The Value Proposition of NFTs and Profile Pictures

NFT art
NFT art

The success of digital art and non-fungible tokens (NFT) raises questions about their fair value and whether it’s a suitable form of investment. In this article we’ll focus on the most popular type of NFT -profile pictures (PFPs)- and how their perceived value compares to their actual worth.

Artistic Merit Among NFTs

Masterworks, a traditional art market that sells shares in fine artwork, targets a three to ten year investment horizon, charges a 1.5% fee annually, and takes 20% of profits from a sale. Investors can trade these shares on secondary markets. In contrast, only a small percent of NFT art rises to a level of monetary and cultural value comparable to fine art, like Beeple or Tyler Hobb’s Fidenza.

Among subsets of NFTs, PFPs rose to be the most popular. PFPs are effectively your “face” on the web, and many place a premium on attractive or innovative PFP art or fashionable collections. While incredibly popular, most PFP NFTs will not become iconic, historic, or viewed as fine art.

The market is flooded with thousands of massive collections, most with low quality art, leading to a general dilution in the value the PFP market, or a concentration of value among a very small set of artists and teams. This often shifts the focus away from the art itself, and explores other facets of web3 to drive value to holders, in turn enticing more investors.

The Challenge of NFT Value Generation

NFT investing has unique challenges that don’t exist in traditional art markets, with one of the most visible being “scalpers.” Scalpers are traders who mint new art and immediately sell the NFT to make a quick profit. This is similar to Ticketmaster scalpers who front-run new ticket sales to resell at a higher price on secondary markets.

Many projects court scalpers to increase trading volume on the day of the mint, which raises the visibility of the project. Unfortunately this often backfires and sends the floor price lower than mint price if buyers don’t appear. It also raises the barrier to entry for supporters that are forced to purchase the art on secondary markets at a higher price, thus rewarding scalpers (with no interest in supporting the artist).

To maintain their value, NFT PFPs must attract new holders. While community and vibes play a part, most non-web3 natives are reluctant to spend large amounts of money on these intangibles. Higher floor prices require other utility and long-term value generation.

For example, Bored Ape Yacht Club (BAYC) has a floor price of 58 ETH ($104,000). This means Yuga Labs must generate $1 billion in value for BAYC holders this year, if someone buys a floor ape today and expects to break-even by end of 2023.

However, given Yuga’s larger portfolio of Mutant Ape Yacht Club (MAYC), Meebits, Otherside and others, plus the overhead cost of business and other expenses, it is nearly impossible to generate sufficient value to everyone in their ecosystem to ensure break-even on a timeframe that NFT traders look for.

As a new entrant to higher end NFT PFP projects like BAYC, MAYC or Azuki, the first question most ask is whether its a sound financial investment to spend $25,000 to $150,000 on a PFP; and whether they can break even or even profit over time.

In a nod to traditional art markets, NFT artists sometimes implement additional fees in the form of royalties that pays the artist or project a percent of each sale. Over time this can lead to significant cash holdings, but only for projects with consistent volume on marketplaces that honor royalties.

The royalty revenue is often compared to value generated for holders, which in turn can drive the floor price, but it is a flawed metric as the underlying cryptocurrency and volatility of markets makes it hard to reliably forecast revenue long term.


New investors generally expect to profit on NFT PFPs, and within a timeframe much shorter than traditional art markets. The feasibility and sustainability of this value generation is unlikely in the current market, with macroeconomic woes weighing on consumers and the NFT market in a prolonged downtrend.

Unique owner data also support the theory of buyer apathy, suggesting that some projects are overpriced compared to their perceived value. For example, in the past year Azuki’s number of holders decreased by 13%, while whale investors declined by 60%; BAYC’s holders dropped by 9%, and their whale investors declined by 60%.

These types of declines in unique holders suggests that a community is cannibalizing itself, with no new money entering and existing holders sustaining the floor. This isn’t a long term sustainable model and suggests that new buyers may be frightened by the high price tag and unclear value proposition.

As the NFT market evolves, the valuation of PFP NFTs will continue to spark debates, and observers will closely scrutinize their sustainability. NFTs have the potential to gain value at a pace faster than traditional cryptocurrencies, but with greater risk of downside. If you aren’t buying a PFP for the art or community engagement/vibes, there are other investment models with lower risk to consider, including cryptocurrencies or traditional art markets.

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