NFT creators are diversifying into real-world assets to generate new revenue

Creators of best-selling internet collectibles have responded to a crash in the value of crypto and digital assets by seeking new revenue streams, such as using comics to sell real-world products and creating entertainment series.

Digital objects known as non-fungible tokens burst into mainstream culture last year as people snapped up animal collections, including the Bored Ape Yacht Club, Cool Cats and Pudgy Penguins.

Celebrity endorsements and social media hype helped encourage people to spend billions of dollars acquiring NFTs from marketplaces like OpenSea.

But the market has plunged since April after being hit by a sell-off in the broader cryptocurrency market, which has been rocked by a series of high-profile scandals such as the collapse of crypto exchange FTX and the TerraUSD stablecoin in May.

Between January and March 2022, more than $19 billion was spent on NFTs—representing the majority of the year’s $36 billion in sales, according to Chainalysis. Since then, monthly spending has fallen more than 87 percent to just over $442 million in November.

The number of active NFT buyers and sellers is now down to just over a third of its peak in January 2022. NFTs are also being “minted” much less, with the number of new NFTs on the ethereum blockchain down by nearly 60 percent, according to research group Nansen.

This has caused makers of popular NFT collections to look at ways to extend their brands into real-world investments, such as selling products that are not linked to so-called blockchain technology, where records of transactions are stored in a decentralized digital ledger.

“If sales are not predictable, consistent [and] recurring revenue, [then] you have to figure out how to diversify your revenue streams and expand,” said Drew Austin, co-founder of Knights of Degen, a sports-themed NFT project and one of the investors behind crypto group WAGMI United, which bought English soccer club Crawley Town this year.

Some analysts are skeptical that NFT manufacturers will create successful businesses beyond selling digital art. “The basic model for NFTs didn’t work,” said Claire Enders of Enders Analysis. “It was a bubble that has burst and will not happen again.”

Doodles, a leading NFT project, recently hired musician and producer Pharrell Williams as its Chief Brand Officer, who has used his music to produce live animations of the Doodles characters. The group is working on a video series and an album.

“We are going into . . . a slightly slower economic environment for the next couple of years, and what really wins in these times is entertainment, says Julian Holguin, CEO of Doodles.

“Although entertainment is extremely saturated and consumer attention spans are very fragmented, we have [can] build really good stories that connect with people and just put smiles on people’s faces.”

The former Billboard executive has used his connections in the music industry to partner with high-profile talent, and is working to diversify Doodle’s intellectual property into live events, music streaming and physical merchandise.

Pudgy Penguins is another project that has entered into agreements to produce cuddly toys and children’s books based on the NFTs, returning some of the profits to token holders. It is one of the few collections that has seen the average price of the NFTs more than triple to around $5,700 in December.

“Every generation has had its great penguin IP from Pingu to Club Penguin to Happy Feet . . . there is a huge opportunity for the next great penguins to invade not only the metaverse but the real world,” said Luca Schnetzler, CEO in Pudgy Penguins.

Knights of Degen has taken a more scattershot approach to its investments, which include a minor league football team, celebrity meet-and-greets, IPA beers and an upcoming line of vodka-based sauces.

The group said it was inspired by Disney’s business model. “Disney started by doing Mickey Mouse, and from there you have the theme park, the shows, the movies, the merchandise, the toys and all these different things. We kind of want to take that similar path,” Austin said.

Yuga Labs, the parent company of some of the most popular NFT collections such as Bored Ape Yacht Club, CryptoPunks and Meebits, has a number of products launched using content from its brands.

Yuga gives away IP rights with its tokens, meaning that the owners of the NFTs can use the images associated with the tokens as they wish, without the company’s knowledge or permission. This has led to a flood of businesses developing related Yuga products: everything from a burger restaurant to custom Tiffany’s pendants.

“From day one, the community has been empowered and encouraged to commercialize their Ape IP, and almost immediately we started seeing Apes appear on hot sauces, food trucks, in music videos and more. Decentralizing IP is a powerful tool for community building,” said Yuga Labs.

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Yuga Labs has been one of the biggest beneficiaries of last year’s wave of interest in NFTs.

The group raised $450 million in a funding round led by Andreessen Horowitz, which valued it at $4 billion earlier this year. Meanwhile, in April, it generated $300 million by selling NFT “deeds” for up to 55,000 plots of virtual land in “Otherside,” its upcoming metaverse game.

The Otherside land collection remains one of the most traded on the NFT marketplace OpenSea, but the average price for a deed in Otherside has almost halved to around $3,300.

Affiliate projects with Yuga imagery have allowed the brand to spread, with several celebrities including Snoop Dogg, Justin Bieber and Madonna posting their cartoon monkeys on social media.

Yuga is facing a class action lawsuit that accuses the startup of working with celebrities to “artificially inflate and distort the prices” of the NFTs. Yuga Labs has denied any wrongdoing.

But with confidence in crypto faltering and NFT values ​​falling, some analysts are skeptical that the brands will be able to catch on in the real world.

“Once there’s a link between the valuation and the product, they can never become a Disney brand,” said Claire Enders.