Summary

• The technology behind NFTs has lagged behind the original vision of many PFP projects, leading many to wrongly believe that NFTs are “dead”

• To the contrary, NFTs are not dead because they have never been alive

• PFP projects need to unlock the potential of their intellectual property (IP) through original storytelling and content to deliver on their original visions

• PFP projects can succeed by combining new web3 tooling with best practices from legacy animation studios

• The future of NFTs and onchain IP will look very different from the past

NFT technology has lagged behind its original vision

In March 2021, NBA Top Shot and Beeple’s Everydays launched NFTs into the mainstream, selling for millions of dollars and attracting a diverse audience from basketball fans to digital art connoisseurs. Proponents of NFTs painted an enticing vision for the future: one where creativity, attribution, new monetization models/royalties, decentralized IP, and direct fan-creator relationships were center-stage.

But the technology to deliver this vision has lagged behind. Initial interest and excitement over NFTs has waned in the absence of meaningful progress, driving floor prices down to all time lows. The initial craze of 2021 attracted scammers and cash-grabs to the NFT space for all the wrong reasons. Many smart and ambitious teams behind PFP projects ran out of funds, or abandoned them entirely. And a lot of once-inspired people have been left financially -and emotionally- down. For many of us a feeling of despair, maybe even foolishness, has replaced our initial excitement as early contributors to “the next big thing”. In the PFP NFT space, it feels like creativity and culture have been replaced with speculation and scams. Prominent collectors have sold off their collections, the word “NFT” has become synonymous with “scam” (to be fair, “digital collectible” is a better term anyway), and NFT trading platforms resemble stock charts more than they do marketplaces for character-driven onchain artworks.

But NFTs are not dead. Not even close.

NFTs are not dead because they have never been alive.

Contrary to popular belief, NFTs are not dead. Rather, the underlying intellectual property (IP) of many PFP (or character-based) projects has yet to be realized. We can draw parallels between web3-native PFP projects and traditional animation studios like Disney. Disney’s business model centers around the creation of original IP, which follows a basic four-step process:

1. Ideate original IP in the form of characters

2. Create stories about these characters and the worlds they live in

3. Introduce audiences to these characters and their worlds by telling stories across different media (comics, films, television, IRL experiences, music, etc.)

4. (More recently) grow the IP by re-telling, remixing, and expanding the universe of this IP through the introduction of new characters and stories

This strategy is not new. Walt Disney visualized it for The Walt Disney. Co. back in 1957 (twenty years after Disney released Snow White, the first full-length cel animated feature film):

You can spend hours trying to grasp the full complexity of this flow chart and still not completely understand it (I certainly have). But even the passing eye can see the “creative talent of the studio theatrical films” fixated at the center. The animation studio is the engine of the original IP creation machine we call Disney and the place from which the characters we all grew up on are born. Practically every animation studio in the world follows some version of this model - from Studio Ghibli to DreamWorks.

PFP projects, whether they realize it or not, fit into this model as well. Don’t believe me? Look at the similarities between Yuga Labs and The Walt Disney Co.’s mission statements: both focus on storytelling, experiences, and technology.

One could argue that Yuga Labs is the new Disney. Doodles is the new Dreamworks. Cool Cats is the new Universal Studios. Or at least, they have the opportunity to be…

In fact, we can draw parallels between the PFP NFT market and the traditional film studio industry overall: a few “majors” who have raised funds from institutional investors, and a long-tail of smaller, niche independent (“indie”) projects and production companies that struggle to stay relevant and afloat.

The problem is that most PFP projects have yet to complete the four-step IP creation process. In fact, nearly all of them have only completed the first step- ideate original IP in the form of characters. The characters have been introduced to us (step 3) before the stories about these characters and the worlds they come from have been written (step 2). In Disney terms, this would be like if Walt Disney had created characters like Mickey Mouse, The Incredibles, and Mulan, allowed us to purchase rights to these characters, and then raised funds from investors off our initial excitement- all before writing the first script of the first movie! Had Disney taken this approach, I suspect Disney stock would be down as bad as the NFT market, too (some might say it already is). But it is not too late for PFP projects to learn the right lessons from their traditional studio counterparts.

PFP projects can succeed by combining new web3 tooling with best practices from legacy animation studios

PFP projects and traditional animation studios are similar, but not the same. A closer look at the Yuga Labs and Disney mission statements reveals strong similarities, yes, but also major differences. The presence of “community” in Yuga’s mission statement and absence in Disney’s is the key differentiator. Disney is not a community-driven IP house. We, the Disney fans and shareholders, do not have a say in which characters get created, which films get made, which actors get cast, or which rides get built - no matter how many times we visit Disneyland or how many shares of $DIS we own. Disney is also notoriously protective of its intellectual property rights. Try putting your own remake of Cars on YouTube and start the timer for a lawsuit to arrive in your inbox.

