At the heart of every art movement are its collectors. Historically, we’ve seen these be individuals or families with immense resources, stretching from the Medici's patronage during the Renaissance to Peggy Gughenheim’s avid support for modernists in the 20th Century. They not only funded artists but also shaped cultural perceptions of the art and its value.
Today we find ourselves at the dawn of a digital renaissance, driven by the novel technology of non-fungible tokens (NFTs). NFTs are unique digital assets verified using blockchain technology. Having burst onto the scene in recent years, this new medium ushered in a new era of collectors.
The role NFTs have played for digital art has been one of the most vital use cases to-date. Touching on a few of what makes the marriage between digital art and blockchains so perfect, include:
(i) Provenance & Authenticity: NFTs offer a groundbreaking ability to provide indisputable proof of authenticity and ownership, ensuring that the digital art's origin and ownership trail are transparent and tamper-proof. Had it been tokenized, with unequivocal historical logs, debates about the authenticity of pieces like the Salvator Mundi' and its attribution to Leonardo da Vinci would be entirely unnecessary.
(ii) Liquidity & Global Reach: Traditional art has geographical and logistical constraints. NFTs, however, have empowered artists with unparalleled access to reach a global audience instantly. Artworks can be bought and sold across the globe without physical transportation.
(iii) Programmability: Like other contemporary digital assets, NFTs are programmable, with mechanics baked directly into the smart contracts on which they live. This allows for dynamic behaviors, such as earning royalties upon a resale or automatically triggering external events.
(iv) Scarcity: Properties, such as the total supply, can be immutable. This is useful when compared to the traditional art market which heavily relies on the probable scarcity of an original work.
(v) Storage & Portability: Traditional art often demands costly specialized storage and handling, while NFTs thrive in cost-effective digital storage. Their innate digital nature allows for immediate global sharing, transforming the dynamics of art ownership and accessibility.
The benefits of NFTs are apparent and I could continue, but let’s stay on topic.
Whales, DAOs, and Funds, Oh My!
With the rise of digital art using NFTs as a medium, we saw an entirely new genre emerge. With it came avid fans and collectors who saw the future promise of a digital world paired with digital and immutably verifiable ownership. Digital art was the focus, what I look at as “Non-Utility NFTs”, because these tokens represent purely artistic value, offering no specific utility down the line. The main groups that made up these early collectors of digital art has been:
(i) Crypto Whales - Rudya, Trill, DCInvestor, Artifaction, etc.if
(ii) DAOs - Flamingo DAO, Fingerprints, SquiggleDAO, NEON, etc.
(iii) Crypto Funds - 6529 Fund, Curated Fund, Le Random, etc.
Many of the digital art aficionados hail from the early Discord communities of CryptoPunks and Art Blocks. Some made their mark trading CryptoKitties or NBA TopShot. What was common was their belief to put their earnings into these digital assets before mainstream media attention arrived. The whales truly came first, with many of the Decentralized Autonomous Organizations (DAOs) being formed shortly after by many of these same individuals.
From a general passion came a more determined focus, DAOs hit the scene with investment targets, sometimes wholly focused around an individual collection. SquiggleDAO for instance has 333 Chromie Squiggles in their portfolio, with no plans of decreasing their holdings.
Notably, DAOs have notoriously not taken profits after the ‘21-’22 NFT run-up, focusing on long-term upside. While it has backfired in terms of potential lost profit, it has helped take large percentages of these collections off the market, while also having a DAO create positive media attention and publicity (posting on social media, mentioning it in interviews, among their members, and publicizing it in galleries).
The media attention cannot be underestimated, with constant Twitter threads bringing attention to their collections, DAOs have helped keep the spotlight on prolific NFT art throughout the bear market.
What followed was a more professional approach; as NFT-focused funds began to emerge, notable was the pseudonymous personality Punk6529 launching 6529 Fund with a stellar list of advisors, many of which have spent tens of millions investing in the NFT art space. With a range of collections from PFPs to Generative art to 1/1 pieces, they have a long-term focus and help bring attention to certain artists and collections. We’ve also seen Curated Fund as well as more recently Le Random bring significant attention to the space, as well as foster important bedrocks for several noteworthy collections.
2022: Utility NFTs
These groups of collectors were highly bifurcated from the more speculative area of NFTs, what I consider “Utility NFTs”. These tokens offer tangible benefits or functionalities to their holders, such as access to exclusive content or experiences. A significant chunk of the $95 million to $25 Billion run up in NFT sales volume was a result of the utility NFT category. It included subgroups such as Gaming, Metaverse Land, Collectibles, Memberships, Music, and more.
Don’t get me wrong, 2021 saw a massive speculative rush of interest towards generative and digital art. When upside started to wane, interest did as well. The new shiny thing wasn’t as shiny anymore for the speculative flippers, some of which made massive profits during the 2017-2018 Altcoin/ICO Madness or DeFi Summer ‘20. These were not the next Larry Gagosian’s (renowned art dealer) of the world, rather a younger demographic who traded in and out of collections based on attention rather than long-term artistic interests.
The average time between purchase and resale for art NFTs in 2021 was 33 Days versus the average resale period of the art market of 25-30 Years.
