On the first day of this new year, the influential NFT collector 6529 posted a banger thread on Twitter, arguing for why non-fungible tokens (NFTs) are the “scarcest, rarest, [and] most apex” tokens in the crypto space.

https://x.com/punk6529/status/1874496206300156143

This thread has since sparked some lively discourse on Crypto Twitter, in particular on how we determine the rarity of such NFTs and the value of creating lists of these “rare” NFTs. Among the major criticisms of attempts to create such lists include the following:

• Those creating lists are simply promoting the NFTs they hold, exacerbating an unhealthy culture in which vested interests and excessive hype predominate.

• Attempts at evaluating rarity of particular NFTs also tend to prioritise their market performance, thus downplaying other attributes that could arguably be more important for cultural significance, especially over the longer term, e.g. artistic innovation and technical proficiency.

While I am in agreement with the gist of 6529’s thread, I believe we’ll need a more expansive way of thinking about why NFTs can be incredibly—if not mind-bogglingly—valuable beyond the single metric of rarity based on power laws.

https://x.com/shibboleth88/status/1876219006450835660

To do so, we ought to start first by examining what undergirds demand for NFTs in the first place. After all, no matter how rare an NFT is, it cannot be deemed valuable unless there is some sort of demand for it. As the artist Jack Butcher tweeted: “rarity is a function of demand, not quantity”. In fact, rarity is just one of many factors that drive demand for NFTs, and I do think that a broader framework that takes these other factors into account can help mitigate some of the angst arising from 6529’s thread.

In this essay, I shall make an attempt to outline such a framework, and I will begin my endeavour with a simple assertion:

NFTs are first and foremost status assets.

By status assets, I mean assets whose fundamental source of demand lies in how they enable us to signal our social status.[1] In other words, the value of status assets is primarily symbolic. Owning them conveys our sense of taste, our relationship with prevailing cultural conventions, and of course the economic and cultural capital we have our disposal to acquire such assets—all of which ultimately feed into our perceived positioning within the myriad social hierarchies that surround us.

Traditional art and physical collectibles are prime examples of status assets. While people purchase artworks and collectibles for all sorts of reasons, it shouldn’t be contentious that the desire to enhance one’s self-identity and consequently one’s social status is a significant underlying factor.[2]

By extension, NFTs which represent or embody digital art or cultural artefacts ought to be considered status assets too. After all, the same self-focused motivations animating a collector of traditional art should likewise apply to a collector of digital art NFTs. This collector might credibly claim that they’re buying a particular NFT “for the art”, but it would be disingenuous if they ignored the role of status in their aesthetic preferences and consumer choices.

Now, you might ask: how does acknowledging that NFTs—as digital art or cultural artefacts—are status assets help us to better evaluate their potential demand and thus value? To address this, we’ll need to make a detour first to unpack the relationship between status and culture.

In his book, Status and Culture: How Our Desire for Social Rank Creates Taste, Identity, Art, Fashion, and Constant Change (2022), fashion and culture writer W. David Marx put forth an ambitious thesis that status and culture are inextricably linked. More specifically, Marx argued that the aggregate of our individual status-seeking efforts on a micro level engenders commonalities of behaviour on a macro level that ultimately help drive the production and distribution of culture. In his words:

“Status shapes our aspirations and desires, sets standards for beauty and goodness, frames our identities, creates collective [behaviours] and morals, encourages the invention of new aesthetic sensibilities, and acts as an automated motor for permanent cultural change. Culture is embodied in the products, [behaviours], styles, meanings, values and sensibilities that make up the human experience—and it is status that guides their creation, production, and diffusion.”

It is not my intent to outline Marx’s arguments in Status and Culture in full here, but I want to highlight his analysis regarding the status-seeking strategies of different socio-economic classes and how it maps to the development of different cultural products and trends. I think this is particularly relevant for thinking about the demand-side dynamics of the NFT market, which I will get to later.

To begin, Marx’s analysis is premised on the fact that members of the same socio-economic class possess similar levels of economic and cultural capital, which leads them to pursue similar status-seeking strategies. By demanding similar types of status assets then, each socio-economic class thus engenders distinct markets that cater to their specific taste. The outcome of this, as Marx observed, was that “a majority of society’s cultural [artefacts] and stylistic conventions—at least the most conspicuous ones used in signalling—exist in large part to serve the distinction needs of classes”.

Specifically, Marx looked at the following four groups:

• New Money (with extremely high economic capital and low cultural capital) tends to signal their status through sheer wealth, creating an extravagant sensibility based on conspicuous consumption. Their emphasis on using their economic capital to signal their status spurs the creation of expensive luxury goods, such as sports cars, mansions and designer clothes. These luxury goods generally have low symbolic complexity: they are so easy-to-read that virtually everyone would know that the owner of such goods is a rich person. Equally important, they should also offer a practical alibi: the owner can credibly claim that they bought such goods based on their superior functionality and/or quality, without explicitly acknowledging their status-seeking motivations.

• Old Money (with high economic and cultural capital) tends to signal their status in opposition to New Money’s extravagance, preferring quieter and more subtle sensibilities that emphasise their cultural capital. This may lead them to focus more on status assets with a signalling cost based on time rather than outright wealth, i.e. assets with patina[3], whose status value stems from their appearance of age, celebration of heritage and/or critique of contemporary consumption behaviours. To cater to Old Money tastes, businesses are thus incentivised to produce classic, discreet goods with a timeless yet functional appeal—a style that can perhaps be encapsulated by the terms “quiet luxury” or “stealth wealth”.

• The professional class (with moderate economic and cultural capital) has a tendency to signal their status in the realm of consumer choice and taste, through superior access to information and knowledge of cultural conventions. Leveraging on their educational background and professional connections, members of the professional class generally focus on accumulating cultural capital rather than economic capital—the latter which they know they cannot out-compete New Money on. In this regard, their status-seeking strategies often centre on emulating Old Money taste, consuming goods with high symbolic complexity, such as “difficult” art and literature, and/or pursuing niche subcultures ahead of other classes. In response, the market provides goods that emphasise or point towards sophistication, e.g. artisanal products and consumer guides for “high” culture and niche interests.

The reason why I took some time to outline above Marx’s analytical framework on how class structures influence demand for different cultural products is because it highlights an important dimension of human culture: for all its inherent subjectivity, its evolution across different contexts is often driven by similar structural dynamics.

Indeed, the dynamics that Marx observed in various culture markets in the 20th century and before may very well animate the emerging 21st century market for digital art and cultural artefacts tokenised as NFTs. In this case, Marx’s framework can be adapted to distinguish the motivations that different groups of people are likely to harbour with regard to collecting NFTs. This will give us a more nuanced picture of the demand-side dynamics of the NFT market, which will form the basis of my proposed framework.

In thinking about what undergirds the demand for NFTs, we need to consider two important questions:

• Who are the people desiring a specific NFT?

• What about that NFT draws them to it?

The “who” and “what” behind the demand for NFTs are related by virtue of the fact that NFTs are status assets. The characteristics of the groups of people making the demand (the “who”) shape their status-seeking strategies, which in turn influences the type of NFTs they covet (the “what”).

Taking reference from Marx’s class-based framework, we can likewise categorise the “who”, i.e. the participants in the NFT market, based on the levels of economic and cultural capital they possess within the crypto space. Four broad groups emerge:

• The crypto rich (with high economic capital and low cultural capital) comprises of those who have amassed large amounts of crypto wealth through skill, luck and/or the injection of external financial capital into crypto. This group includes individual crypto “whales” (i.e. extremely successful traders or investors in the crypto markets), founders of crypto projects, financial institutions seeking to profit from this growing sector (e.g. crypto venture capital firms and investment funds), and New/Old Money pivoting into crypto. Their primary status aim is to leverage their economic capital to bolster their cultural capital as quickly as possible within the crypto space.

• The crypto influential (with high economic and cultural capital) is a group still in the process of formation given the relative nascency of the crypto space. Nevertheless, we can see the seeds of this group sprouting with members of the crypto rich trying to differentiate themselves from their peers by accumulating forms of cultural capital that money cannot necessarily buy. An example of this phenomenon would be NFT collector “whales” setting up cultural institutions to support the promulgation of digital art and crypto-related culture, which also serve as a more durable vehicle to demonstrate their taste, patronage and thought leadership.[5] The accumulation of such “slow” cultural capital is appealing to this group, especially when contrasted against the extreme velocity and volatility of economic capital formation (and loss) in the crypto space—"here, one can be wealthy fast, but can you achieve sustained cultural significance?”

