On Integration: The Next Phase of Digital Avatars
Mr. Fox breaks down what he believes will be one of the most valuable phases of digital avatars: integration.
Hello all and welcome back to another email. I hope everybody has been well since the last edition. I’m looking forward to the piece today.
On Integration: The Next Phase of Digital Avatars
People are still thinking far too small when it comes to the future digital avatars, and I think this stems from one thing in particular: a misunderstanding of what true interoperability will look like.
This will be the core of what we get into today, but first we need to contextualize it with some thoughts on the market:
The creation phase of digital avatars (profile pictures, whatever you prefer to call them) is and has been over for roughly four months. I get many questions from people asking me if *insert random project name* has a chance of going “mainstream” or “becoming the next Bored Ape Yacht Club”, and the answer is always no.
The truth is that there will never be another Bored Ape Yacht Club. This is in part because the only reason the Bored Ape Yacht Club was able to succeed was because nobody was looking for it. What I mean by this is, as someone who was there from the very beginning, that not one person who bought an Ape (in those first few weeks) did so with the intention of making 10x or 100x their money.
Was there some thought about making our money back? No doubt. The dominant motivation of buyers, though, was simple: to join a community of people, who, like you, saw how potentially revolutionary this idea could be, and wanted to see how far it could be taken. And take it far we have.
What does this mean for investing in NFTs, then?
Unless you can afford the most popoular NFTs (in digital avatars this also includes those that grant full commercial rights), stay away from anything that is not doing something new.
Your time should be spent learning as much as possible about the current state of the market, but also how our world will look and behave when The Metaverse is fully operational. This way, when a new project that attempts to do something totally different comes along, you’ll be equipped to predict whether or not it has the chance of being something special.
There are only a few NFT sectors that currently exist that have not experienced their Aha! moment. They’re also the use cases that builders have been working on the longest, which may suggest that we still have a ways to go before they’re ready for mass adoption.
Examples here include:
Music (songs, albums, etc) designed through NFTs in such a way that the artist is able to retain a far larger sum of streaming revenue than what they’re getting in the current system.
Metaverse land, building, events, and goods (which will remain unlucrative until virtual worlds become places where we can have effortless experiences and interactions) all still seem to be waiting for someone to crack their code.
Real-world event ticketing is something NFT technologists have been attempting to take over (think about the potential for artists and venues to recoup more money off the back of resales and scalpers) for a long time, to no avail.
I point all this out to say, if you’re looking for the next big thing in NFTs, the likelihood that you make more multiples in one of the above sectors when their dam breaks than in another cartoon animal project is high.
But back to what the market thinks is hot: I am (and have been for a long time) entirely disinterested in new digital avatar projects. There is no longer enough space to make good money on a risk/reward basis in profile pictures. More and more of my time is dedicated to reading theoretical and conceptual pieces in the technology and application of NFTs, but also in different Web3 sectors like DAOs, in order to best position myself for when the next big 0-to-1 innovation occurs in the digital assets space.
But even if I don’t believe in the future of any new digital avatars, I do believe that the ones that exist and are established today are going to become many multiples more valuable than what they’re currently worth.
Ok, you’re not buying any new digital avatars. Why are current digital avatars still undervalued, then?
In order for me to answer this question, we should clearly define what I mean by digital avatar. When I reference digital avatars, there are only a few projects I’m truly including in that general term, and they are the only ones with any chance of succeeding for years to come. They include: Bored Apes, CyberKongz, Cool Cats, and MetaHeroes (one could potentially add Lazy Lions, Gutter Cats, and Doodles to the end of this list (I also likely missed one or two)). Anything else is likely to go to zero, and should not be considered a digital avatar that will benefit from the proceeding concepts. I’ve not included CryptoPunks in this list, because as of now there is no evidence to suggest their developer (Larva Labs) will allow for their free use.
It is my belief that the current framework through which people are assessing the utility of digital avatars is almost entirely wrong. I mentioned in brief the reason I think so much of the school of thought on utility is wrong at the beginning - it stems from a misunderstanding (or maybe total miscomprehension) of The Metaverse and Interoperability.
What is Interoperability?
Total Interoperability, in the context of The Metaverse, is the idea that unique goods will have the ability to freely interact in and move between virtual worlds however they please. Examples of what Interoperability would like include: being able to use the currency of one virtual world within a totally different virtual world, the ability to use (or at the very least carry and keep) weapons from one game into another, or even simply being able to transfer between virtual worlds with ease.
