What Are Utility NFTs?

At a high level, utility NFTs provide some functional utility to the holder, beyond just owning the NFT as a digital collectible. This utility can take many different forms, granting access, ownership, discounts, revenue shares, voting rights, and much more across a vast range of potential use cases.

In contrast, collectible NFTs, which make up the bulk of overall NFT volume, don’t inherently provide the holder any rights or benefits besides speculation and bragging rights. Their primary value stems from their cultural significance and appeal as digital memorabilia.

Access NFTs

Access NFTs grant holders access to something, whether an application, platform, community, event, content stream or any kind of gated access point. They essentially function as membership cards or tickets that are tracked via an NFT tied specifically to one wallet address.

Some popular implementations include:

• Exclusive communities and clubs

• Discord servers and messaging channels

• IRL events, meetups and spaces

• Early access benefits

• Whitelist spots for new projects

• Subscription features and add-ons

For instance, Bored Ape Yacht Club and CryptoPunks, aside from being highly sought-after collectible sets, also grant owners access benefits like member-exclusive chat forums on Discord. Holding the NFT acts as permission that you’re part of the community.

Meanwhile Axis created 5000 “Access Passes” which gave holders VIP access to future events hosted by Axis across the metaverse and IRL. The Anthropic Club did an NFT drop that granted early access to the beta version of their conversational AI assistant Claude.

And Moonbirds offered a nesting pass as part of their launch, giving holders special member benefits like exclusive mint passes to future projects. Beyond just digital benefits, the Moonbirds team has hosted private parties, dinners, and events for nesting pass holders to meet in real life.

Overall access NFTs present a powerful primitives for coordinating, engaging and incentivizing communities. They allow owners to capture value from restricted access points they control or build.

Investment NFTs

Investment NFTs represent fractional ownership in something that generates financial returns, like real estate, royalty streams, startup equity, investment funds, or any asset expected to create future cash flows. Holders of investment NFTs collectively have ownership rights over the asset and share in its income distributions.

For example, Fractional.art has issued tokens representing shares in high value collectible items like rare Pokémon cards. Owning the tokens gives you economic exposure to a fraction of the asset’s financial upside. If Fractional later sells the item, holders get their cut of the final sale price.

Some other interesting examples include:

NFT Index Funds: Metaversa Index and Index Coop have created index tokens made up of a basket of bluechip NFTs from top projects. Owning the index tokens gives broad market exposure vs picking single projects.

Royalty Sharing: Many generative avatar projects like Bored Ape Kennel Club and CrypToadz Genesis offer royalty sharing. A portion of secondary sales from newer collections gets distributed back to holders of the OG NFTs.

Real estate funds: Platforms like Republic Realm and Propy allow people to buy into property investments via NFTs. Oasis has fractionalized a $650M mega-property in New York City into over 10K NFTs.

Startup equity funds: Venture capital groups like Boost VC and Fabric Ventures are tokenizing portions of their portfolio company investments, letting more people participate.

While similar fractionalized ownership constructs have existed previously, NFTs offer improvements to issuance, tracking, compliance, liquidity, governance, and accessibility over old models. They present exciting new rails to democratize asset classes that were previously exclusive to institutions and ultra high net worth individuals.

Identity NFTs

Identity NFTs represent on-chain credentials that prove membership, reputation, achievements, attributes, voting eligibility, and other badges of identity. They allow far richer expression of who you are online compared to just a wallet address.

Some examples include:

Domain NFTs: Names like ENS allow people to claim user handles as NFT domain names that point to wallet IDs. These serve as more readable blockchain aliases vs random hex addresses. Profiles can choose to attach avatars, bios and other data to their NFT domains as persistent identifiers.

Reputation systems: Projects like Savage QRates and Evil Apes allow members to rate each others’ contributions to the community. More engagement earns higher reputation scores, encoded via NFT badges. These serve as on-chain credentials for what members have done.

POAP NFTs: The Proof of Attendance Protocol issues badges to attendees of events, serving as credentials that they participated in something. These can represent both digital and physical event attendance.