• Crypto professionals and hobbyists (with moderate economic and cultural capital) form the backbone of active builders and users in crypto, either by directly working in crypto-related companies and projects or through a sustained engagement with the space as an area of interest. Because of their relatively early involvement in crypto, they will have accumulated at least a moderate amount of economic capital, which they can use to make targeted acquisitions of status assets. Their main status-seeking strategy would be to leverage on their professional credentials and acquired expertise to distinguish themselves through their supposedly superior knowledge and more refined taste, especially in contrast to the more extravagant crypto rich. In this regard, they may also seek to support and work with members of the crypto influential to accumulate cultural capital.

• New crypto users (with low economic and cultural capital) naturally start at a disadvantage when it comes to status competition within the crypto space. Their primary status aim is likely to focus on gaining economic capital within the crypto space, while trying to maintain a comparable level of cultural capital against their peers. That said, some within this group may quickly work themselves into the crypto rich or among crypto professionals, and their status-seeking strategies will evolve accordingly.

With our four groups of potential NFT collectors established, we now turn to consider the differences in the types of NFTs that they covet. Again referencing the dynamics in Marx’s class-based framework, I deconstructed demand for NFTs as status assets into four pillars, which I summarise in terms of four Ps:

In setting out these four pillars, I want to emphasise that there will inevitably be overlaps between them. In other words, the demand for a specific NFT is likely to span across more than one pillar. Nonetheless, despite this fuzziness, I think it is worthwhile trying to crystallise some of the underlying demand-side dynamics. This is so that we can have a better appreciation of the value of NFTs as an entire asset class, as well as a common frame of reference to better discuss how we ought to value NFTs.

Another key upside in deconstructing the demand for NFTs in this manner is that it shows clearly that there are multiple pathways to success in the NFT space, be it as a creator or collector. By virtue of the different levels of economic and cultural capital we have access to or desire, each of us will be faced with different options and optimisations with regard to the ever-present human desire to seek status. We may not necessarily be playing in the same field, but adjacent ones, in this larger meta-game of status competition. Hence, when 6529 and others speak of rarity, we can appreciate that this might not be the most applicable focus for us, and that there can be other games to play (and win in different ways too).

With these considerations in mind, let us now finally get to the four Ps:

By positionality, I’m taking reference from the concept of positional goods first described by the economist Fred Hirsch in his book, Social Limits to Growth (1976). Such goods are scarce in some absolute manner (e.g. land) or socially-imposed sense (e.g. limited tickets for a sought-after event). Their value is derived from this exclusivity, i.e. that the same goods cannot be consumed by others. As such, positional goods are often potent status symbols—desired by many, but can only be enjoyed by those with the necessary means.

In this regard, the rare NFTs that 6529 has talked about are the ultimate positional goods. Given their blockchain-enforced supply size and provenance, these rare NFTs are highly exclusive in the sense that only a very small number of collectors will be able to own them. Demand exceeds supply easily, and in the end, only the wealthiest, i.e. the crypto rich, will be able to afford them.

At the same time, for NFTs whose demand stems from such positionality, it is not sufficient that they are exclusive. Firstly, beyond having a scarce supply, such “positional” NFTs need to have some fundamental demand too, and this can arise from qualities like artist pedigree and technical proficiency. Where “positional” NFTs differ from those with other demand pillars is that these qualities function more as alibis rather than the primary source of demand—they help their owners to credibly justify the acquisition without them having to be upfront about their status goals. In addition, these qualities need to be widely agreed-upon (social consensus) and easy-to-read (low symbolic complexity) for “positional” NFTs to function as effective status symbols.

As the ranks of the crypto rich grows, a subset will inevitably seek to differentiate themselves from their peers by focusing on accumulating alternative forms of cultural capital beyond just expending money. These people aspire to become the crypto influential, and I use the word “pedigree” to encapsulate the types of NFTs that they will demand—as a counter-signal to their crypto rich peers and to reflect what they believe to be superior cultural capital.

https://x.com/thefunnyguysNFT/status/1876279989085098303

Pedigree, as per its common definition, conveys a dimension of time. Assets with this attribute are regarded as valuable because they are part of a recorded lineage or history, e.g. a heirloom passed down for generations or an artefact reflecting a meaningful relationship evolving over time. They can also reflect assets whose value stems from the background of its creator, rather than the intrinsic qualities of the assets themselves.

Taking this notion of time and creator background together, I would characterise “pedigree” NFTs as tokenised digital artworks and cultural artworks that are sought after primarily for their patina or history as objects, especially where it relates to the relationship over time between the collector and creator. I shall illustrate what I mean by such “pedigree” NFTs by way of a few hypothetical examples:

• An NFT of a digital artwork or cultural artefact that has been owned by the collector for a very long time. (This is especially pertinent for some of the earliest NFTs that were minted.)

• An NFT of a digital artwork or cultural artefact that evolves based on the actions of its owner, and whose evolution thereby reflects culturally or historically-significant actions on the part of its owner.

• An NFT of a digital artwork made by an artist in which the collector has a special relationship with over time, e.g. as a patron and steward even before the artist became established or successful.

• An NFT of a digital artwork made by a successful artist, initially collectable only by those with a special relationship to the artist, which has to be nurtured over time. (This can include commissioned works.)

As can be seen, such “pedigree” NFTs generally demand work on the part of their collectors, either by holding them for long periods of time or nurturing a special relationship with the creators. These extrinsic actions imbue further value to the NFTs, by injecting an aura of historicity to them and solidifying their status as “pedigree” assets. Such work itself probably requires significant resources and leisure time, which is why I think it is the crypto rich who are aspiring to be crypto influential that will be most well-placed to achieve this.

In addition, while “pedigree” NFTs can technically fall under the category of “positional” NFTs, I chose to differentiate them specifically because I think they are special: their demand is based on time-based or relationship-based qualities that money cannot outright buy. One may not necessarily be able to buy a “pedigree” NFT as much as to work towards one, and this makes such assets all the more desirable.

While I haven’t seen much discourse on this specific type of NFTs on Crypto Twitter, I believe they are an important and interesting category to examine, as more and more collectors, especially the crypto rich, seek to imbue their rare, “positional” NFTs with some sort of “pedigree” or cultivate relationships with artists and creators to nurture new “pedigree” NFTs. This is the surest way to build lasting cultural capital, and I’m sure many of the crypto rich collectors know it.

Without the attendant resources to compete effectively for “positional” and “pedigree” NFTs, the most optimal status-seeking strategy for crypto professionals and hobbyists is to bank on their supposedly superior knowledge and more refined taste, which they can justify based on their professional credentials and acquired expertise. The type of NFTs that will gravitate towards is what I call “proficiency” NFTs.[6]

Proficiency, in the context of NFTs, reflects a capability in terms of artistic vision, technical innovation and contextual sensitivity—a virtuosity to create things that react meaningfully to the cultural zeitgeist and/or conjure new ways of seeing or engaging with the world.

Due to this characteristic, “proficiency” NFTs will often seem esoteric, niche and overly-complex—perhaps “ahead of the times” if one is charitable. But it is precisely because of these attributes that crypto professionals and hobbyists will be attracted to them, as they are the ones are likely to have the background knowledge to appreciate the artistic or cultural contributions of such works.

Furthermore, with their moderate economic capital, they are also in the position to champion the “proficient” artists and creators of these NFTs, and have every incentive to do so. Through such patronage, crypto professionals and hobbyists may forge a pathway to become crypto rich or even crypto influential, if their supported artists and creators eventually obtain break-out success and their “proficiency” NFTs become regarded as “positional” NFTs or even “pedigree” NFTs (provided they had put in significant work in the success of the artist or creator). More realistically, at the very least, their forward-looking taste may help them earn the position to impress and gain favours from these wealthier groups.

Of course, not every crypto professional or hobbyist have such naked status ambition. Many will simply support proficient artists and creators simply because they recognise their virtuosity. But I still think that status considerations do play a part in shaping this group’s more sophisticated tastes, and that itself renders this category of “proficiency” NFTs worthy of specific analysis with its own demand pillar.

