development of any NFT project that has experienced some initial interest can be likened to an "ascension." This is the period when a creator or NFT drop is increasingly discovered by the broader NFT market, and starts to gain a meaningful number of collectors. The journey of ascension can be defined by several crucial elements, most notably ongoing discovery, persistent performance, and, for some, a supply squeeze dynamic.

To ascend, a project must continue to stand out in a crowded field of emerging creators and drops. This requires a unique and compelling vision, executed with skill, and innovation. The project must also be able to attract a dedicated audience, build a strong collector base, and retain a community around the project.

But for an NFT set to truly ascend—beyond an initial run up—additional catalysts are often necessary. These can include a decreasing number of NFTs in a set available for sale (sometimes made possible by constraints on the total set size) or organic growth in interest in the project caused by the nature of the art work or the affinity of a growing online community. Without these elements, it becomes increasingly difficult for a project to rise above the noise and achieve true long term success.

Indeed, if a project attracts enough attention from collectors, we occasionally see supply squeeze dynamics emerge and an accompanied period of rapid price appreciation. As demand for a particular NFT project or creator increases, the supply of available tokens may become constrained, because the project’s collectors are hodling. Supply is removed from the market and the price of the asset has only one direction to go—up.  

This can be a double-edged sword: rapid price appreciation often results in increased profits for creators and collectors, but creates a wall for new collectors to enter the market. Despite these challenges, it is an essential step for any NFT project that aspires to succeed in the long term.  **

**Take Matt Kane’s Gazers released in December 2021, as an example. Kane’s unique vision and style, coupled with a small set size, made Gazers stand out in the saturated NFT market (and even the crowded generative art market). Unlike other generative art projects, Gazers was tied to real world events—the lunar calendar—and Kane seamlessly integrated these dynamic aspects with a unique approach to color theory. Since the dawn of humanity, the Moon’s phases have fascinated humans, influencing any number of activities on Earth including: ocean tides, seasons, harvests, migrations, hunting, crime, sleeping, sex, and has inspired countless works of art. These dynamics captured the attention of a growing number of NFT collectors, and starting in October 2022, interest in the Gazer’s set by collectors continued to solidify, with listings continuing to drop.

Matt Kane’s Gazers #522, part of the Flamingo collection

The result was a rapid surge in price, with the total set value of the work rocketing from roughly 10,000 ether to over 30,000 ether in a matter of months. Gazers' success was impressive considering the market conditions at the time. While parts of the NFT market were reeling, given broader macro conditions and the storm clouds of FTX, Gazers persisted. It defied the market downturn and showed a stickiness, indicating a degree of non-correlation.

This is not surprising. The most successful NFT projects are the ones that are able to capture the attention of a select group of individuals and maintain it, even in the face of volatility.

PHASE 2: ENDURANCE AND SEPARATION

The second phase of an NFT set's journey can be thought of as “endurance and separation,” where, after an initial ascension, a true test of a project's or work’s mettle begins. For art, endurance and separation is highly dependent on the quality of the creator and the aesthetics and novelness of the underlying art. For other NFT sets, progress, funding, team strength, and managing attention cycles determine whether the set has the endurance to separate from the pack.

In the rapidly-evolving NFT market, artists and NFT-based projects are faced with the Herculean task of not just surviving but thriving. This requires an artist or a team with the agility to adapt and evolve, and for some projects a steady stream of funding to fuel ongoing development and growth. Managing attention cycles becomes crucial for keeping collectors engaged and interested in a project.

While it may be difficult to predict which projects will emerge victorious in this phase, as time goes on, it becomes increasingly clear which are more likely to succeed and which are not. In this Darwinian arena, collectors play a vital role in determining a project’s fate. Collectors act as gatekeepers, carefully curating their collections and closely monitoring a team's progress and missteps. Through their independent buying and selling decisions, collectors signal which projects they believe are worth investing in and which are not.

