There is no denying that the NFT space is a gold mine. Cartoon monkey pictures are selling for millions and celebrities are spending hand over fist on them.
As a result, crypto projects and companies have capitalised on this novel technology. But you may be wondering. How exactly do NFT projects make money?
Don’t worry. In this article, I will be going over 5 ways NFT projects make money. So without further ado, let’s jump right in.
1. Royalties
One of the main methods that projects employ to generate revenue is via royalties. In essence, they work by taking a portion of each secondary sale for creators.
NFT marketplaces mediate this process and it is done automatically with the funds being set to a dedicated crypto wallet.
The terms and conditions can be configured during the minting process. This includes the specific cryptocurrency address and the royalty percentage. In most cases, the royalty is between 3% and 10%
Overall, this is a great method for generating income as it is passive and ongoing. Ultimately, they are paid out automatically and in a trustless environment.
2. Minting NFTs
This is the primary way projects start by making money. Simply put, collections set a price at launch (minting price) and this generates the necessary revenue to bootstrap the project.
This can be extremely lucrative depending on the demand and sale price. For instance, the Bored Ape Yacht Club derivate Mutant Ape Yacht Club brought in over $95 million for the creators.
2. Sponsorships
There is no denying that NFTs have become reputable brands and as a result, they have garnered the attention of advertisers. Consequently, various sponsorship deals have arrived.
This was evident with BAYC partnering with Adidas. Simply put, sponsorships are paid partnerships. They are bound by a contract that states that you will use your reputation and audience to promote their brand.
At the end of the day, brands will pay large sums of money to collaborate with these NFT projects in hopes of capitalizing on their audience.
4. Selling products
Like most brands, NFT projects sell physical products. The primary product that is sold is merchandise. For instance, branded clothing or accessories. Likewise, various digital products are sold.
For instance, a digital ticket granting access to the Metaverse or gaming collectibles and skins. This diversifies their income from relying on NFT sales and royalties while capitalizing on a larger audience.
5. Lending NFTs
NFTs projects can lend NFTs from the treasury to generate a steady source of income. Several decentralized finance platforms support lending including the South African project NFTfi.
Simply put, a smart contract outlines the terms and conditions between two participants, and this is signed by each party. Consequently, a reward is given to the lender for providing temporary custody of the asset. This can be anywhere from 1% to 10%.
What do NFT projects spend money on?
NFT projects reinvest the majority of their earnings back into the project. Firstly, this can be through the salary of employees. This includes developers who continue to improve the smart contracts and also the artists.
Secondly, a large portion is dedicated to supporting utility. This can be in the form of exclusive merchandise or events. Utility ultimately provides rewards and perks to existing holders and this can be expensive.
Lastly, another large investment cost is advertising and promotion. Whether it be paid ads or a social media campaign there are several outgoing expenses.
How are NFT companies funded?
In most cases, NFT companies are crowd funded. The community buys their tokens and this is then used for development.
That being said, venture capital funding is also prominent. For instance, institutional investors such as Andreessen Horowitz and crypto exchange FTX have been involved in the seed rounds of various projects. Unlike crowd funding, they also provide a mature network of support with legal advice and early liquidity.
Conclusion
As you can see, there are several ways NFT projects make money. From royalties to selling merchandise they are well diversified.
Moreover, as the space continues to develop more opportunities will arise. I hope you found this article useful and thanks for reading it.
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