With limited economic and cultural capital at their disposal, new crypto users can only feasibly compete on status with their peers. Their most optimal status-seeking strategy, as mentioned earlier, is therefore twofold: (i) gain economic capital as fast as possible, and (ii) maintain a comparable level of cultural capital with their peers to avoid losing status. This latter impulse will lead them to covet NFTs that are popular—the ones that almost everyone, especially their peers, seem to be collecting.

For these “popular” NFTs to be widely-collected, especially among new crypto users, they generally need to be accessible in form, i.e. have a low cost and large supply size. They should also have low symbolic complexity in substance—sometimes relying on kitsch to simplify more complex artistic concepts or aesthetics—so that the widest group as possible can find them appealing. As such, “popular” NFTs tend to be comprised of profile picture (PFP) NFTs or gaming-related NFTs, which are often more relatable to the masses as compared to digital art NFTs.

https://x.com/pet3rpan_/status/1877296218361024956

I must add that despite their non-exclusivity, low symbolic complexity and sometimes kitschy characteristics or FOMO-inducing marketing, “popular” NFTs can very well be culturally significant too, through capturing attention at scale.

Creators of such NFTs can thus enjoy ample opportunities for monetisation and commercial success. For collectors, however, while the prospects of financial gain for such widely-owned NFTs may be slim, they can still enjoy other immaterial benefits should their NFTs be eventually seen as culturally significant, e.g. a sense of pride or sense of belonging that they are part of something far bigger than themselves. This is on top of the technical benefits that NFTs provide: provenance, programmability, composability and transparent markets, among others.

If you’ve noticed, I avoided listing any specific examples of NFTs within my description of each of the four pillars above. This was intentional. I did not want to obscure the dynamic nature of demand for NFTs by entrenching them in some static construct.

Instead, I think it is more useful to think of demand for NFTs in terms of trajectories—many do hop across the different demand pillars over time. This will hopefully provide a more precise picture of the demand-side dynamics in the NFT market, reflecting the ever-evolving playing field of status games and their impact on culture.

With that, I will go on to describe a few archetypal trajectories with examples:

Current examples of “positional” NFTs that should be uncontentious would include CryptoPunks and 1/1 artworks by XCOPY. While the demand for these NFTs were initially based on their technical innovation and aesthetic appeal, they have now grown into something exponentially larger—in terms of salience, their “positional” quality now trumps these other earlier demand drivers centred on “proficiency”.

As such, the collector base of these NFTs have shifted, from being almost completely comprised of crypto professionals and hobbyists initially to now incorporating more members of the crypto rich. In fact, these NFTs are now only practicably collectable by the crypto rich.

How these NFTs made the leap from “proficiency” to “positionality” is a murky process of social construction. I posit that this process is fundamentally driven by a steady stream of economic and cultural capital coalescing around these NFTs—their “proficiency” generating a momentum that repeatedly compounds, thus prodding up their value over time and eventually reducing this “proficiency” to an alibi. Of course, what exactly will sustain this momentum in the first place is ultimately subjective, and subject to brutal power laws.

In the end, there can only be one XCOPY. Anyone else who wants to create NFT artworks that becomes regarded as positional assets will need to chart their own innovative path in the right environment.

https://opensea.io/assets/ethereum/0x41A322b28D0fF354040e2CbC676F0320d8c8850d/1154

Besides “proficiency”, “popularity” can also form the seed for “positionality”. In the realm of digital abundance, it is very rare for an idea to become so ingrained in the collective cultural consciousness that everyone just knows it. Those that have made this ascent can thus become very, very valuable.

Memes precisely reflect this dynamic, and unsurprisingly, the most successful ones have been monetised as NFTs. While the speculative energy of the NFT mania of 2021-2022 would have accounted for their high sale prices, we cannot discount how their popularity—earned prior to the advent of NFTs—would have led some to regard them as positional assets.

For example, the original photo of the late Kabosu, the Shiba Inu dog that spawned the iconic Doge meme, was minted as an NFT by its owner Atsuko Sato and auctioned for 1,696 ETH in 2021, which was worth around USD 4 million then. This NFT is now pretty much off the market—its owner, pleasrDAO, has committed not to sell it for now, and has in fact fractionalised the NFT as $DOG tokens, allowing the community to collectively own 45% of the NFT.

https://opensea.io/assets/ethereum/0xabefbc9fd2f806065b4f3c237d4b59d9a97bcac7/3366

In terms of conceptualising “pedigree” NFTs as “positional” NFTs that their owners have further worked on, I think an excellent example is Sam Spratt’s Skulls of Luci—a collection of 49 derivative paintings[7] that the artist made as claimable gifts for anyone who had placed a bid on the first three paintings in his “Luci” series. Reading Sam’s own thread about the Skulls, it is not hard to appreciate the depth of thinking and artistry that has gone behind this collection, and thus understand why it has commanded tremendous value despite originating as a “free” gift.

https://x.com/SamSpratt/status/1620845244198838272

The Skulls’ journey to become “pedigree” NFTs started with Sam’s creation of the Council of Luci, which comprised of holders of the Skulls. As Sam described in an interview with NFT Now, being a member of the Council, and by extension, holder of a Skull, entailed responsibility and work (emphasis below mine):

“[…] I created the council as an experiment. I wanted to see how I could bring this tight group of 50 Skull of Luci holders closer to me and closer to each other. I wanted to do it in a way that was not the proverbial community, without utility or an airdrop.

The council created that communal layer, this story that begins in the image but actually unfolds with the participation of the people around it. The act of collection is not actually just transactional. It is the beginning of an actual bond that, if nurtured and strengthened, can actually do something crazy.

The first initiation took place at my home, the same place I married my wife Rachel. During NFT NYC, I shared this project and what I was trying to do with them. Instead of offering them perks, I made a request: I wanted them to take on responsibility within my art world. They’d be intimately woven into my art in return for offering some of their time and judgment. […]”

For example, the Council was responsible for each nominating an individual to participate in the artist’s epic The Monument Game artwork launched last year, in which players—comprising nominees of the Council and those who minted the artist’s Player NFTs—were invited to record their observations at specific locations of the painting. The Council also collectively voted on the three winning observations, whose Players could then earn a Skull and join their ranks.

As I have mentioned before in an earlier essay, the beauty of The Monument Game “emanates not only from the evocatively-illustrated painting itself, but also the manifold connections linking it to the broader universe of Sam’s creation.” Specifically for the Skulls of Luci, the intimate involvement of their holders in The Monument Game not only grounds the latter with the weight of history, but also confers on themselves an enduring presence: each Skull representing a continued involvement in the development of Sam’s body of work. The responsibility that the Skulls demand, in The Monument Game and beyond, thus form the basis of a pedigree that—like patina—may only become more beautiful with time.

https://x.com/SamSpratt/status/1877120532300071334

A very natural progression is for cultural ideas to emerge from niche groups and diffuse to the mainstream. Likewise, an artwork or cultural artefact initially valued based on its creators’ “proficiency” can also attract enough attention such that it becomes broadly “popular”.

I would argue that Pudgy Penguins, which began as a collection of 8,888 PFP NFTs but is now something far larger, fit this trajectory. Following the ouster of the initial founders in early 2022, the project was acquired by Luca Netz, whose team has embarked on a remarkable revitalisation of the project.

This was centred on the project rolling out physical Pudgy Penguins plushies within a year of the acquisition, and selling over one million of them globally between May 2023 and 2024.[8] On top of that, the project also built up an extremely successful (and compelling) social media profile,[9] and is pursuing several related projects that would further drive attention and demand back to its brand, e.g. games (Pudgy World and Pudgy Party), a L2 blockchain focused on consumer crypto (Abstract), NFT licensing platform (Overpass), and most recently, a fungible token positioned as a memecoin ($PENGU).

All these efforts reflect the team’s ability to bootstrap a successful line of consumer products, and tap on both the technological affordances and culture of blockchains to complement this. While this is not exactly the sort of artistic or technical innovation that I talked about when describing the “proficiency” pillar earlier, I do believe that the Pudgy Penguins team’s understanding of the consumer market and their product strategy still fulfil the tenets of the “proficiency” pillar. They simply did what they set out to do very well, and this ultimately resulted in the breakout popularity of their NFTs and physical products.