Collectors often rotate in and out of sets, choosing those that align with their personal tastes and interests. They may decide to list an item for sale if they believe a project is heading in the wrong direction, if they get bored of the art work, or if they are seeking to offset tax losses at the end of the year. These independent decisions are crucial in separating the wheat from the chaff and identifying the true winners in the NFT space.

Endurance and separation are the hallmarks of any NFT project that aspires to succeed in the long-term. Those projects that are able to ensure that their collectors continue to hold their work are well-positioned to progress to the next phase of development. But for those that fall short, the odds of falling by the wayside—and getting lost in the noise of the Internet—become increasingly likely.

The keys to success here are still being defined, and for non-art based NFTs many teams have been leaning into either metaverse experiences or exploring providing their collectors with different forms of utility. By creating immersive, digital worlds that collectors can explore, teams are able to provide a unique and engaging experience that traditional art forms cannot match. The potential of this technology is vast, as it allows for new forms of expression, and a more interactive and dynamic experience for the collector.

Utility is not limited to the digital realm. Many teams are also exploring ways to offer their collectors tangible benefits, such as merchandise, connections to celebrities or personalities, exclusive content, games, or even access to customized luxury goods. These offerings can help create a sense of community and exclusivity around a project, making it more valuable in the eyes of collectors. It's not just about the art, it's about the experience and the value that the project can offer to its collectors.

However, this approach is not without its challenges. Creators and projects need to manage the expectations of their collectors. As the price of assets increases, it becomes increasingly difficult to maintain the level of utility because collector’s expectations go up. Teams that are able to strike the right balance between price and utility tend to be the ones that are able to endure and separate from the pack.

It's worth noting that this phase is different for "store of value" assets like generative art or 1/1s—which provide utility simply by being enjoyable to display or consume. These types of assets are more like the "blue-chips" of the traditional art world, providing a sense of prestige and status to the collector. They are highly sought after and have a strong track record of holding value over time.

The projects that lean into the metaverse and utility side of the NFT world operate more like startups. They offer the potential for high returns, but also come with a higher level of risk. The teams behind these projects must not only deliver on their promises of utility but also carefully manage public perception and expectations.

PHASE 3: COURSE CORRECTION

For some sets, the ones that didn't navigate the previous phases gracefully, all is not lost. Like any good Hollywood movie, there still are chances for redemption. For most sets, there is a third phase, that can be thought of as "course correction," which is all about learning from mistakes, making bold changes, and adjusting the future of the project to stay relevant and competitive.

In the ever-shifting sands of the NFT market, even the most successful projects falter or face curveballs. Mishaps come in many forms, from poor financial management or an oversupply of assets to a failure to deliver on promised utility. These missteps often result in a loss of trust from collectors and a decline in the value of the project's assets.

But the NFT market is not without opportunities for recovery. Projects that learn from their mistakes, take responsibility and make the necessary changes to course-correct, may regain the confidence of their collectors. This is the key to staying competitive and relevant in the NFT market.

The process of course-correction is not for the faint of heart. It requires a deep understanding of the market, an honest assessment of a project's strengths and weaknesses, and the courage to admit mistakes, make bold moves and take calculated risks. Teams that can do this will be the ones that can rise from the ashes and enjoy a growing collector base and possibly renewed appreciation of their work.

Even the most successful projects can find themselves caught in a cycle of course correction. The NFT market is a constantly evolving beast, with new trends and developments arising all the time. And those who can't adapt to these changes risk being left behind.

Consider, for example, the recent erosion of secondary marketplace royalties. Early NFT sets enjoyed a steady stream of income from platforms like Opensea, but as new marketplaces entered the scene, those fees started to disappear. This change, while predictable in hindsight, has forced creators and teams to come up with new ways to provide value and make ends meet. Some have turned to creating new sets of NFTs, relying more heavily on primary sales. Others have built their own marketplaces using platforms like Reservoir. Navigating each new reality is a delicate balancing act, and those who can strike the right balance will be the ones who endure and separate from the pack.