But unlike Disney, every PFP project is an intentionally community-driven experiment. By purchasing PFP NFTs we are purchasing certain rights to the IP of the characters we own. This includes the right to develop the IP (each project has their own rules but many follow a version of this NFT license created by CryptoKitties). So far, most of us have not done much to develop our PFPs - they sit idle in our wallets, viewed occasionally on Opensea when we receive a pitifully low offer that reminds us just how far floor prices have fallen. Rather, we holders have been waiting for our parent projects to figure out how they are going to succeed and keep us entertained, engaged, and loyal in the meantime. After all, most of us don’t have the time, budget, or skillset to create an animated feature film of our PFPs, not to mention getting people to go see it!

Recent developments in web3 tooling and social media stand to change that. ERC-6551, or tokenbound accounts (”TBAs” for short), enable NFTs to hold other NFTs (ERC-721) and tokens (ERC-20) inside of them, like folders. Lens profiles are NFTs that allow the wallet (or TBA) holding them to self-custody 3 things onchain: a handle, relationships with followers, and content. Placing a Lens profile inside the TBA of a PFP gives the PFP an onchain identity that allows it to have a voice with which to create and build onchain relationships.

A PFP holding a Lens profile in its TBA can take advantage of the same onchain social media and creation tools you and I use. For the first time, a Bored Ape or a CryptoPunk holding a Lens Profile in its TBA can login to apps like Hey.xyz or Tape.xyz, create content, grow their following, monetize, and build their social capital - all onchain. Some already are - for example, my Crypto Citizen made the first post on Lens created by a PFP (and the first cross-chain TBA transaction) on September 20, 2023. PFPs will also create content wherever people do - just check out this ALLSTARZ that created an essay on Zora.

Owners of PFPs with onchain identities and access to social media have the tools necessary to develop their characters according to the same IP development process the big legacy animation studios follow. Every holder can write the stories of their PFPs, develop them into comics, videos, books, and music, and share them onchain and online.

Even better, they can do so independently and without a large budget. The rise of generative AI tooling stands to change the creator economy forever by democratizing access to high quality content creation. Combined with the rise of onchain media, PFPs and their holders are well-positioned to take advantage. Every PFP holder has the opportunity to become their own Disney by creating user-generated content on onchain media platforms with their PFPs. We all have the opportunity become our own executive producer, writer, and director with our PFPs as the talent. We can create our own Marvel Cinematic Universe. And, unlike Marvel or Disney, we can do so in a collaborative and composable way that includes attribution and monetization for contributorsbaked-in.

The future of NFTs and onchain IP will look very different from the past

NFTs are not dead because they have never been alive. By giving PFPs their own onchain identities, relationships, and voices we can bring them to life. By learning from tried and true strategies from legacy animation studios, we are empowered to realize the potential of our PFPs. We can take advantage of onchain media and user-generated content to create, collaborate, monetize, and grow the value of our PFPs. Creation, rather than speculation, will be the primary value driver of our PFPs - and can be shared with those who contribute to their growth. The teams behind PFP projects that understand this will evolve into a new type of production company that is equal parts production studio, content innovation lab, and community organizer/educator. Some projects, like Shinsei Galverse, already are. But every individual holder who wants to will be able to do this on their own in short order.

If this all sounds far-fetched to you, consider the history of Marvel Studios and the Marvel Cinematic Universe (“MCU”). The MCU is the highest-grossing film franchise ever with total worldwide box office revenue of $29+ billion. Some of the most valuable Marvel IP today was once considered "worthless" too, included more-or-less as “freebies” in the Disney acquisition of Marvel Studios in 2009. Disney paid $4 billion primarily to acquire the rights to already-famous characters like The Hulk, Captain America, and Spiderman. Few, if any, cared about (or had even heard of) characters like Guardians of the Galaxy, Black Panther, Doctor Strange, or Ant Man prior to their feature film releases over the last decade. But Kevin Feige, the President of Marvel Studios, saw what others did not: interesting characters with hundreds of stories (comics) already written about them that were yet to be properly introduced to mainstream audiences.

As a summer intern on the Corporate Strategy & Business Development team at The Walt Disney Co. in Burbank, California in summer 2017, I had the chance to listen to Kevin speak to a room of interns and analysts about the Marvel deal. He shared with us that at the time of the acquisition, Disney executives apparently had no idea that Kevin had already planned the slate of films for the MCU over the next ten years, starting with Iron Man 1 (2008) and culminating with Avengers: End Game (2019). Kevin saw two things that others did not: (1) IP with untapped potential, and (2) an opportunity to cross-pollinate this IP by interweaving these characters into each others’ worlds.

Fast forward to today, and Guardians of the Galaxy and Black Panther have become household names. Moreover, the appearance of Black Panther alongside the Guardians of the Galaxy (or Iron man or the Hulk) has become commonplace, if not expected!

To be sure, not every Bored Ape is poised to become the next Black Panther. For every successful character Marvel has produced there are hundreds that remain undeveloped - and probably will stay that way. And unlike Marvel, most of us don’t have hundreds of comic book stories written for us to work off of. This creates both a challenge and an opportunity - we have to start from scratch, but we also have the opportunity to write our own stories for our beloved PFPs ourselves. NFTs are just a few years old and onchain media is in its infancy. Like our PFPs, we are just waking up to this new world.

But one thing is certain: the era of NFTs as just “overpriced JPEGs” is over. The era of PFPs as creators has arrived. It’s about time we deliver the future we all aped into - ourselves.

Cheers,

Bradley