In fact, its core NFT collection seems to be poised to become a “positional” asset too, with its floor price showing strength and gaining steadily over the past few months.

My analysis of the demand trajectories of NFTs would be incomplete if I did not consider the scenarios in which NFTs can lose their demand or not even gain any demand in the first place. But since we’re reaching the limits of readability for this essay, I ought to keep this section short.

I’ll just say this: demand is hard to earn, but easy to lose.

An artist or creator doing something distasteful; a new technology rendering existing tools obsolete; aesthetic preferences evolving as quickly as fast fashion; and a market crash, whether in the physical world or in crypto. Any of this and more can easily suck all momentum from a project and evaporate demand.

Likewise, sheer bad luck with social media algorithms; the relentless ephemerality of Internet culture; and people’s inability to “see” the way you do. All of this can also relegate one’s tokenised cultural creations deep beneath the ever-flowing brain rot of our digital feeds—never catching sustained attention, never catching a bid.

This is just the digital world we inhabit now, where everything is abundant, yet attention on anything is so scarce and elusive. Running up a demand pillar and staying there—any pillar—is thus an exercise is gymnastics, and we’ll need to be more flexible and dexterous than ever to keep doing so.

It took me more than 5,000 words to get here, and I certainly don’t expect anyone to be following along these rambling thoughts. But if you’re still with me, I will try to pull everything together with a concise summary of what I have just written over many early mornings and late nights while travelling across the Bolivian altiplano with my wife since the start of this year.

My framework begins with the assertion that NFTs are fundamentally status assets. I know it is unsatisfactory to reduce our demand for these digital objects to an ego-centric, status-seeking impulse. But taking reference from W. David Marx’s analysis in Status and Culture, we shouldn’t ignore the influence that status plays in shaping in our individual taste (at the micro level) and culture (at the macro level). Recognising this relationship and how it manifests based on our access to economic and cultural capital can reveal certain structural dynamics at play, which I believe will help to engender a more robust analysis of the NFT market.

Broadly, I think we can deconstruct demand for NFTs into four pillars: (i) positionality, (ii) pedigree, (iii) proficiency, and (iv) popularity. Each pillar generally has a group of participants coalescing around it, based on their optimal status-seeking strategy:

• The crypto rich seeks “positional” NFTs in an attempt to convert their economic capital to cultural capital in the fastest and most efficient way possible.

• The aspiring crypto influential work on acquiring and developing “pedigree” NFTs that embody qualities that transcend money, so as to differentiate themselves from their crypto rich peers.

• Crypto professionals and hobbyists find most resonance in “proficiency” NFTs given their deep knowledge of blockchain technology and more sophisticated taste. They have an incentive to champion these NFTs given the possibility of status gains as early adopters.

• New crypto users gravitate towards “popular” NFTs to maintain a comparable level of cultural capital with their peers and avoid losing status.

Given that these different groups are always interacting with each other within society and will encounter the same cultural objects, we can expect that the demand for NFTs will be dynamic—hopping across the different demand pillars as these different groups engage with them.

What I ultimately hope to emphasise as part of this framework is that there are multiple pathways to success in the NFT space. Each demand pillar represents just a section of the larger playing field, in which we ultimately have some agency to think about where we want to play in and how we want to play. In this regard, making it into a rarity list, i.e. a positional asset, is not the only game in town. We can aspire towards pedigree, towards proficiency in our craft, towards mastery of the popular cultural zeitgeist—and all of these efforts can yield cultural objects that are worthy of collection and of ownership too!

Finally, regarding the domain of art specifically, there is a legitimate view that the value of art should not be based on the market, and that the practice of serious artists should not be influenced by financial factors. I hope that my framework, which starts by looking at NFTs as status assets, can provide us with a way to systematically examine the fact that NFTs have explicitly brought together the financial and non-financial aspects of art in an unprecedented way. In other words, status provides a unifying concept to appreciate how we can value art taking into account the full range of its interfaces with the world—not only through the market, but also through other arenas like historical legacy, technical virtuosity and popular culture.

NFTs are ultimately a new and exciting class of digital objects—one with many enchanting properties. We’re now just developing our vocabulary to describe and think about them, and I hope this framework I’ve described provides a useful contribution to this discourse.

Disclaimer: Nothing in this essay constitutes investment advice. Please do your own research or consult your own advisers concerning any potential investment decision.

Credits: The header image of this essay is a crop of an artwork titled “Infinite Images ∞ 430”, part of the “Infinite Images ∞” series by Holly Herndon and May Dryhurst that was released through Fellowship last year. The artist duo were given unique access to OpenAI’s DALL-E 1 research model and they experimented with it over the course from November 2021 and March 2022 to create this series of 682 artworks—the first images made with the DALL-E 1 model. This series is significant in that it marks another milestone in the concept of communicating with neural networks through human language to produce images, with DALL-E 1 being one of the first contemporary text-to-image AI models.

The full work is displayed below and it is currently in my personal digital art collection.

https://opensea.io/assets/ethereum/0x177C5A25b3b1e32E6E66FF4C243ce6f713D15ECe/430

Footnotes:

[1] Of course, it cannot be denied that a lot of the demand for NFTs has been for short-term financial speculation thus far. In the long run, however, as the market broadens and matures, I do think the fundamental driver of demand for NFTs will move to status signalling rather than speculation. Two reasons: firstly, the non-fungibility and wide design space of NFTs make them ideal as a marker of differentiation, perfect for status signalling; secondly, fungible tokens in the form of memecoins have proven to be a more suitable instrument for financial speculation, which has probably drawn some of the most speculative crypto participants away from the NFT market.

[2] For example, in the Art Basel and UBS’ survey of 3,660 high-net-worth art collectors around the world last year, self-focused motivations were ranked as the top consideration in purchasing a work of art by the most number of collectors (40% of survey participants), exceeding financial investment (24%) and building relationships with others (24%). While the survey defines self-focused motivations broadly, i.e. including “self-identity or self-esteem, personal pleasure, the desire to improve one’s self-image, or other aesthetic and decorative drivers”, most of such self-focused motivations are influenced in part by the instinct to maintain or improve our individual social status. One cannot divorce our self-identity from our existence as a social being within a social hierarchy. In this context, our instincts to avoid low status, maintain normal status or gain higher status will subconsciously influence the types of conventions, aesthetic styles and objects we find attractive or pleasurable, thus playing an unseen role in shaping the personas and identities we construct of ourselves.

[3] Patina refers to the changes in the surface appearance of an object (usually one made of metal, wood or leather) acquired through age and exposure. It can be regarded as beautiful and valued aesthetically, e.g. the patina on antiques and high-quality leather goods. In his book, Culture and Consumption: New Approaches to the Symbolic Character of Consumer Goods and Activities (1988), the anthropologist Grant McCracken examined how patina served a symbolic function since medieval times, with families of high standing passing down prized possessions to future generations, and the patina on these possessions in turn legitimising the status of the family. However, the value of patina has since been challenged by the rise of mass consumerism and the accelerating pace of fashion, which prioritise novelty over the old and inherited.

[4] Cultural omnivorousness is term first coined by the sociologist Richard Peterson in a 1992 paper, "Understanding audience segmentation: From elite and mass to omnivore and univore". It refers to a particular orientation towards cultural consumption that is characterised by a breadth of taste and a willingness to appreciate both high-brow and low-brow culture. Possible factors accounting for the advent of this orientation include the opportunity to experience a wider set of cultural genres thanks to globalisation and the Internet, the rise of the middle class in both developed and developing economies, as well as the political ideal of cultural inclusion.

[5] Specific examples of this are Le Random co-founded by thefunnyguys and Zack Taylor, 6529 and his team’s various efforts to create an open metaverse, and Cozomo de’ Medici’s Medici Minutes newsletter.

[6] It would be more grammatical to call them NFTs created by proficient artists and creators, but I shall use this more unorthodox formulation in the interest of brevity.

[7] The 49 Skulls of Luci were derived from The Blueprint Skull.

[8] Disclosure: I bought a pair of plushies to give out as prizes for a lucky draw held during my own wedding banquet in January 2024. Unfortunately, I do not own any Pudgy Penguins NFTs.

[9] As of 10 January 2024, Pudgy Penguins has 1.7 million followers on Instagram, and more than 500,000 followers on TikTok. Its gif animations have also garnered over 38 billion cumulative views on Giphy.