Badge walls: Using NFT gallery apps like Bazaar or Galler.io, wallets can display walls of the badges they’ve collected across various experiences and feats. These visually showcase on-chain identity and what people have achieved or participated in via verifiable NFT trophies.

Overall, identity NFTs have exciting potential to build persistence, reputation, and social signaling atop hitherto anonymous blockchain wallets. They offer tools for users to showcase legitimacy, culture fit, and community commitment in a decentralized way.

Governance NFTs

Governance NFTs give holders voting rights over protocols and DAOs (decentralized autonomous organizations). They are typically issued proportionally to contributions during an initial funding or builder phase.

For example, ApeCoin DAO launched an airdrop of governance tokens to holders of Bored Ape Yacht Club and Mutant Apes based on their historic activity. This gave them control to steer decisions around the ApeCoin ecosystem treasury, launches, and more through token-weighted voting.

Other protocols like Uniswap and Curve Finance have also issued governance tokens to users based on historical usage. Holding the tokens lets members direct treasury decisions, feature upgrades, key parameters and other changes.

This shifts governance control and ownership to those actively engaged rather than just the founding team. Since votes are based on transparent token holdings rather than data within a private corporation, it democratizes influence in line with commitment to the community.

In some cases, governance rights extend beyond just voting to actual ownership over decentralized protocols and organizations. For example, MakerDAO technically has no employees. Instead MKR token holders co-own the protocols, identity, and treasury in a decentralized manner. They steer everything from financial risk parameters to branding decisions.

Overall governance NFTs represent a paradigm shift in how protocols and organizations can be owned and directed. They offer transparency, decentralization from centralized points of failure, and community-driven decision making based on proven engagement.

Gaming Asset NFTs

Gaming NFTs encompass in-game assets like characters, skins, lands, gear, consumables and other digital items that players own with real economic value. They unlock deeper digital ownership for players vs centralized gaming economies.

Top play-to-earn games like Axie Infinity and The Sandbox have enabled new models where players can truly own assets, sell them, or take them between games. The results have been astounding, with over 2.5M monthly active players in blockchain gaming earning collective income over $120M + per month.

However the applications extend far beyond just play-to-earn. Some other models gaining steam:

Free-to-play with NFT assets: Titles like NBA TopShot and Splinterlands built highly engaged communities of players who enjoy the core gameplay, while optional NFTs offer added benefits.

Open-world builder games: In The Sandbox and Otherside, players collectively own and build persistent virtual worlds filled with player-created NFT assets.

Competitive esports titles: Cloud9’s BLITZ NFL game offers officially licensed NFTs of famous NFL players that can enter tournaments to win real prizes.

NFT skins that work across games: Forte and Enjin are building cross-game cosmetic NFTs can use across different titles thanks to their blockchain-based backing.

Player-driven economies: Through ownership over assets, players themselves can run markets to trade goods rather than relying on the developer. This has led to rich secondary economies, more ways to earn, and player choice.

When implemented well, blockchain game economies unlock permissionless creativity, deeper involvement through ownership, community-governed incentives, and persistence across worlds. Players shift from passive consumers to engaged creators and stakeholders.

While the space is still early, gaming NFTs present one of the most promising avenues to onboard mainstream users into decentralized models. They reimagine how we experience virtual worlds online.

Location NFTs

Location NFTs link metadata, experiences, and interactions to specific geographic coordinates or areas in both the digital and physical world. Projects like Spatial and XYZ are building web3 location networks.

Some inventive examples include:

^ NFT galleries, statues & art tied to global coordinates on Spatial.xyz digital map

^ Pixel Vault x Spatial partnership creating digital districts covering major cities. $PXL holders vote on art to showcase in their locations.

^ LOCG gives NFT holders ownership over spots on a physical cube satellite orbiting space. Holders can display digital artwork on an onboard display screen when above certain cities.

^ DigiDaigaku issued 10K NFTs representing locations in virtual Shibuya. Token holders vote how to use the plots like digital billboards, buildings etc.

^ Horizen crypto treasure hunt app requires owning certain NFT keys to access prizes hidden at global real world spots.