In 2022, there was an optimistic outlook for utility NFTs, while non-utility NFTs experienced significant downturns in retail inflow and overall interest. An increase in generative art platforms led to an oversupply, with demand for this novel art category diminishing. Despite the market shockwaves caused by the crash of Terra Luna and FTX, optimism persisted around the advancements in the utility NFT space. Fresh off a $4B valuation from a $450M funding round in March of 2022, Yuga Labs emerged as the leading figure in a new class of Web 3.0 unicorns. However, this funding was accompanied by expectations, with Yuga’s metaverse project, Otherside, being a central focus of the investment.
“The possibilities for blockchain’s impact on culture are endless, and so we are building a beautiful, interoperable world for people to explore and play in. There’s a lot to come.”
But what came? Well, Apecoin (APE) is down 90%+ and Otherdeed (Otherside metaverse land) has also slipped 80%+ in the year or so since minting. Long term PFP collectors are in shambles, having spent the past few years touting the importance of community and the promise of upcoming games and events that are around the corner. What really came was actual products… exactly what these communities didn't need, but thought they wanted. Without actual products, the market is free to speculate wildly on how great blockchain games are, how great the metaverse will be, so on and so forth. The truth is, the PFP culture was stuck in a flywheel of speculation, feeding off of new users with the promises of something shiny and new. The technology was not ready to compete with AAA Gaming Studios, but the marketing blitz that could be used could surely elicit excitement, even from a couple second teaser trailer.
2023: The Illiquidity Problem
As the Utility NFT trend diminishes, with upside becoming harder to visualize, buyers and traders alike have begun moving elsewhere…. Towards non-utility NFTs. Once clearly distinguishable, there has now been a trend of more flippers and botters venturing into the world of digital art NFTs, trading them like they would the collectibles and PFPs of ‘21.
The inherent illiquidity of art as a category, coupled with the short-term strategies which these actors employ, has heightened sell pressure on many of the collections that don't have the right collector base and are thus misaligned with their holders.
For instance, top-tier Art Blocks collections such as Fidenzas, Meridian, and Chromie Squiggles have weathered market fluctuations with relative stability, thanks in no small part to their committed collector base. Collectors that not only hold off from liquidating a part of their portfolio, but also look to strengthen their holdings during the market downturn.
Fingerprints and Flamingo, two more notable DAOs, have some of the largest collection of early on-chain generative art, including a combined 36 Autoglyphs by Larva Labs. Considered the first on-chain generative art project, Autoglyphs have been held on a pedestal as a historical example of how art can be stored on a blockchain. I believe Autoglyphs are one of the most significant collections to emerge from the digital art space thus far, and I personally have collected one as well, but what else contributes to its success? In a limited set of 512, these two DAOs hold 7% of the collection. Throw in Larva Labs, an early whale, and a few Funds, and you quickly have removed 25% of the collection’s supply.
Terraforms by Mathcastles, an innovative and dynamic on-chain art project has also seen significant accumulation by DAOs. Neon, Flamingo, and Fingerprints hold a combined 6.5% of the collection. While some projects signal red flags with unique owner counts below 50-60%, some collections such as Terraforms (20% unique owners) and Autoglyphs (31% unique owners) are at a significant advantage in the hands of these motivated collectors.
In contrast, we’ve seen strong drops like Fontana (‘22) and The Harvest (‘23), both fantastic collections, see significant price appreciation and social media attention. However, even while touting high unique owner numbers at 60%+, the type of buyers during the run-up were not the right type of collector base for an asset that is inherently illiquid. While initially presuming these new collectors, many hailing from utility-NFT communities, would be able to understand the long-term nature of these assets, only buy what they could afford, this proved to be false. We quickly saw some of the larger buyers of the collection abandon the initiative altogether, and begin liquidating significant chunks, resulting in awful publicity (due to the transparent nature of NFT art), followed by intense sell pressure.
The still nascent NFT ecosystem is complex, oscillating between art’s inherent value to a collector and volatile price tags to speculators. With this mindset of collectors, the aesthetic and emotional value these pieces hold quickly get overshadowed by its price tag. As the NFT art space continues to mature, the role of influencers and genuine art aficionados will undoubtedly become even more pronounced. While speculation is a natural element in any emerging market, the long-term viability of NFT digital art will hinge on its ability to foster a community that values the art for what it is, and not just its price.
The next several months may continue to be a challenging market for many collectors looking for a quick flip. Art is supposed to be an illiquid asset, and it has been especially so in market downturns. The long-term views of this market shouldnt be affected, but they have been, and the community will need more whales, DAOs, and funds who appreciate the strokes, stories, and narratives to help stabilize the ship.
Seismic shifts have come to the art market, and so far influencers have played a similarly pivotal role as they have in traditional art. As the lines continue to blur between the digital and the physical, one realization emerges — the early adopters, those collectors and aficionados who have become emotionally and financially invested, are not only shaping the future of art but are also crafting the digital legacy of our generation.
This is an opinion piece on behalf of digital art collector and investor, Dinosaur (@_DinoART). Additional information can be found at our website, Anagram.xyz and Anagram Blog. Grateful to @soupdefi and @doublew0rdscore for their feedback on the drafts.