On the first day of this new year, the influential NFT collector 6529 posted a banger thread on Twitter, arguing for why non-fungible tokens (NFTs) are the “scarcest, rarest, [and] most apex” tokens in the crypto space.

https://x.com/punk6529/status/1874496206300156143

This thread has since sparked some lively discourse on Crypto Twitter, in particular on how we determine the rarity of such NFTs and the value of creating lists of these “rare” NFTs. Among the major criticisms of attempts to create such lists include the following:

• Those creating lists are simply promoting the NFTs they hold, exacerbating an unhealthy culture in which vested interests and excessive hype predominate.

• Attempts at evaluating rarity of particular NFTs also tend to prioritise their market performance, thus downplaying other attributes that could arguably be more important for cultural significance, especially over the longer term, e.g. artistic innovation and technical proficiency.

While I am in agreement with the gist of 6529’s thread, I believe we’ll need a more expansive way of thinking about why NFTs can be incredibly—if not mind-bogglingly—valuable beyond the single metric of rarity based on power laws.

https://x.com/shibboleth88/status/1876219006450835660

To do so, we ought to start first by examining what undergirds demand for NFTs in the first place. After all, no matter how rare an NFT is, it cannot be deemed valuable unless there is some sort of demand for it. As the artist Jack Butcher tweeted: “rarity is a function of demand, not quantity”. In fact, rarity is just one of many factors that drive demand for NFTs, and I do think that a broader framework that takes these other factors into account can help mitigate some of the angst arising from 6529’s thread.

In this essay, I shall make an attempt to outline such a framework, and I will begin my endeavour with a simple assertion:

NFTs are first and foremost status assets.

By status assets, I mean assets whose fundamental source of demand lies in how they enable us to signal our social status.[1] In other words, the value of status assets is primarily symbolic. Owning them conveys our sense of taste, our relationship with prevailing cultural conventions, and of course the economic and cultural capital we have our disposal to acquire such assets—all of which ultimately feed into our perceived positioning within the myriad social hierarchies that surround us.

Traditional art and physical collectibles are prime examples of status assets. While people purchase artworks and collectibles for all sorts of reasons, it shouldn’t be contentious that the desire to enhance one’s self-identity and consequently one’s social status is a significant underlying factor.[2]

By extension, NFTs which represent or embody digital art or cultural artefacts ought to be considered status assets too. After all, the same self-focused motivations animating a collector of traditional art should likewise apply to a collector of digital art NFTs. This collector might credibly claim that they’re buying a particular NFT “for the art”, but it would be disingenuous if they ignored the role of status in their aesthetic preferences and consumer choices.

Now, you might ask: how does acknowledging that NFTs—as digital art or cultural artefacts—are status assets help us to better evaluate their potential demand and thus value? To address this, we’ll need to make a detour first to unpack the relationship between status and culture.

In his book, Status and Culture: How Our Desire for Social Rank Creates Taste, Identity, Art, Fashion, and Constant Change (2022), fashion and culture writer W. David Marx put forth an ambitious thesis that status and culture are inextricably linked. More specifically, Marx argued that the aggregate of our individual status-seeking efforts on a micro level engenders commonalities of behaviour on a macro level that ultimately help drive the production and distribution of culture. In his words:

“Status shapes our aspirations and desires, sets standards for beauty and goodness, frames our identities, creates collective [behaviours] and morals, encourages the invention of new aesthetic sensibilities, and acts as an automated motor for permanent cultural change. Culture is embodied in the products, [behaviours], styles, meanings, values and sensibilities that make up the human experience—and it is status that guides their creation, production, and diffusion.”

It is not my intent to outline Marx’s arguments in Status and Culture in full here, but I want to highlight his analysis regarding the status-seeking strategies of different socio-economic classes and how it maps to the development of different cultural products and trends. I think this is particularly relevant for thinking about the demand-side dynamics of the NFT market, which I will get to later.

To begin, Marx’s analysis is premised on the fact that members of the same socio-economic class possess similar levels of economic and cultural capital, which leads them to pursue similar status-seeking strategies. By demanding similar types of status assets then, each socio-economic class thus engenders distinct markets that cater to their specific taste. The outcome of this, as Marx observed, was that “a majority of society’s cultural [artefacts] and stylistic conventions—at least the most conspicuous ones used in signalling—exist in large part to serve the distinction needs of classes”.

Specifically, Marx looked at the following four groups:

• New Money (with extremely high economic capital and low cultural capital) tends to signal their status through sheer wealth, creating an extravagant sensibility based on conspicuous consumption. Their emphasis on using their economic capital to signal their status spurs the creation of expensive luxury goods, such as sports cars, mansions and designer clothes. These luxury goods generally have low symbolic complexity: they are so easy-to-read that virtually everyone would know that the owner of such goods is a rich person. Equally important, they should also offer a practical alibi: the owner can credibly claim that they bought such goods based on their superior functionality and/or quality, without explicitly acknowledging their status-seeking motivations.

• Old Money (with high economic and cultural capital) tends to signal their status in opposition to New Money’s extravagance, preferring quieter and more subtle sensibilities that emphasise their cultural capital. This may lead them to focus more on status assets with a signalling cost based on time rather than outright wealth, i.e. assets with patina[3], whose status value stems from their appearance of age, celebration of heritage and/or critique of contemporary consumption behaviours. To cater to Old Money tastes, businesses are thus incentivised to produce classic, discreet goods with a timeless yet functional appeal—a style that can perhaps be encapsulated by the terms “quiet luxury” or “stealth wealth”.

• The professional class (with moderate economic and cultural capital) has a tendency to signal their status in the realm of consumer choice and taste, through superior access to information and knowledge of cultural conventions. Leveraging on their educational background and professional connections, members of the professional class generally focus on accumulating cultural capital rather than economic capital—the latter which they know they cannot out-compete New Money on. In this regard, their status-seeking strategies often centre on emulating Old Money taste, consuming goods with high symbolic complexity, such as “difficult” art and literature, and/or pursuing niche subcultures ahead of other classes. In response, the market provides goods that emphasise or point towards sophistication, e.g. artisanal products and consumer guides for “high” culture and niche interests.

The reason why I took some time to outline above Marx’s analytical framework on how class structures influence demand for different cultural products is because it highlights an important dimension of human culture: for all its inherent subjectivity, its evolution across different contexts is often driven by similar structural dynamics.

Indeed, the dynamics that Marx observed in various culture markets in the 20th century and before may very well animate the emerging 21st century market for digital art and cultural artefacts tokenised as NFTs. In this case, Marx’s framework can be adapted to distinguish the motivations that different groups of people are likely to harbour with regard to collecting NFTs. This will give us a more nuanced picture of the demand-side dynamics of the NFT market, which will form the basis of my proposed framework.

In thinking about what undergirds the demand for NFTs, we need to consider two important questions:

• Who are the people desiring a specific NFT?

• What about that NFT draws them to it?

The “who” and “what” behind the demand for NFTs are related by virtue of the fact that NFTs are status assets. The characteristics of the groups of people making the demand (the “who”) shape their status-seeking strategies, which in turn influences the type of NFTs they covet (the “what”).

Taking reference from Marx’s class-based framework, we can likewise categorise the “who”, i.e. the participants in the NFT market, based on the levels of economic and cultural capital they possess within the crypto space. Four broad groups emerge:

• The crypto rich (with high economic capital and low cultural capital) comprises of those who have amassed large amounts of crypto wealth through skill, luck and/or the injection of external financial capital into crypto. This group includes individual crypto “whales” (i.e. extremely successful traders or investors in the crypto markets), founders of crypto projects, financial institutions seeking to profit from this growing sector (e.g. crypto venture capital firms and investment funds), and New/Old Money pivoting into crypto. Their primary status aim is to leverage their economic capital to bolster their cultural capital as quickly as possible within the crypto space.

• The crypto influential (with high economic and cultural capital) is a group still in the process of formation given the relative nascency of the crypto space. Nevertheless, we can see the seeds of this group sprouting with members of the crypto rich trying to differentiate themselves from their peers by accumulating forms of cultural capital that money cannot necessarily buy. An example of this phenomenon would be NFT collector “whales” setting up cultural institutions to support the promulgation of digital art and crypto-related culture, which also serve as a more durable vehicle to demonstrate their taste, patronage and thought leadership.[5] The accumulation of such “slow” cultural capital is appealing to this group, especially when contrasted against the extreme velocity and volatility of economic capital formation (and loss) in the crypto space—"here, one can be wealthy fast, but can you achieve sustained cultural significance?”

