Field Study: Making Sense of the NFT Wave

David Goldberg

July 5, 2021

Is there venture-scale opportunity in the emerging NFT ecosystem, and if so, where?

Non-Fungible Tokens (NFTs) are digital assets with unique, identifying metadata that is stored on blockchains. NFTs can conceivably be any unique digital asset; art, in-game items, virtual land in metaverses, digital collectibles, tickets/music, and more. NFTs enable the provable authenticity and scarcity of digital collectibles for fervent communities of collectors, and virtual worlds can utilize NFTs to embed property rights and create a second, digital layer to the global economy.

But given the media attention around NFTs over the past 6 months, you probably already knew that. “‘Covid Alien’ CryptoPunk NFT sells for over $11.7 million to billionaire buyer in Sotheby’s auction” says one CNBC headline. “Stella Artois Gallops Into The Metaverse With Horse Racing NFTs” — imagine trying to explain this Forbes headline to someone in 2017.

Given our firm’s interest in virtual communities, consumer businesses, and proptech, we were intrigued in late 2020 and early 2021 when the NFT craze began to go mainstream. We set out on a field study to answer a few questions — what are the drivers of the NFT ecosystem’s growth, what are the different buckets of NFT-centric companies, what’s the state of the funding landscape, and why should anyone care?

Before we get to that last question, some of our insights below 👇


· The COVID-19 Pandemic: In the blink of an eye, forced virtual interaction became the global norm, and individuals across the world have had to learn to adjust to a more-digital world.

· Technology improvements: User-friendly crypto wallets, scaling solutions for the much-congested Ethereum blockchain, and improvements in smart contract standards have made it easier for consumers and developers alike to build crypto projects.

· Cryptowealth: The decade-long bull run in BTC, ETH, and other cryptocurrencies has created crypto-native wealth that has the technical know-how, genuine interest, and practical ability to deploy capital into new crypto applications.

· Creator economy shifts: The popularization of creator monetization platforms like Substack, Stir, Patreon, Twitch, and Etsy, and the increasingly wide reach of content, has slowly shifted the balance of power towards the individual creator.


We divided NFT-centric projects into ten high-level buckets (go through our condensed slide deck below for more detail!). Reasonable people could disagree on segmentation but given the speed at which new projects are popping up, we wanted to provide a base foundation to determine what specific areas we wanted to focus on for future analysis. Each bucket has interesting features, but we at Alpaca are most interested in:

· Consumer Products and Services — the products and services facilitating the pre- and post-purchase NFT experience for consumers; from showcasing NFTs to search/discovery tools to social media to portfolio management tools. With the influx of new participants into NFTs and the broader crypto ecosystem, there’s an opportunity for new companies in this space to be a trusted gateway into NFT projects and to simplify and enhance the current NFT customer experience. We’re interested in projects with a wide customer profile (not just crypto-native enthusiasts) and projects that are thoughtful about on-ramping non-crypto-native creators and consumers into crypto.

· Games — any type of game (puzzle/strategy/RPG/card, etc.) that uses NFTs to give players provable scarcity and authenticity of in-game assets, control and ownership of in-game assets, and secondary marketplaces to trade in-game assets. Gamers have an inherent understanding of the value of in-game secondary economies and tradable in-game assets, so gamers make sense as the next big wave of the worldwide population to be onboarded into crypto. Blockchain games encourage player investment (in the form of time and money) into game ecosystems, but in kind, the games reward players by allowing them to participate in platform upside. We want to see games with play-to-earn dynamics, where players can be financially rewarded in games as they add value to the gaming ecosystem, and games that interest us encourage multi-player collaboration and strategy layers that breed conversation and collaboration. Think next-generation Sims, Farmville, EA Sports franchises, and Minecraft.

· Metaverses — shared virtual ecosystems with social interactions between participants, legitimate economies, embedded property rights, and AR/VR/MR components. Metaverses biggest market potential is opening a second, digital layer to the global economy, and for many people worldwide, metaverses provide an opportunity to create a digital world more satisfying and enjoyable than the real one. Metaverses with guidance and assistance for the engagement and retention of new users, as well as the ability to partner and collaborate with other projects in the crypto world, are interesting to our team. Alpaca has already teamed up with other investors to build the virtual Sand Hill Road on The Sandbox, one of the more prominent existing metaverses. We are also embarking on a different, deep field study specifically centered around metaverses and virtual land.

· NFT Finance — the tools that enable NFTs to act as a financial asset — anything from making NFTs more accessible, improving the value proposition of the underlying NFT, and enabling price discovery and liquidity. To onboard the rest of the world into NFTs, NFTs need to be more accessible and ultimately, have utility value for NFT owners. NFT Finance can help create that utility for non-utility-bearing NFTs and improve accessibility to make entering the world of NFTs easier and less expensive. Tools for generating passive yield on NFTs, as well as tools that increase accessibility for NFTs (via fractionalization or indexing) or provide exposure to the underlying asset class, are exciting to us.

So why should we/you care?

NFTs provide new, more effective ways for individuals to collect, connect, collaborate, fundraise, play, and interact. They represent the next wave of the worldwide transition from analog to digital, and with less than 5% of the worldwide population currently interacting with crypto, a massive opportunity exists for NFT-centric companies to onramp the next generation of non-crypto-native consumers.

From an investment perspective, NFTs represent the digital equivalents of physical products (collectibles, art, fashion, video games, etc.) with individual market sizes in the hundreds of billions, so the market opportunity is incredible. We at Alpaca will be further engaging in several NFT communities, exploring a potential incubation opportunity, and researching an in-depth field study on the opportunity that exists in virtual land. It’s still very early. If you’re building in the space, please reach out to our team ([email protected])!

For more on Field Study process, underlying data, and deeper insights, you can find a condensed version of our internal presentation here:

Special thanks to Bruno Lulinski, our MBA Associate who is off to get his MBA at Wharton next semester, who did much of the heavy lifting here. Also thanks to those who participated and shared their thoughts, including Drew Austin Auston Bunsen Dean Nasseri Will Weinraub Kara Weber Maria She Andrew Steinwold jalak jobanputra

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