PHASE 4: SUPER LIQUID SYSTEMS

As the NFT market continues to soar, the ultimate goal for any project is to reach the highest echelon of success: the fourth phase, known as "super liquid systems." This is where the elite NFT projects reside. These projects not only command staggering prices and liquidity, but also are beginning to hold immense cultural value with some either achieving mainstream recognition (or at least edging in that direction).

When it comes to NFTs, few projects have reached the summit of success quite like CryptoPunks, Chromie Squiggles, and Bored Apes. These sets have achieved the holy grail of NFT success by masterfully blending large set sizes, cultural significance, and community engagement with unparalleled liquidity.

CryptoPunk #1, part of the Flamingo collection

Take CryptoPunks as an example. It inspired the creation of NFTs and it quickly became a cultural touchstone within the NFT community and more broadly across the Internet. Boasting 10,000 unique characters and a wide range of expressions, it provided a unique artwork, PFP, and collectible for everyone, fostering a sense of community around the project. This community engagement, coupled with its strong liquidity, made CryptoPunks a true super liquid system.

Similarly, Chromie Squiggles and Bored Apes have appeared to reach the same level of success by crafting large set sizes and cultivating community. They have become membership badges within their respective communities (generative art and degens), which helped fuel additional liquidity. The convergence of these factors has propelled them to the top of the NFT market.

Chromie Squiggle #6222, part of the Flamingo collection

These projects have not just caught the attention of the NFT community but also traditional art auction houses, collectors, and likely soon more traditional institutions and art museums. Their cultural significance and liquidity have made them impossible to ignore, and they continue to set the standard for NFT success.

As these super liquid sets continue to develop, their influence is beginning to extend far beyond just cultural value. They are becoming “super sound collateral,” and we’re beginning to see these sets take an outsized role in anchoring a growing category of NFT financialization, referred to by many in the industry as “NFTFi.”  Holders of elite NFTs can receive loans against their NFTs at surprisingly low interest rates, comparable to that of a mortgage in the US.  And, the mere fact that these NFTs are considered valuable enough to be used as collateral for loans at these rates demonstrates their success and the belief by lenders that they will continue to hold value.

What’s more, as the market for NFTs continues to mature–and as the liquidity of these markets increase–it’s entirely possible that these NFTs begin to serve as collateral in more mainstream DeFI projects and platforms, like MakerDAO and Aave.  These super liquid NFTs create an additional asset base to secure a growing set of financial primitives that can be permissionlessly used by anyone on the entire Internet.

The composability of NFTs with other smart contract-based systems highlights the potential for NFTs to behave differently from traditional art or even either other digital assets. Super liquid NFTs are more than just collectibles, but a way for individuals to store value – changing the potential for both how we think about digital assets and possibly even the entire crypto landscape.

To a certain degree, super liquid NFTs are the keystone species for the entire NFT ecosystem.  In the natural world, keystone species play a critical role in maintaining the balance of their ecosystems. These species, while not necessarily the most numerous or powerful, have an outsized impact on the health and well-being of the plants and animals around them. They are the foundation upon which entire ecosystems can be built.

Just as keystone species in nature support a diverse array of other species, these super liquid NFTs are poised to support a wide range of other projects and creators. They are driving innovation and experimentation, setting price expectations, and pushing the boundaries of what is possible with NFTs.

Reaching this last phase, however, is no easy feat. It requires a deep understanding of the NFT market, strong dedicated collectors, incredible art and possibly even a high degree of utility. It also demands resilience, adaptability, and the ability to navigate the ever-changing NFT landscape. Only a handful of visionary, stunning, or tenacious projects will reach this phase, and they will become defining NFTs sets. Super liquid NFT sets made it through an evolutionary journey and will be the ones that will shape the industry, define culture, and will set the standard for others to follow.

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Essay adapted from a Twitter thread by ChrisF of Flamingo 🦩.