• Crypto professionals and hobbyists (with moderate economic and cultural capital) form the backbone of active builders and users in crypto, either by directly working in crypto-related companies and projects or through a sustained engagement with the space as an area of interest. Because of their relatively early involvement in crypto, they will have accumulated at least a moderate amount of economic capital, which they can use to make targeted acquisitions of status assets. Their main status-seeking strategy would be to leverage on their professional credentials and acquired expertise to distinguish themselves through their supposedly superior knowledge and more refined taste, especially in contrast to the more extravagant crypto rich. In this regard, they may also seek to support and work with members of the crypto influential to accumulate cultural capital.

• New crypto users (with low economic and cultural capital) naturally start at a disadvantage when it comes to status competition within the crypto space. Their primary status aim is likely to focus on gaining economic capital within the crypto space, while trying to maintain a comparable level of cultural capital against their peers. That said, some within this group may quickly work themselves into the crypto rich or among crypto professionals, and their status-seeking strategies will evolve accordingly.

With our four groups of potential NFT collectors established, we now turn to consider the differences in the types of NFTs that they covet. Again referencing the dynamics in Marx’s class-based framework, I deconstructed demand for NFTs as status assets into four pillars, which I summarise in terms of four Ps:

In setting out these four pillars, I want to emphasise that there will inevitably be overlaps between them. In other words, the demand for a specific NFT is likely to span across more than one pillar. Nonetheless, despite this fuzziness, I think it is worthwhile trying to crystallise some of the underlying demand-side dynamics. This is so that we can have a better appreciation of the value of NFTs as an entire asset class, as well as a common frame of reference to better discuss how we ought to value NFTs.

Another key upside in deconstructing the demand for NFTs in this manner is that it shows clearly that there are multiple pathways to success in the NFT space, be it as a creator or collector. By virtue of the different levels of economic and cultural capital we have access to or desire, each of us will be faced with different options and optimisations with regard to the ever-present human desire to seek status. We may not necessarily be playing in the same field, but adjacent ones, in this larger meta-game of status competition. Hence, when 6529 and others speak of rarity, we can appreciate that this might not be the most applicable focus for us, and that there can be other games to play (and win in different ways too).

With these considerations in mind, let us now finally get to the four Ps:

By positionality, I’m taking reference from the concept of positional goods first described by the economist Fred Hirsch in his book, Social Limits to Growth (1976). Such goods are scarce in some absolute manner (e.g. land) or socially-imposed sense (e.g. limited tickets for a sought-after event). Their value is derived from this exclusivity, i.e. that the same goods cannot be consumed by others. As such, positional goods are often potent status symbols—desired by many, but can only be enjoyed by those with the necessary means.

In this regard, the rare NFTs that 6529 has talked about are the ultimate positional goods. Given their blockchain-enforced supply size and provenance, these rare NFTs are highly exclusive in the sense that only a very small number of collectors will be able to own them. Demand exceeds supply easily, and in the end, only the wealthiest, i.e. the crypto rich, will be able to afford them.

At the same time, for NFTs whose demand stems from such positionality, it is not sufficient that they are exclusive. Firstly, beyond having a scarce supply, such “positional” NFTs need to have some fundamental demand too, and this can arise from qualities like artist pedigree and technical proficiency. Where “positional” NFTs differ from those with other demand pillars is that these qualities function more as alibis rather than the primary source of demand—they help their owners to credibly justify the acquisition without them having to be upfront about their status goals. In addition, these qualities need to be widely agreed-upon (social consensus) and easy-to-read (low symbolic complexity) for “positional” NFTs to function as effective status symbols.

As the ranks of the crypto rich grows, a subset will inevitably seek to differentiate themselves from their peers by focusing on accumulating alternative forms of cultural capital beyond just expending money. These people aspire to become the crypto influential, and I use the word “pedigree” to encapsulate the types of NFTs that they will demand—as a counter-signal to their crypto rich peers and to reflect what they believe to be superior cultural capital.

https://x.com/thefunnyguysNFT/status/1876279989085098303

Pedigree, as per its common definition, conveys a dimension of time. Assets with this attribute are regarded as valuable because they are part of a recorded lineage or history, e.g. a heirloom passed down for generations or an artefact reflecting a meaningful relationship evolving over time. They can also reflect assets whose value stems from the background of its creator, rather than the intrinsic qualities of the assets themselves.

Taking this notion of time and creator background together, I would characterise “pedigree” NFTs as tokenised digital artworks and cultural artworks that are sought after primarily for their patina or history as objects, especially where it relates to the relationship over time between the collector and creator. I shall illustrate what I mean by such “pedigree” NFTs by way of a few hypothetical examples:

• An NFT of a digital artwork or cultural artefact that has been owned by the collector for a very long time. (This is especially pertinent for some of the earliest NFTs that were minted.)

• An NFT of a digital artwork or cultural artefact that evolves based on the actions of its owner, and whose evolution thereby reflects culturally or historically-significant actions on the part of its owner.

• An NFT of a digital artwork made by an artist in which the collector has a special relationship with over time, e.g. as a patron and steward even before the artist became established or successful.

• An NFT of a digital artwork made by a successful artist, initially collectable only by those with a special relationship to the artist, which has to be nurtured over time. (This can include commissioned works.)

As can be seen, such “pedigree” NFTs generally demand work on the part of their collectors, either by holding them for long periods of time or nurturing a special relationship with the creators. These extrinsic actions imbue further value to the NFTs, by injecting an aura of historicity to them and solidifying their status as “pedigree” assets. Such work itself probably requires significant resources and leisure time, which is why I think it is the crypto rich who are aspiring to be crypto influential that will be most well-placed to achieve this.

In addition, while “pedigree” NFTs can technically fall under the category of “positional” NFTs, I chose to differentiate them specifically because I think they are special: their demand is based on time-based or relationship-based qualities that money cannot outright buy. One may not necessarily be able to buy a “pedigree” NFT as much as to work towards one, and this makes such assets all the more desirable.

While I haven’t seen much discourse on this specific type of NFTs on Crypto Twitter, I believe they are an important and interesting category to examine, as more and more collectors, especially the crypto rich, seek to imbue their rare, “positional” NFTs with some sort of “pedigree” or cultivate relationships with artists and creators to nurture new “pedigree” NFTs. This is the surest way to build lasting cultural capital, and I’m sure many of the crypto rich collectors know it.

Without the attendant resources to compete effectively for “positional” and “pedigree” NFTs, the most optimal status-seeking strategy for crypto professionals and hobbyists is to bank on their supposedly superior knowledge and more refined taste, which they can justify based on their professional credentials and acquired expertise. The type of NFTs that will gravitate towards is what I call “proficiency” NFTs.[6]

Proficiency, in the context of NFTs, reflects a capability in terms of artistic vision, technical innovation and contextual sensitivity—a virtuosity to create things that react meaningfully to the cultural zeitgeist and/or conjure new ways of seeing or engaging with the world.

Due to this characteristic, “proficiency” NFTs will often seem esoteric, niche and overly-complex—perhaps “ahead of the times” if one is charitable. But it is precisely because of these attributes that crypto professionals and hobbyists will be attracted to them, as they are the ones are likely to have the background knowledge to appreciate the artistic or cultural contributions of such works.

Furthermore, with their moderate economic capital, they are also in the position to champion the “proficient” artists and creators of these NFTs, and have every incentive to do so. Through such patronage, crypto professionals and hobbyists may forge a pathway to become crypto rich or even crypto influential, if their supported artists and creators eventually obtain break-out success and their “proficiency” NFTs become regarded as “positional” NFTs or even “pedigree” NFTs (provided they had put in significant work in the success of the artist or creator). More realistically, at the very least, their forward-looking taste may help them earn the position to impress and gain favours from these wealthier groups.

Of course, not every crypto professional or hobbyist have such naked status ambition. Many will simply support proficient artists and creators simply because they recognise their virtuosity. But I still think that status considerations do play a part in shaping this group’s more sophisticated tastes, and that itself renders this category of “proficiency” NFTs worthy of specific analysis with its own demand pillar.

