Traditional Investors Are Still High on NFT Projects: Three $1B+ Projects That Tell You Why
The traditional investment world is diving deeper into crypto. The recent announcement of Coinbase and BlackRock’s partnership is the latest — and perhaps most significant — sign that capital providers and blockchain-based companies are becoming increasingly open to working with each other.
Cryptocurrencies, exchanges, and new blockchains are no strangers to working with venture capital firms in 2022. However, the greater Web3 movement that includes the new(ish) world of non-fungible tokens (NFTs), decentralized apps (dApps), play-to-earn (P2E) gaming, new virtual reality applications, among others is still working out its relationship with the traditional investment world.
“Web3” is a flexible term, but broadly speaking it’s used as a catch-all that encompasses any project or entity that has some fundamental relationship with blockchain technology or iteration of virtual reality.
Like all new spaces, investors began taking a keener interest in Web3 opportunities as profitable, fundamentally sound business models began to prove themselves.
We’ll take a look at a few examples:
Bored Ape Yacht Club
Market Cap: $1.4B
Release Date: April 2021
BAYC needs no introduction to most people, and that’s kind of the point. A project born of the most basic utility — access to a holders-only page on their website where you can doodle on a pixelated white board — has become the undisputed representative of NFTs in mainstream culture.
The Bored Ape universe that now includes a native coin (which is notably accepted in Gucci’s retail stores), a number of NFT sub-collections, and a soon-to-be-released metaverse has demonstrated the kind of branding machine a Web3 project can be. Holders of Bored Apes own the IP rights, which has opened the door to Ape fashion influencers, musical acts, and more. Incentivizing holders to leverage their Ape to build a personal brand has been a catalyst for their meteoric rise.
Brands and investors will continue to dive deeper into Web3, looking to crack the marketing code of how to leverage NFTs to build that coveted level of near-unconditional brand loyalty and cultural impact. There will be a lot of swings and misses. Just like branding in every other vertical, it’s a beautifully imperfect science that often has more to do with timing and context than executing a carefully planned formula. Many clients have asked how to replicate what Bored Ape has done, but that’s not how any of this works.
All that said, blockchain technology is a shiny new tool in the branding box, and the ceiling for its application is sky high.
Axie Infinity
Market Cap: $1.1B
Release Date: March 2018
A loud-first mover in blockchain-based P2E gaming space, Axie Infinity is a Pokémon-style battle game where users fight and breed their Axies to reap rewards in the in-game economy. The project has an Ethereum-based, Layer 2 native token (a fancy way of saying their own currency; think Disney Dollars) that users purchase with more established cryptocurrencies to play the game. Players earn revenue that can easily be converted back into fiat currency (real money) from winning battles, leveling up and flipping Axies, and simply participating in the ecosystem.
The primary criticism of Axie Infinity’s model is that it theoretically depends on infinite new user adoption to sustain itself — a gamified pyramid scheme, in blunt terms. That said, investors see those numbers and begin to think about how an innovator with the right kind of eyes can see what’s possible with blockchain gaming and figure out how to tweak the economics into something definitively sustainable.
The Sandbox
Market Cap: $1.7B
Release Date: TBD
The Sandbox is the most easily digestible concept for the Web3 uninitiated: a video game world where land, possessions, and experiences are bought and sold with real (crypto) money. Online communities that have real-world financial components are hardly new. Some of the most ambitious and well-funded Web3 projects have hired economists with expert insights of how World of Warcraft’s in-game economy developed nearly 20 years ago.
However, the advent of blockchain has fundamentally changed the relationship between the game and the player, with true ownership of in-game assets now possible. My Sandbox land plot isn’t assigned to my gamer account; it’s owned by me and held in my wallet. If I want to sell it (or give it) to you, I can do that. The relationship with my asset exists entirely outside of the control of The Sandbox. The concept of true ownership in the digital world has as much potential to produce new business models as the internet itself, but starting in the well-established online gaming world feels most logical.
The most notable thing about The Sandbox is that it has yet to launch. Adidas, Atari, Snoop Dogg, and other high profile brands have lined up for early partnerships. Nearly $100M in outside funding and a highly successful token sale ($SAND) have proven that institutional and consumer sentiments are positive about the potential applications of fully digital economies.
These are just a few of the projects that have provided evidence that Web3 is worth deeper consideration from investors and the institutional finance world. The bet is that as society leans further into this class of intangible assets, there will be new financial products and services to offer and profits to be made.
NFTs and other blockchain-based assets that have passive income mechanisms are being deployed on countless projects, including all three discussed here. The ability to stake your NFT in exchange for crypto returns sent directly to your wallet has become an industry standard for new projects.
On a fundamental level, cryptocurrencies and other blockchain-based assets are technologically and logistically intertwined. Your crypto wallet holds all of your different currencies, art collections, Sandbox wearables, NFT music albums, and P2E game characters.
The opportunities for institutional investors to put their fingerprints on the Web3 space feel unlimited, so long as they have the appetite for risk and patience to work through the challenges along the way.
