Demystifying the NFT ecosystem with a walkthrough on how to launch an NFT project.
by Chia Sheng Yeong
How to Launch an NFT Project from Start to Finish
Prior to this article I have written about the top ten things to know when it comes to navigating the NFT ecosystem. The article was written in such a way whereby it is positioned to create a list of considerations before trading or investing in NFTs. Since then, I have observed that the article is not intuitive enough for readers without prior experience with the workflow of launching and minting NFTs.
Therefore, I am writing this article to create a sequence of events that will include the relevant points I have covered in the previous article. This sequence of events describes the workflow required to launch NFTs. By the end of this article, readers should be unfazed with assessing NFT launches.
Reasons for Being
There are a few reasons why NFTs are issued. For the artists, they can earn a royalty fee every time their NFTs change hands. To the large corporations with consumer brands, they use NFTs as a form of marketing, rewarding their customer base for their loyalty. To some tech companies, it is an opportunity to reinvent themselves with new product categories in the metaverse. Before starting any NFT collection, it is important for the NFT team to clearly agree on the purpose of their enterprise. Their reasons will also determine if the NFT team is in for the short-term or is in for the long haul. Both are valid business propositions with unique merits. This article is slightly skewed towards guiding NFT visionaries who intend to build an NFT business that are akin to brand-cum-club-membership.
Overview of an NFT workflow
In this article, I have broken down the NFT workflow into 5 steps as below:
Formation -> Design -> Creation -> Launch -> Future
This NFT workflow starts with forming an NFT team, followed by designing the NFT, subsequently creating the NFT, launching it to the public and finally what else can the team do for the future of the NFT collection.
Once the NFT team has their reasons. They can focus on the team composition. I have identified three important roles needed for an NFT collection to succeed.
The artist is needed to conceptualise the artwork that best represents the meaning and value behind the NFT. Obviously, the artist is also needed to create the NFT collection.
Programmers are needed to write NFT smart contracts, automate NFT generation and fix any technical problems. However, this is not entirely true if the NFT collection is launched on a platform like a marketplace. Later in this article, I will touch on some technical aspects and also why programmers are required for an NFT collection’s sustainability.
Go-getters are needed to mainly engage the community, handle operations and create meme ideas to market the NFTs. Without go-getters, the NFT might be less able to gain traction.
If the team has decided on short-term NFT launches, it is possible to outsource the functionalities stated above. For example, marketplaces effectively act like programmers. They reduce the complexity of launching an NFT. Artists need only focus on creating the artwork and market it to the community. If artists want to focus full time on generating art, they outsource the marketing and community management to NFT digital agencies. Similarly, if there are NFT digital agencies that are good at marketing, but not good at programming and generating art, they can scout for artists to help them launch their NFT artwork in marketplaces. Or if the NFT digital agencies have programmers, they can even help the artists to create websites to launch the NFTs. Veritably, a product or service can also specialise in one of the functions like aggregated NFT buying platforms, NFT announcements sites, NFT analysis tools etc. All combinations of functionalities or lack thereof above are legitimate ways to create viable business models.
However, for the purposes of this article, this article focuses more on inhouse teams that intend to do all the above. As mentioned earlier, launching an NFT collection is akin to launching a new brand-cum-club-membership. Having a long term mindset is beneficial to generate more value for the NFT, thus adding value to the NFT holders. It is hard to see an NFT collection succeed by itself without a team to continuously create value on it.
Other than the competency of the team, anonymity is another sticking point. Though some of the most successful NFTs collections are started by anonymous or relatively unknown teams, the NFT community is slowly gravitating towards requiring NFT teams to reveal their identities because rug pulls are becoming common. The purpose of reduced anonymity is so that there is reputation on the line. To the NFT community, revealing the identity means the NFT team is putting their reputation at stake, this shows the intention of the NFT team to be honest.
Once the team is formed. The next step is for the NFT team to come together and draw up a roadmap for the NFT collection. There are some components in the NFT collection which can’t be easily changed once it is implemented. I will touch on the design choices of those components below.
The first thing the team has to decide is the narrative or idea that the NFT collection represents. Ideally it is something that is meme-able. Ideas that are meme-able gives it virality across the internet.