With limited economic and cultural capital at their disposal, new crypto users can only feasibly compete on status with their peers. Their most optimal status-seeking strategy, as mentioned earlier, is therefore twofold: (i) gain economic capital as fast as possible, and (ii) maintain a comparable level of cultural capital with their peers to avoid losing status. This latter impulse will lead them to covet NFTs that are popular—the ones that almost everyone, especially their peers, seem to be collecting.

For these “popular” NFTs to be widely-collected, especially among new crypto users, they generally need to be accessible in form, i.e. have a low cost and large supply size. They should also have low symbolic complexity in substance—sometimes relying on kitsch to simplify more complex artistic concepts or aesthetics—so that the widest group as possible can find them appealing. As such, “popular” NFTs tend to be comprised of profile picture (PFP) NFTs or gaming-related NFTs, which are often more relatable to the masses as compared to digital art NFTs.

https://x.com/pet3rpan_/status/1877296218361024956

I must add that despite their non-exclusivity, low symbolic complexity and sometimes kitschy characteristics or FOMO-inducing marketing, “popular” NFTs can very well be culturally significant too, through capturing attention at scale.

Creators of such NFTs can thus enjoy ample opportunities for monetisation and commercial success. For collectors, however, while the prospects of financial gain for such widely-owned NFTs may be slim, they can still enjoy other immaterial benefits should their NFTs be eventually seen as culturally significant, e.g. a sense of pride or sense of belonging that they are part of something far bigger than themselves. This is on top of the technical benefits that NFTs provide: provenance, programmability, composability and transparent markets, among others.

If you’ve noticed, I avoided listing any specific examples of NFTs within my description of each of the four pillars above. This was intentional. I did not want to obscure the dynamic nature of demand for NFTs by entrenching them in some static construct.

Instead, I think it is more useful to think of demand for NFTs in terms of trajectories—many do hop across the different demand pillars over time. This will hopefully provide a more precise picture of the demand-side dynamics in the NFT market, reflecting the ever-evolving playing field of status games and their impact on culture.

With that, I will go on to describe a few archetypal trajectories with examples:

Current examples of “positional” NFTs that should be uncontentious would include CryptoPunks and 1/1 artworks by XCOPY. While the demand for these NFTs were initially based on their technical innovation and aesthetic appeal, they have now grown into something exponentially larger—in terms of salience, their “positional” quality now trumps these other earlier demand drivers centred on “proficiency”.

As such, the collector base of these NFTs have shifted, from being almost completely comprised of crypto professionals and hobbyists initially to now incorporating more members of the crypto rich. In fact, these NFTs are now only practicably collectable by the crypto rich.

How these NFTs made the leap from “proficiency” to “positionality” is a murky process of social construction. I posit that this process is fundamentally driven by a steady stream of economic and cultural capital coalescing around these NFTs—their “proficiency” generating a momentum that repeatedly compounds, thus prodding up their value over time and eventually reducing this “proficiency” to an alibi. Of course, what exactly will sustain this momentum in the first place is ultimately subjective, and subject to brutal power laws.

In the end, there can only be one XCOPY. Anyone else who wants to create NFT artworks that becomes regarded as positional assets will need to chart their own innovative path in the right environment.

https://opensea.io/assets/ethereum/0x41A322b28D0fF354040e2CbC676F0320d8c8850d/1154

Besides “proficiency”, “popularity” can also form the seed for “positionality”. In the realm of digital abundance, it is very rare for an idea to become so ingrained in the collective cultural consciousness that everyone just knows it. Those that have made this ascent can thus become very, very valuable.

Memes precisely reflect this dynamic, and unsurprisingly, the most successful ones have been monetised as NFTs. While the speculative energy of the NFT mania of 2021-2022 would have accounted for their high sale prices, we cannot discount how their popularity—earned prior to the advent of NFTs—would have led some to regard them as positional assets.

For example, the original photo of the late Kabosu, the Shiba Inu dog that spawned the iconic Doge meme, was minted as an NFT by its owner Atsuko Sato and auctioned for 1,696 ETH in 2021, which was worth around USD 4 million then. This NFT is now pretty much off the market—its owner, pleasrDAO, has committed not to sell it for now, and has in fact fractionalised the NFT as $DOG tokens, allowing the community to collectively own 45% of the NFT.

https://opensea.io/assets/ethereum/0xabefbc9fd2f806065b4f3c237d4b59d9a97bcac7/3366

In terms of conceptualising “pedigree” NFTs as “positional” NFTs that their owners have further worked on, I think an excellent example is Sam Spratt’s Skulls of Luci—a collection of 49 derivative paintings[7] that the artist made as claimable gifts for anyone who had placed a bid on the first three paintings in his “Luci” series. Reading Sam’s own thread about the Skulls, it is not hard to appreciate the depth of thinking and artistry that has gone behind this collection, and thus understand why it has commanded tremendous value despite originating as a “free” gift.

https://x.com/SamSpratt/status/1620845244198838272

The Skulls’ journey to become “pedigree” NFTs started with Sam’s creation of the Council of Luci, which comprised of holders of the Skulls. As Sam described in an interview with NFT Now, being a member of the Council, and by extension, holder of a Skull, entailed responsibility and work (emphasis below mine):

“[…] I created the council as an experiment. I wanted to see how I could bring this tight group of 50 Skull of Luci holders closer to me and closer to each other. I wanted to do it in a way that was not the proverbial community, without utility or an airdrop.

The council created that communal layer, this story that begins in the image but actually unfolds with the participation of the people around it. The act of collection is not actually just transactional. It is the beginning of an actual bond that, if nurtured and strengthened, can actually do something crazy.

The first initiation took place at my home, the same place I married my wife Rachel. During NFT NYC, I shared this project and what I was trying to do with them. Instead of offering them perks, I made a request: I wanted them to take on responsibility within my art world. They’d be intimately woven into my art in return for offering some of their time and judgment. […]”

For example, the Council was responsible for each nominating an individual to participate in the artist’s epic The Monument Game artwork launched last year, in which players—comprising nominees of the Council and those who minted the artist’s Player NFTs—were invited to record their observations at specific locations of the painting. The Council also collectively voted on the three winning observations, whose Players could then earn a Skull and join their ranks.

As I have mentioned before in an earlier essay, the beauty of The Monument Game “emanates not only from the evocatively-illustrated painting itself, but also the manifold connections linking it to the broader universe of Sam’s creation.” Specifically for the Skulls of Luci, the intimate involvement of their holders in The Monument Game not only grounds the latter with the weight of history, but also confers on themselves an enduring presence: each Skull representing a continued involvement in the development of Sam’s body of work. The responsibility that the Skulls demand, in The Monument Game and beyond, thus form the basis of a pedigree that—like patina—may only become more beautiful with time.

https://x.com/SamSpratt/status/1877120532300071334

A very natural progression is for cultural ideas to emerge from niche groups and diffuse to the mainstream. Likewise, an artwork or cultural artefact initially valued based on its creators’ “proficiency” can also attract enough attention such that it becomes broadly “popular”.

I would argue that Pudgy Penguins, which began as a collection of 8,888 PFP NFTs but is now something far larger, fit this trajectory. Following the ouster of the initial founders in early 2022, the project was acquired by Luca Netz, whose team has embarked on a remarkable revitalisation of the project.

This was centred on the project rolling out physical Pudgy Penguins plushies within a year of the acquisition, and selling over one million of them globally between May 2023 and 2024.[8] On top of that, the project also built up an extremely successful (and compelling) social media profile,[9] and is pursuing several related projects that would further drive attention and demand back to its brand, e.g. games (Pudgy World and Pudgy Party), a L2 blockchain focused on consumer crypto (Abstract), NFT licensing platform (Overpass), and most recently, a fungible token positioned as a memecoin ($PENGU).

All these efforts reflect the team’s ability to bootstrap a successful line of consumer products, and tap on both the technological affordances and culture of blockchains to complement this. While this is not exactly the sort of artistic or technical innovation that I talked about when describing the “proficiency” pillar earlier, I do believe that the Pudgy Penguins team’s understanding of the consumer market and their product strategy still fulfil the tenets of the “proficiency” pillar. They simply did what they set out to do very well, and this ultimately resulted in the breakout popularity of their NFTs and physical products.

