What even is the point of NFTs?

Making sense of Web3 like a VC #3

NFTs are stupid.

NFTs are pointless and a scam.

We hear this all the time but I love being a contrarian prick so here’s the thing -

NFTs make as much (or as little) sense as why people buy luxury/branded goods

And because I like playing with a handicap, let’s go ahead and restrict this argument to the “stupidest” form of NFTs of them all - the Profile Picture NFTs or PFPs.

These types of NFTs typically have almost zero direct utility besides giving you access to some arbitrary perks or pseudo-voting rights on the future direction of the project (i.e. Meme governance).

To spoil the ending - When used in the right way, NFTs can offer better ROI than luxury goods

First, let’s think about the nature of luxury goods. Do we think that a middle-of-the-line Rolex is actually worth $20k? What about Birkins at $20k?

The cost to produce (ie. labour + materials) is probably 20% of what you are paying for and if this is the case, why would anyone pay for the crazy markup?

When we decompose the nature of luxury goods, it is basically something with low extrinsic value compared to its intrinsic value. As we move up the luxury spectrum, the proportion of extrinsic value compared to its total value approaches zero percent - e.g.

  • The most expensive Rolex watch ever sold is Paul Newman’s ‘Exotic’ Rolex Daytona 6329 at $17.8M; or

  • The average price of a monkey NFT profile picture is $70k

“But Rolex watches and Birkin bags retain their value!”


“But my monkey NFT profile pictures retain their value!”

At the end of the day, value is retained if other people are willing to pay for it. And people will pay for something if they think they can get more value out of the price they are paying.

Here’s what you are paying for when you buy luxury goods...

Shortcuts to associating yourself with a certain “image”

When you buy a Rolex or a Birkin, you benefit from the cumulative marketing and branding efforts of the company. This benefit manifests itself in the form of the impression you give people who see you with these items.

Not to mention that an immediate rapport is also formed if these people are also owners of the same luxury items. These association shortcuts are useful because they help you capture attention which you can then use to deliver your message.

NFTs work the same way.

Each NFT project carefully curates the “image” (brand) they want to portray through marketing and branding efforts, and buyers choose which “image” and community they want to identify with.

NFTs have lower cost-per-impression than luxury goods

Now let’s think about how many people will actually see you with your Rolex or Birkin in your lifetime. A thousand? Perhaps two thousand? - That’s $10 per impression for a $20k luxury item.

What about NFTs, which thrive in the digital world? I reckon you can reach 1,000,000 digital eyeballs in your life if you put your back into it - i.e. a cost-per-impression (CPI) of 7 cents for a $70k monkey profile picture.

Naturally, the value (ROI) you get out of these “impressions” you bought still depends on what you do with them so let’s look at a more obvious analogy - Investors are often willing to pay large premiums above a company’s book value because the company has a strong brand.

This is because consumers are more easily convinced to buy products that this company produces - i.e. having a strong brand lowers customer acquisition costs.

Closing thoughts

Do I think everyone who buys NFTs goes through this thought process Absolutely not. Most buyers are driven by FOMO and just jumping on the bandwagon.

But the Attention Economy is worth $7.1 trillion today and NFTs are a way to grab a piece of the pie.

So perhaps we don’t need to pick the winning NFT projects from the sea of noise, but instead, invest in the creators that are using these NFTs the right way.

Luxury goods are stupid,