This merges web3 concepts with the physical world in innovative ways. As AR/VR capabilities grow, the bridge between digital and physical made possible by location NFTs offers extreme potential.

Fashion NFTs

Fashion NFTs give tokenized representation of clothing, apparel, jewelry, accessories that can be worn digitally across metaverses, games, VR settings, and shared socially online.

Digital fashion projects have seen explosive growth following metaverse hype and a cultural shift towards more virtual interactions. Some major examples include:

^ Over 1 million NFT wearables created inside player-owned sandbox game Decentraland

^ DressX which sells digital-only garments as NFTs surpassed $14M in sales in 2022

^ The Fabricant closing a $14M raise to expand their digital exclusive fashion designs

^ Brands like Gucci and Ralph Lauren launching roblox wearable drops

A key advantage of digital fashion is instant gratification. Rather than waiting weeks for manufacture and shipping, purchases can be worn immediately. This makes it easy to experiment with new looks.

Interoperability also allows wearing clothes across games, social networks, virtual worlds. Universal assets bring persistence and continuity to digital identity.

And provable scarcity gives prestige to rare items. The very inaccessibility to scarce luxury becomes part of its appeal and flexing value.

While still early innings, virtual fashion represents a 100 billion dollar sector being built in the open metaverse.

Avatars

Crypto avatars have emerged as popular PFP collections on social media. These serve as public identities tied to wallets that showcase membership. Top avatar projects function as digital passports to web3 culture.

What makes avatars like CryptoPunks and Bored Apes compelling goes deeper than art:

Persistent identity - unlike traditional profile pictures, blockchain avatars are non-fungible tokens verifiably owned by one wallet address. This persistence across networks cultivates reputation and trust.

Flex culture - Avatars become sacrificial tokens to signal interests, wealth, early adoption for personal branding. Their non-fungibility makes provable scarcity part of their appeal.

Community - Highly engaged niche communities form around avatar projects through shared interests and roadmaps. New launches become cultural events.

Interoperability - As digital items, avatars can traverse games, VR worlds, etc as persistent identities. This continuity of self offers more utility than just JPEGs.

Speculation - Similar to art collecting, early ownership in a project that later blows up can lead to windfall gains. This fuels interest in new launches.

While growth has slowed from the 2021 bull market peak, crypto avatars remain integral to web3 identity and culture. Their traits make them compelling focal points for committed digital communities.

Takeaways

In summary, utility NFTs provide functional rights, access and ownership beyond mere digital collectibility. This distinguishes them from platforms like NBA Top Shot or CryptoPunks where artwork is the primary value.

With programmable smart contracts, tokenized assets can represent fractionalized ownership, community rights, reusable access keys, voting shares, and much more. While some utility NFT models are still being defined, their transparent embedded nature offers advantages over traditional constructs.

Some cross-cutting themes around their potential:

Democratization: By fractionalizing expensive assets like property or restricted access to exclusive communities, more people can participate. This helps shift power and ownership to regular users.

Reimagining ownership: Digital items often outlive physical goods thanks to their reproduction ease. NFTs thus better capture sentimental value and prove digital provenance. This rethinks how we ascribe importance.

Coordination: Embedding permissions, credentials, fractional rights directly into transparent owner-controlled tokens allows stronger coordination and governance of assets and organizations in a decentralized way.

User-led economies: Ownable gaming assets and decentralized organizations controlled by token holders enable deeper participant involvement in economic activities, rather than centralized entities. This unlocks creative bottoms-up business models and incentives owned by users themselves.

While the hype has given way to skepticism in many areas, NFT models offering real lasting utility continue gaining adoption. Their programmable abilities present innovative building blocks for community coordination, governance, access controls, incentives, and digital ownership.

As blockchain adoption grows, expect continued creativity in tokenizing assets with real embedded economic rights and benefits beyond mere speculation. Utility NFTs have staying power to provide value for members who want more from their digital goods than artwork alone. Their functional nature offers compelling reasons to join ecosystems early as engaged users.

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