How NFTs Will Unlock Membership Economies:
Digital art and collectibles brought NFTs into the mainstream discourse in 2021. These categories of NFTs offer owners, first and foremost, a digital image that they can showcase online.
Theoretically, while ownership of art and collectible NFTs also unlocks associated “utilities”, most projects have yet to carry out their promised benefits. This is understandable - deliverables are often extremely ambitious. For example, I own an NFT from Brain Vomit’s Garden, which plans to open a physical gallery space for token holders.
2022, however, will see the rise of utility-first NFT projects, as opposed to delivering those that are “images” first, and “benefits” later. Specifically, I think we’ll see the rise of “membership” NFTs.
Don’t All NFT Projects Offer Membership?
Before diving it, it’s worth noting that “membership” as a net-new NFT category may seem confusing. Presumably, “membership” is a component of all projects— almost all projects grant access to closed online communities of some form. For the purposes of this post, I define “membership” in terms of access to physical spaces, associated experiences and products. More specifically, offering consumers the opportunity to partially own, versus pay to access, this category of physical “things”.
Why Is “Owning” Membership Valuable?
One of the core benefits of NFTs, as we’ve now heard time and time again, is that they unlock digital ownership. But, how does this relate to memberships? And, why is “owning” versus paying for a membership valuable?
It’s helpful to think about this using an example. Take Gary Vee’s Fly Fish Club - a members only dining club opening in New York in 2023. Owning a Fly Fish NFT grants access to the club and to a set of associated experiences (e.g. event space, private parties, etc.). As the value of club membership increases, so does the value of the NFT, turning it into an asset for owners. By contrast, members who pay fees and dues, lack this potential for return on investment.
In the case of Fly Fish Club, Fly Fish NFT’s have already nearly doubled in value. Importantly, this price increase wasn’t arbitrarily set by the club, or another centralized entity. Fly Fish NFTs are traded on marketplaces, like Opensea, where buyers and sellers can freely determine price. These market dynamics will get even more interesting for less finite or straightforward types of transactions, such as NFT lending, trading, fractionalizing, etc. For example, let’s say you own a Fly Fish NFT, and the club is hosting Gary Vee for a keynote event on a day that you’re out of town. With a traditional club membership, you reap no upside from this event. You can’t attend, nor can you financially benefit from its taking place, as there is no easy way for you to easily offer up your membership for a night at a market determined price. This example demonstrates another seemingly simple, but often overlooked, benefit of NFTs - they are customizable and transferable.
In addition to transforming memberships into financial assets, NFTs also unlock interesting opportunities for tracking membership status and depth of club involvement. For example, what if members could easily showcase their membership duration, events attended, contributions to the community, etc.? And what if these attributes, in isolation or in some combination, unlocked additional layers of benefits? NFTs make it possible to build multifaceted, publicly shareable layers and tiers of membership.
Benefits to NFT Issuers:
Membership NFTs (versus fees and dues) are clearly advantageous for consumers. But, they also have benefits for issuers (e.g. clubs).
First, membership NFTs turn members into partial owners of a community or club. Taking a straightforward interpretation, many NFT communities engage in profit sharing of some form (the concept of collective ownership is very aligned with the ethos of web3). But, even in a less literal sense, NFT owners are inherently incentivized to help increase the “value” of the club’s membership, as it directly impacts the value of their NFTs. This incentivization to increase value could materialize, and self fulfill, in many forms. For example, collective ownership could encourage “good” behavior. (I’ve heard from a friend and Soho House employee that, unfortunately, a ton of time is spent ensuring orderly conduct and reprimanding those that don’t act accordingly). Making members financially incentivized to preserve the perceived value of the club potentially enables club employees to focus more on community building, and less on behavior monitoring.
Second, NFTs unlock massive, built in marketing and sales potential for clubs. We’re already seeing consumers use their NFTs as profile photos on Twitter, Instagram, etc. to publicly showcase their NFT community involvements. But, this is just the start. In 2022, I think we’ll see a host of new digital and “real world” NFT display tools and tactics. (As a relevant aside, I just got back from ETH Denver, where owners of BAYC NFTs literally traveled in packs wearing matching ape sweatshirts). This is free, user generated marketing that also has incredible retention benefits and loyalty implications. (As noted, NFTs also enable membership clubs to more easily track engagement, attendance, etc., which will likely help in moderating and predicting member churn, and in rewarding particularly loyal and involved members.)
Third, in the event that NFT memberships are traded or lended, clubs have the ability to earn royalties on these transactions. The royalty can be customizable by the club - perhaps royalties are only earned when a membership is sold, versus lended, and maybe some percentage of earnings are reinvested into the community. But, importantly, structuring memberships as NFTs unlocks net new revenue streams for clubs. (It’s also worth noting that by minting and selling NFTs as memberships, clubs are also able to raise lump sums of capital at the onset of club creation.)
What Are the Risks?
We’re still in the earliest days of NFT memberships, so many of the challenges for the subcategory remain unknown. However, the biggest risk I see today is maintaining status, quality, or some level of curation. Most membership clubs, today, vet new entrants to determine if they’ll be additive to the community. Or, in the case of many New York social clubs, make sure new members are “cool” enough to not dilute the club's brand perception. If members can freely trade, sell, and lend their NFTs on open marketplaces, clubs no longer have “vetting” power. Perhaps, this is a good thing? Or, perhaps, there is a self selection process that enables a de facto level of “curation” to exist? My main concern here is that, in the absence of other forms of curation, wealth becomes the dominant mode of “curation” - e.g. pay to play. Ideally, the communities these NFTs enable will be mindful of this risk, and build tools and processes to mitigate it accordingly.
As always - I’d love to chat with anyone interested in any of the above! I’m at [email protected]