In an interview with CNBC, Gary Vaynerchuk predicted that 98 per cent of NFT projects would fail. Despite the unfavourable prognosis, he’s still hopeful that the industry will eventually mature and become a permanent fixture in the mainstream. We can expect an extremely volatile market from all the speculation until then.
Success in the NFT space has generally been characterised by two factors:
- How many of the NFTs were minted out
- What is the floor price?
These KPIs encapsulate the perceived value and potential of these projects through demand and price discovery. Granted that these metrics are valid, there is a trend that I’ve been observing among the projects that have been deemed successful: a secondary mint.
“Where do we go from here? The suspense is a thrill.” – Urbandub
Founders expend a tremendous amount of energy and resources to get the perfect mix of art, tech, community, and utility, culminating in a first NFT mint.
The project will have raised enough capital to implement the plans identified in their roadmap if they get it right. Which begs the question, why would you need a second mint?
Technical limitations
Once on the blockchain, always on the blockchain. There is no way to easily edit a smart contract or the digital assets tied to it once it has been minted.
If a security flaw was overlooked, or utility offering changes, it will take gargantuan efforts to enforce edits. This leaves little incentive to develop complicated smart contracts at the outset.
As a result, first-generation NFTs tend to be access tokens only which by now have templatised smart contracts at the ready.
Further, a smart contract on the Ethereum blockchain can only occupy a maximum of 24KB. This means that complicated dApps need to be split across multiple contracts.
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We can imagine multiple succeeding drops needed to implement a complex contract in its entirety. This is one of the reasons why you’ll find new utility, staking, the introduction of tokens, and play-to-earn mechanisms released in next-generation NFTs.
Keeping things on the down-low
Ideas are cheap, implementation is everything. That’s what you learn as a Web2 startup founder. But there’s still a degree of secrecy that you need to maintain when building your project. This is one thing that boggled me when I entered the Web3 world.
The spirit of collaboration is unparalleled. Especially in the beginning, roadmaps were very comprehensive. You knew exactly where the projects were headed.
These days, builders are more strategic with how they release information to prevent being shafted. The utility released through a 2nd Gen NFT then functions as a hedge on your IP.
Another benefit of a second-generation NFT is more realistic timelines. One thing I noticed about people invested in NFTs is that they move on a different timescale.
Because it may take time to build a good thing, a slow release of additional benefits may be necessary. Founders can then deliver on their initial promises and add more value to the project as capacity increases.
Storytelling that converts to brand love
It was on April 23, 2021 when Bored Ape Yacht Club first opened minting to the public. In a week, the 10k PFP collection was sold out. On August 28, a token, serums, were arbitrarily airdropped to all holders.
Those who aped in knew it was coming, but v1.0 of the roadmap gave no specifics. As soon as the BAYC holders exposed their beloved Apes to the free serum, Mutant Apes were unleashed.
That experience was storytelling gold that created the hype for 2nd generation mint, among other marketing efforts. The build-up generated over months that peaked with the Ape glow-up drove the demand for the 20k PFP MAYC project so much that mint sold it out in one hour.
That’s the power of a story. Besides, who doesn’t like free things?
Increasing reach
One crucial decision that founders face when they launch a PFP project is the number of NFTs in a collection. The number that seems to stick is 10k. Or, at times, an auspicious 8,888. In a market where the price is driven by supply and demand, too many tokens may drive the price down.
Also Read: Are NFTs and celebrities a match made in heaven?
Second generation NFTs allow you to increase the number of holders while keeping tabs on the price. This is an approach that World of Women took.
With their successful genesis collection sold out and a floor price that tracked well even eight months after the initial mint, the team offered 22,222 second-generation NFTs through its WoW Galaxy collection.
More holders increase the visibility of the project and the causes that they support. All while retaining the value for those in the community.
Inflection points
Jungle Freaks is slated to release its third round of NFTs called the Fallout Freaks in May 2022. The team touts “New Artist, New Team, New Era”. They’ve onboarded award-winning Brazilian artist, Andre Muller to lead the way.
Fallout Freaks’ art aims to set a new standard for detail and design, bringing a fresh and modern expression of the Jungle Freaks. Fallout Freaks is the token that completes the JF ecosystem.
Together with JF Gen 1 and JF Motor Club (that serves as a metaverse pass and P2E game), Fallout Freaks brings in the final funding needed to transform Jungle Freaks which started out as a family project into a formidable self-sustaining business model.
Final thoughts
We do need to address the elephant in the room: succeeding NFT drops are a form of fundraising.
One question is why an NFT project would require additional funding months after raising 686Eth (in the case of WoW). Web3 sceptics attribute this to sheer greed, especially with the speculative nature of the space.
However, I think there are sound reasons to create a second-generation drop. Founders can wield this strategy to build long-term value for their shareholders, just like a Series A, B, and C fundraising round for startups.
Simpler projects may not need it, but when it’s time to scale up, it’s time for that next drop.
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Image Credit: David McBee
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