In a traditional transaction, a customer buys one asset for a fixed price. But with smart contracts, each NFT’s purchasing experience can be made unique and memorable — much like the token itself.
This means the purchase price of an NFT and what you get through your purchase are able to change and evolve dynamically in ways that go beyond what has traditionally been offered.
The prices of most fungible assets have a 1-1 relationship; if you bought a carton of eggs at the store, the price would be the same as if you’d selected any other identical carton.
With NFTs, however, this isn't necessarily the case.
If a creator mints 10, 100, or even 1000 identical NFTs, each one can be individually priced because each one is verifiably unique. This opens up the door to ideas such as limited edition runs of certain NFTs, first versus second edition NFTs and, ‘reissues’ of especially popular NFT runs.
This system also allows creators to enforce scarcity. For example, a creator can easily mint ten of one set of NFTs and only two of another, automatically making the second version of their NFT rarer — and more desirable.
A more complex application of this concept is dynamic pricing.
Imagine that, instead of a collection of 100 identical NFTs, there was only one NFT whose price changed dynamically as it was bought and resold. One example of this is an NFT that could only ever be resold for a higher price — or, conversely, a lower one.
Thinking back to NFT collections, a creator could also dynamically adjust the price of each NFT in a collection based on how many are left. For example, each time an NFT is bought from a certain collection, the price of each remaining NFT in that collection doubles.
This is part of the concept behind bonding curves — a mathematical formula to calculate prices for NFTs based on how many are in existence.
In this system, actual price per token increases as the number of tokens increase, and falls as NFTs are destroyed or sold back into the system. (See the Neolastics project.) In this way, token purchasing mechanics can be used to approximate the economy of a traditional art market.
Some projects have taken the concept of destroying NFTs even further: digital artist Pak recently released a system to allow NFT owners to “burn” — destroy — their NFTs in exchange for a currency called ASH. ASH is its own ERC-20 standard token on the Ethereum network, and Pak has indicated that certain future releases will only be purchasable with ASH.
Two other innovations on NFT pricing models are royalties and fractional purchasing:
NFT royalties work similarly to royalties on other forms of media: a portion of every future sale of the token goes back to the creator.
In a fractionalized project, creators mint tokenized fractional shares of a single piece; these percentages can then be individually resold. This can make NFT ownership more appealing to collectors who might otherwise be scared away by the high price tags on certain NFTs. It also gives token owners access to liquidity without selling their tokens wholesale.
One of the earliest NFT projects — and arguably the one which has led to the greatest increase in public awareness of NFTs — is Cryptokitties. One of the core mechanics of Cryptokitties is breeding: if you have two cats, you can breed them to get a third one whose genes based on a randomized mixture of the “genes” of the first two cats.
This idea of random generation means that you can have a potentially infinite pool of tokens to trade, and the mechanism has been adopted by a wide variety of NFT projects since. Cryptopoops, bastardganpunks, Deep Gems, and aavegotchi all rely on random generation at the time of minting to produce unique tokens.
Other NFT projects are taking cues from video games in how they approach purchasing NFTs:
NFT Lootbox and Blind Box both sell mystery boxes — boxes you buy for a set price without knowing what is inside. Each of these boxes have a chance of containing any of a number of different NFTs, some of which are rarer than others. There are already videos on YouTube of people unboxing deadmau5 and NBA-branded loot boxes.
The variety and versatility of purchasing experiences that NFTs have made possible is changing ecommerce:
For collectors, it makes the experience of buying and trading NFTs more enjoyable and diverse.
For creators (including brands) it provides more control over how they want their NFTs presented and sold.
For marketplaces like NBA Top Shot, the NBA’s official NFT platform, the experience of unboxing packs of NFTs allows the platform to piggyback off of buyers' familiarity with sports cards — an established concept that also aligns with their brand values.
For a brand that prides itself on scarcity and luxury, such as a high fashion brand, bonding curves might represent a better pricing system, since it ensures scarcity, leading to greater value over time.
And for a brand that wants its NFTs to be as accessible as possible, fractional pricing makes sense, since it allows many different types of collectors to participate.
No matter what kind of purchasing experience you’re after, Aesthetic can help you design it. Aesthetic’s platform allows anyone to set up their own completely customizable NFT marketplace. Reach out to us to learn more.