Ok, I understand Interoperability, where’s the misunderstanding?
I think the misunderstanding on this idea comes from both the market and the producers, but mostly the former. Or, in other words, those buying and selling NFTs, and the developers running the projects.
A digital avatar, in essence, is simply a means of identifying someone in the digital world. It’s your skin, and that’s really the biggest point. Over the last six months we’ve seen the creators of these avatars build exclusive utility into them, but the truth is that the benefits of this exclusivity have yet to truly be seen. In fact, one could argue that the success of the most successful project, Bored Ape Yacht Club, had little to do with the exclusive benefits built by the developers at all.
The die-hard loyalty of their holders is far and away the largest reason for the dramatic price appreciation the project has experienced since its creation. It is that loyalty that not only persuaded regular retail traders to buy, hold, and promote their own Apes, but also what likely got much bigger entities involved as well. Take MoonPay for example, a cryptocurrency exchange that has been paying their promoters in Bored Apes. Lil Baby, Gunna, Jimmy Fallon, Post Malone, and other celebrities now all own Bored Apes by way of being compensated by MoonPay.
People buying Bored Apes (and most other digital avatars) are doing so for one reason: they want to flex the coolest avatar in the world when The Metaverse is ready, and are betting others will want to do the same. These “club benefits” are, most of the time, just an afterthought.
Why then, have buyers and holders become so obsessed with what exlcusive benefits are being built into their project?
And now we’re back to where we started - a misunderstanding of interoperability. They believe that the value of their avatar comes from what they can do with it in their particular ecosystem (i.e. what a Bored Ape can do in the Bored Ape Yacht Club). The truth: 99% of all future value from this point out in digital avatars will be a result of what other people build for them, not what the projects build for themselves.
The digital avatar is the player, now all we have to do is wait for the game.
In other words: the next phase of value accrual to digital avatars will be Integration.
Bored Apes will garner far more attention when you can play as your Ape in the Fortnite of the future (where all of your friends and opponents will be able to see and play alongside you), than when the Bored Ape Yacht Club video-game comes out next year.
Bored Apes will be worth more in the eyes of the world when Meta integrates them with their Smart Glasses (which deploy Augmented Reality technology to allow people to walk around as their avatar), than when the real-world members only clubs for these projects come to fruition.
Or, simply, Bored Apes will become more valuable when we’re able to dawn our avatars in The Metaverse and interact with everybody, as opposed to the segregated (and oftentimes daunting) Discord servers where the conversation currently happens.
In any of these scenarios, imagine what someone would be willing to pay to sport a Bored Ape. The only universally recognized NFT, the coolest digital avatar, the thing that kickstarted the mainstream adoption of NFTs, the list goes on. The answer is: a lot more than someone is willing to pay for it today. And, don’t forget, the supply of Apes (and most digital avatars) is and will only ever be 10,000.
We are already beginning to see the first signs of Integration. Just yesterday, Adidas partnered with two projects (Bored Ape Yacht Club and Pixel Vault) and one indivdual (gmoney) to sell their first-ever NFTs. They sold over $24 million worth in just a few minutes. All parties involved got a cut (along with all future secondary sales).
All Adidas had to do? Buy a Bored Ape and use it in their promotional material.
What we witnessed? A mutually beneficial deal powered by Integration. Adidas was able to sell out their collection as fast as they did because, by using an Ape (and the two other aforementioned partnerships), they bought the business of all those in the NFT world. For Bored Ape Yacht Club and Pixel Vault’s benefit, they obtained the attention of the entire corporate and consumer world due to the reach of Adidas.
Not as much for Pixel Vault (as a result of having various products and not one staple), but we can say for certain that we will see many more major companies buying a Bored Ape and using it in their NFT strategy over the next 12 months.
In the digital avatars of today, we have the first completed piece in the puzzle known as the building of The Metaverse. Contrary to what many NFT buyers think, almost all of the value to come in these digital avatars will do so as a result of Integration, not project-specific development. As more pieces of The Metaverse are put into place, Integration will continue, and the value that accrues to avatars will increase exponentionally.
This is the next phase of digital avatars.
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And down the Rabbit Hole we continue.