Why NFT Utility Must Survive the Bear Market to Matter

Marketplaces like Blur and OpenSea's optional model slashed creator royalties, destroying a core utility promise. This exposed NFTs as pure commodities with no sustainable funding mechanism for their ecosystems.

• Royalty revenue fell by ~95% on major collections post-optional models.
• Creators and builders lost their primary recurring revenue stream.
• The value proposition shifted entirely to secondary trading fees.

Projects like Art Blocks and y00ts are embedding utility directly into the token contract, making it inseparable from the asset. This moves value capture from marketplace policy to immutable code.

• Loyalty fees are enforced via transfer hooks or custom sale contracts.
• Token-gated experiences (e.g., PROOF Collective, Bored Ape Yacht Club) create persistent demand loops.
• Utility becomes a verifiable on-chain property, not a marketing promise.

The real utility is shifting from art to function: proof-of-membership, attestations, and access keys. This is the domain of POAPs, Ethereum Attestation Service, and gaming assets like Parallel's Prime Tokens.

• Durable demand is driven by recurring use, not one-time speculation.
• Composability allows NFTs to function across dApps (DeFi, gaming, social).
• The asset is a key to a network, creating intrinsic utility that survives market cycles.

Most NFT utility was a marketing gimmick for the mint. When speculation vanished, so did the value proposition. Projects built on promises of future airdrops or exclusive Discord channels collapsed.

• ~90% of PFP projects saw utility engagement drop >95% post-mint.
• Zero recurring revenue models meant teams had no runway to build.
• Utility was a cost center, not a product, leading to abandoned roadmaps.

Sustainable utility directly captures value on-chain. Look at Blur's marketplace and lending or Tensorians for NFT DeFi tool access. The utility is the product.

• Blur's $BLUR rewards created a $1B+ TVL lending market.
• Tensorians grant fee discounts and governance for a protocol doing ~$10M monthly volume.
• Utility is funded by protocol revenue, not token inflation.

Utility dependent on a single company's servers or goodwill is fragile. When Nike's .Swoosh or a celebrity project loses interest, the digital asset becomes a broken link.

• Off-chain redemption mechanics create trust assumptions and admin keys.
• IP licensing traps can revoke utility overnight (e.g., Yuga's ongoing saga).
• Creates legal liability instead of cryptographic certainty.

Utility encoded in smart contracts survives the team. Art Blocks generative scripts and Autoglyphs live entirely on-chain. Loot's community-built ecosystem demonstrates emergent, permissionless utility.

• Art Blocks contracts autonomously mint art; the team is irrelevant.
• Loot bags became the primitive for $100M+ in derivative projects.
• Utility is verifiable and unstoppable, governed by code, not a CEO.

"Access to a website" is not a business model. Gated content or communities that don't provide unique, ongoing value become ghost towns. The NFT becomes a costly subscription key for a dying service.

• High churn rates when novelty wears off.
• Zero network effects; utility doesn't improve with more holders.
• Easy to replicate by competitors without the NFT overhead.

The NFT is a persistent, programmable identity layer. Proof's Moonbirds pivoting to Moonbirds Mythics and a custom chain shows utility as an evolving membership. VeeFriends uses tokens for real-world event access and business networking.

• Utility can be upgraded (new smart contracts, new chains).
• Creates a persistent cohort for product testing, governance, and community.
• Ties digital identity to real-world actions and capital formation.

Relying on secondary market royalties and price appreciation is a fragile, zero-sum game. It alienates users and fails to create sustainable protocol revenue.

• Royalty wars between Blur and OpenSea cratered a primary revenue stream.
• ~90%+ of collections by volume fail to maintain liquidity or community post-mint.
• Creates misaligned incentives where the only 'utility' is convincing someone else to buy.

Utility must be programmatically enforced and accrue value directly to the NFT holder. Think of NFTs as keys to a revenue-sharing vault or a permissioned API.

• Loyalty programs like Starbucks Odyssey use NFTs for rewards, creating brand-specific utility.
• Ticketing with dynamic resale rules (e.g., GET Protocol) captures secondary value.
• Revenue-sharing NFTs (e.g., Pudgy Penguins' physical toys) tie asset value to real-world product sales.

Static JPEG metadata is insufficient. Utility requires NFTs that evolve based on on-chain activity and integrate with DeFi and gaming primitives.

• Dynamic NFTs (dNFTs) change based on usage, like a character leveling up or a ticket being scanned.
• Composability with lending protocols (NFTfi, Blend) turns NFTs into productive collateral.
• Fragmentation via platforms like tensor allows fractional ownership of high-value utility assets.

Investors must evaluate NFT projects on the recurring economic activity they generate, not speculative floor price. Builders should instrument for this.

• Track protocol revenue per holder and holder retention rate over time.
• Measure integration depth with other protocols (DeFi, gaming, social).
• Redenomination risk is lower when value is tied to cash flow, not sentiment.

The most successful collections created utility through exclusive access, not inherent function. The next winners will formalize this into on-chain systems.

• BAYC's ApeCoin and Otherside land attempted to create an ecosystem economy.
• Proof Collective built utility around IRL events and curated drops.
• The lesson: Utility must be scalable, automated, and not reliant on founder hustle.

Low prices and quiet markets are the ideal environment to build durable utility infrastructure that will capture the next wave of users.

• Developer attention shifts from ponzinomics to sustainable design.
• Acquisition costs for quality communities and talent are lower.
• Protocols like Uniswap and Aave were built in bear markets; the same pattern applies to NFT infrastructure.