In fact, its core NFT collection seems to be poised to become a “positional” asset too, with its floor price showing strength and gaining steadily over the past few months.

My analysis of the demand trajectories of NFTs would be incomplete if I did not consider the scenarios in which NFTs can lose their demand or not even gain any demand in the first place. But since we’re reaching the limits of readability for this essay, I ought to keep this section short.

I’ll just say this: demand is hard to earn, but easy to lose.

An artist or creator doing something distasteful; a new technology rendering existing tools obsolete; aesthetic preferences evolving as quickly as fast fashion; and a market crash, whether in the physical world or in crypto. Any of this and more can easily suck all momentum from a project and evaporate demand.

Likewise, sheer bad luck with social media algorithms; the relentless ephemerality of Internet culture; and people’s inability to “see” the way you do. All of this can also relegate one’s tokenised cultural creations deep beneath the ever-flowing brain rot of our digital feeds—never catching sustained attention, never catching a bid.

This is just the digital world we inhabit now, where everything is abundant, yet attention on anything is so scarce and elusive. Running up a demand pillar and staying there—any pillar—is thus an exercise is gymnastics, and we’ll need to be more flexible and dexterous than ever to keep doing so.

It took me more than 5,000 words to get here, and I certainly don’t expect anyone to be following along these rambling thoughts. But if you’re still with me, I will try to pull everything together with a concise summary of what I have just written over many early mornings and late nights while travelling across the Bolivian altiplano with my wife since the start of this year.

My framework begins with the assertion that NFTs are fundamentally status assets. I know it is unsatisfactory to reduce our demand for these digital objects to an ego-centric, status-seeking impulse. But taking reference from W. David Marx’s analysis in Status and Culture, we shouldn’t ignore the influence that status plays in shaping in our individual taste (at the micro level) and culture (at the macro level). Recognising this relationship and how it manifests based on our access to economic and cultural capital can reveal certain structural dynamics at play, which I believe will help to engender a more robust analysis of the NFT market.

Broadly, I think we can deconstruct demand for NFTs into four pillars: (i) positionality, (ii) pedigree, (iii) proficiency, and (iv) popularity. Each pillar generally has a group of participants coalescing around it, based on their optimal status-seeking strategy:

• The crypto rich seeks “positional” NFTs in an attempt to convert their economic capital to cultural capital in the fastest and most efficient way possible.

• The aspiring crypto influential work on acquiring and developing “pedigree” NFTs that embody qualities that transcend money, so as to differentiate themselves from their crypto rich peers.

• Crypto professionals and hobbyists find most resonance in “proficiency” NFTs given their deep knowledge of blockchain technology and more sophisticated taste. They have an incentive to champion these NFTs given the possibility of status gains as early adopters.

• New crypto users gravitate towards “popular” NFTs to maintain a comparable level of cultural capital with their peers and avoid losing status.

Given that these different groups are always interacting with each other within society and will encounter the same cultural objects, we can expect that the demand for NFTs will be dynamic—hopping across the different demand pillars as these different groups engage with them.

What I ultimately hope to emphasise as part of this framework is that there are multiple pathways to success in the NFT space. Each demand pillar represents just a section of the larger playing field, in which we ultimately have some agency to think about where we want to play in and how we want to play. In this regard, making it into a rarity list, i.e. a positional asset, is not the only game in town. We can aspire towards pedigree, towards proficiency in our craft, towards mastery of the popular cultural zeitgeist—and all of these efforts can yield cultural objects that are worthy of collection and of ownership too!

Finally, regarding the domain of art specifically, there is a legitimate view that the value of art should not be based on the market, and that the practice of serious artists should not be influenced by financial factors. I hope that my framework, which starts by looking at NFTs as status assets, can provide us with a way to systematically examine the fact that NFTs have explicitly brought together the financial and non-financial aspects of art in an unprecedented way. In other words, status provides a unifying concept to appreciate how we can value art taking into account the full range of its interfaces with the world—not only through the market, but also through other arenas like historical legacy, technical virtuosity and popular culture.

NFTs are ultimately a new and exciting class of digital objects—one with many enchanting properties. We’re now just developing our vocabulary to describe and think about them, and I hope this framework I’ve described provides a useful contribution to this discourse.

Disclaimer: Nothing in this essay constitutes investment advice. Please do your own research or consult your own advisers concerning any potential investment decision.

Credits: The header image of this essay is a crop of an artwork titled “Infinite Images ∞ 430”, part of the “Infinite Images ∞” series by Holly Herndon and May Dryhurst that was released through Fellowship last year. The artist duo were given unique access to OpenAI’s DALL-E 1 research model and they experimented with it over the course from November 2021 and March 2022 to create this series of 682 artworks—the first images made with the DALL-E 1 model. This series is significant in that it marks another milestone in the concept of communicating with neural networks through human language to produce images, with DALL-E 1 being one of the first contemporary text-to-image AI models.

The full work is displayed below and it is currently in my personal digital art collection.

https://opensea.io/assets/ethereum/0x177C5A25b3b1e32E6E66FF4C243ce6f713D15ECe/430

Footnotes:

[1] Of course, it cannot be denied that a lot of the demand for NFTs has been for short-term financial speculation thus far. In the long run, however, as the market broadens and matures, I do think the fundamental driver of demand for NFTs will move to status signalling rather than speculation. Two reasons: firstly, the non-fungibility and wide design space of NFTs make them ideal as a marker of differentiation, perfect for status signalling; secondly, fungible tokens in the form of memecoins have proven to be a more suitable instrument for financial speculation, which has probably drawn some of the most speculative crypto participants away from the NFT market.

[2] For example, in the Art Basel and UBS’ survey of 3,660 high-net-worth art collectors around the world last year, self-focused motivations were ranked as the top consideration in purchasing a work of art by the most number of collectors (40% of survey participants), exceeding financial investment (24%) and building relationships with others (24%). While the survey defines self-focused motivations broadly, i.e. including “self-identity or self-esteem, personal pleasure, the desire to improve one’s self-image, or other aesthetic and decorative drivers”, most of such self-focused motivations are influenced in part by the instinct to maintain or improve our individual social status. One cannot divorce our self-identity from our existence as a social being within a social hierarchy. In this context, our instincts to avoid low status, maintain normal status or gain higher status will subconsciously influence the types of conventions, aesthetic styles and objects we find attractive or pleasurable, thus playing an unseen role in shaping the personas and identities we construct of ourselves.

[3] Patina refers to the changes in the surface appearance of an object (usually one made of metal, wood or leather) acquired through age and exposure. It can be regarded as beautiful and valued aesthetically, e.g. the patina on antiques and high-quality leather goods. In his book, Culture and Consumption: New Approaches to the Symbolic Character of Consumer Goods and Activities (1988), the anthropologist Grant McCracken examined how patina served a symbolic function since medieval times, with families of high standing passing down prized possessions to future generations, and the patina on these possessions in turn legitimising the status of the family. However, the value of patina has since been challenged by the rise of mass consumerism and the accelerating pace of fashion, which prioritise novelty over the old and inherited.

[4] Cultural omnivorousness is term first coined by the sociologist Richard Peterson in a 1992 paper, "Understanding audience segmentation: From elite and mass to omnivore and univore". It refers to a particular orientation towards cultural consumption that is characterised by a breadth of taste and a willingness to appreciate both high-brow and low-brow culture. Possible factors accounting for the advent of this orientation include the opportunity to experience a wider set of cultural genres thanks to globalisation and the Internet, the rise of the middle class in both developed and developing economies, as well as the political ideal of cultural inclusion.

[5] Specific examples of this are Le Random co-founded by thefunnyguys and Zack Taylor, 6529 and his team’s various efforts to create an open metaverse, and Cozomo de’ Medici’s Medici Minutes newsletter.

[6] It would be more grammatical to call them NFTs created by proficient artists and creators, but I shall use this more unorthodox formulation in the interest of brevity.

[7] The 49 Skulls of Luci were derived from The Blueprint Skull.

[8] Disclosure: I bought a pair of plushies to give out as prizes for a lucky draw held during my own wedding banquet in January 2024. Unfortunately, I do not own any Pudgy Penguins NFTs.

[9] As of 10 January 2024, Pudgy Penguins has 1.7 million followers on Instagram, and more than 500,000 followers on TikTok. Its gif animations have also garnered over 38 billion cumulative views on Giphy.