Utility NFTs give their holders a new range of perks, such as membership in a group, new powers in a game, and real-world benefits.
What you will learn
Holders of a music utility NFT can receive a portion of the song's royalties, incentivizing them to support the music.
NFT projects can turn their existing tokens into utility NFTs.
Launching a utility NFT is like launching any other type of NFT, but you must consider how you'll fulfill the token's utility.
Many people see NFTs as investments or collectibles, but some tokens offer unique use cases besides collecting and trading. The crypto world is embracing utility NFTs for the wide range of perks they provide, such as membership in a website or organization, new powers in a game, and real-world benefits like access to a live event.
NFT utility was listed as the most important reason people cited for buying NFTs, according to a CoinGecko survey released in April 2023. Just over 77 percent put utility first while about 76 percent said long-term profit was the most important motivator for their NFT purchases. This article will discuss the types of utility NFTs, their advantages, and how to develop them.
Utility NFTs all serve to enhance the experience of those who hold them. That is their secret power, or "utility." And there are many ways that the different types of utility NFTs can bring value. Let's dive into how utility NFTs are used so we can learn more about what they are.
NFTs can be used to reward players with access to in-game events. For example, a metaverse gaming environment may create a scavenger hunt and reward those who complete it with a virtual ticket NFT. Players could use this ticket to unlock new gameplay features, obtain premium content, or attend a virtual event.
Web3 games can also use NFTs to provide holders with real-world perks, such as discounts on physical merchandise. Gaming governance tokens are another way to offer value, as they let people have a say in important development decisions.
Artists often airdrop tokens to those who hold their NFTs. An art NFT collection's roadmap may specify that holders will receive digital assets each month they hold the NFT without selling it, with the reward increasing the longer the NFT is held. Alternatively, buying an NFT may entitle you to be among the first people eligible to purchase future NFTs by the same artist.
Artists may host live events, with their NFTs acting as the tickets. For example, in June 2022, Bored Ape hosted "ApeFest," a party with live music by LCD Soundsystem, Future, Snoop Dogg, Eminem, and more. All Bored Ape NFT collectors were invited and were allowed to bring one guest.
Music utility NFTs can reward holders with in-person meet and greets or backstage access at live events. In December 2021, Deadmau5 and Portugal the Man released an NFT single titled "This is Fine." They packaged and offered 500,000 bundles with unique artwork, a limited-edition NFT, a merchandise pack, and a ticket to a Deadmau5 concert.
More often than not, music utility NFTs reward holders with song royalties. 3LAU and JD Ross, the co-founder of Opendoor, created a platform called Royal, which lets users buy and sell percentages of songs as NFTs. Royal NFT holders are rewarded with a portion of the song's royalties, incentivizing them to support the music they believe will do well over time.
Utility NFTs let investors buy fractional shares in properties. These NFTs lower the barrier to investing in real estate since you don't need to buy an entire property. As the market value of a home increases or decreases, so does the value of the NFTs. Utility NFTs can also represent virtual real estate or digital land in the metaverse.
Utility NFT owners can benefit from their digital assets in new ways. In the past, the only real benefit to owning regular NFTs was that they were yours and you could sell them one day. Now, with the rising popularity of utility NFTs, crypto enthusiasts have new reasons to be excited about non-fungible tokens.
Unlocking new revenue streams. Utility tokens can act as passive income sources, rewarding token holders with music royalties, cryptocurrency, and new NFTs.
Digitally tracking ownership and provenance. Provenance, a term often used in the fine art ecosystem, refers to an item's origin and ownership history. Provenance is essential in determining whether a piece of art is legitimate or was obtained through unethical means. NFTs and blockchain technology can be used to digitally track provenance on an immutable ledger that's publicly available.
Increased transaction transparency. Utility NFTs let people discover how many of their counterparts were bought or sold. For example, someone deciding whether to buy a governance NFT would be interested in knowing if a large entity had bought enough NFTs to swing votes in their favor.
Access to exclusive content and experiences. As creators become more interested in web3, we'll likely see a rise in NFT-exclusive content and live experiences.
Ability to turn an existing NFT into a utility NFT. Distributed ledgers let any NFT project see who owns their tokens, and smart contracts can reward them automatically. Because of this, it's relatively easy for NFT projects to turn their existing tokens into utility NFTs.
Launching a utility NFT is similar to launching any other type of NFT, but you must consider how you'll fulfill the token's utility. Utility NFTs are often long-term commitments, even if you automate reward distribution with smart contracts. To develop and launch a utility NFT, you'll want to consider the following steps:
Determine the purpose. Think about how your tokens can benefit your holders. You can reward them with cryptocurrency, digital collectibles, virtual experiences, real-world experiences, real-world items, and more. If you have an active social media following or Discord community, you can poll your holders on what utility type would interest them.
Hire a development team. You'll need smart contracts to automate your utility, whether you plan to distribute cryptocurrency to holders, give them metaverse items, or confer some other digital asset. Choose a capable development team to help you offer your holders benefits without continued manual oversight.
Test your NFT's utility before releasing it. To make sure things work as intended, test the NFT smart contracts numerous times. Consider hiring white-hat hackers to try to exploit it before releasing it.
List it for sale or distribute it. After you've determined what your NFT will do, created the necessary smart contracts, and tested it, you can list it for sale on an NFT marketplace. If you're rewarding holders of your other NFTs with a new one, consider using a smart contract to distribute your tokens automatically.
Utility NFTs have a variety of use cases, giving crypto enthusiasts new reasons to collect and hold non-fungible tokens.
Hedera makes it easier for developers to add utility to their utility NFT projects. You can use common coding languages, such as Solidity, to create utility token smart contracts on the Hedera network. Additionally, Hedera is EVM-compatible, meaning you can copy smart contracts from the Ethereum network with a few lines of code.
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