The idea determines the sector of the NFT collection. Conventional NFTs are Profile Picture or PFPs. There are other NFT sectors like gaming, audio, video, virtual lands, virtual items etc. Each sector imbues the NFT collection with different characteristics and utilities. For example, as of writing PFP NFTs are some of the most common, yet highly valued NFTs, but compared with gaming NFTs, PFP NFTs have less onchain transactions. Virtual land NFTs are more labour intensive. It requires more thought for the designing and development of the virtual land’s universe aka metaverse; conversely, it allows for novel ideas like renting, selling, customising the land etc.
Source: Axie Infinity
The decision on an NFT sector also invariably determines things like whether the NFT team can utilise an existing blockchain like Ethereum or it has to build their own blockchain. For example, due to Ethereum’s high gas fees, for Axie Infinity’s gaming NFTs to thrive, the NFT team has to build their own blockchain called the Ronin chain and ask the community to migrate their NFTs from Ethereum to the Ronin chain. There is budding competition here as blockchains like Solana, Polygon, Flow and Omi are all vying to attract NFT artists and developers.
There are other factors that affect the decision of the NFT team to launch in one blockchain over another. Liquidity is one such factor. As of writing, the Ethereum blockchain is considered the largest and most successful blockchain for NFTs. Because of its maturity, analysis tools like blockchain explorers, wallets, marketplaces, tutorials etc are more readily available compared to less mature blockchains, thus making it a more attractive proposition.
Source: Electric Capital
The Ethereum blockchain also has the most developers, compounding the development of more tools on it. Nonetheless, other smaller blockchains like Solana and BNB chain are also attractive due to their own unique technical merits like lower cost or specialisations in specific functions.
Recently, there is debate amongst the NFT community regarding its intellectual property. Some of the questions are who owns the NFTs? What can the owners do with the NFTs? Can they create their own derivative work or sell merchandise with it? Can they use it as a symbol of a popular movement even though it might be controversial? These questions are rather subject to the original intent of the NFT team.
For NFT teams that do decide to empower the NFT holders to express their creativity and innovation into their NFTs, they can adopt the CC0 licence. The CC0 licence grants full rights to NFT holders to do whatever they want to the NFT.
Once all that is done, the team can finally agree on how to manage the wallet minting the NFTs and holding the revenues generated from the sale of NFTs. The team can use multi signature wallets like Gnosis Safe. Such wallets can be configured to require a few signatories before approving transactions like minting or burning NFTs. This helps safeguard against cheating by any one team member.
Once the plan is set in motion, it is now the creation stage. For the sake of easier explanation and understanding, this section is going to focus more on PFP NFTs.
Normally, a PFP NFT collection has thousands of NFTs in it. Hence, it doesn’t make sense for an artist to hand draw all the NFTs (although some have actually done that). A better way is to use code to automate the process of creating the PFP NFT collection. This is where the programmer comes in. The programmer should first have access to various layers of the NFT designs, then through the use of code, combine those layers to create unique NFTs. Because this process can be rather complex, there are tools being developed that provide a no-code setup to generate the NFTs.
Then why else would a team need programmers? There are other immediate and future considerations like setting up websites, automating bots for community management and analytics, writing NFT smart contracts, creating unique functions for the NFTs, preventing highly skilled NFT collectors from gaming the NFT launch etc. Below are some of the examples on why programmers are needed.
One of the lesser known weak points of NFTs is the metadata. What is an NFT’s metadata? It is a place where the link to its image and its attributes are stored. The attributes denote the NFT’s rarity. Metadata is a weak point of NFTs because it is not stored on the blockchain. The blockchain is not meant to be used as a storage space for large files. Therefore, the metadata has to find another place for storage. Conventionally, this is done by storing it in centralised servers like AWS. However, this means that sometime in the future, should the NFT project become unsustainable, the NFT team can pull the plug and shut off all access to the metadata. The NFT owner will only be left with an expensive NFT that returns 404 error. Therefore, to ensure that the NFTs are truly centralised, the NFT team might also opt to host the metadata in decentralised storages like IPFS or Arweave. Decentralised hosting provides a higher degree of certainty that the NFTs trait and image will still be there should the original NFT team decide to stop developing on it.
Other than that, programmers are needed to design rarity attributes that don’t cluster together. What does it mean to design rarity attributes that are not clustered?
Source: 8 Bit Universe NFT
Take this graph for example, it shows that almost half of the most rare NFTs (as represented by token ID) are clustered to the first 100 NFTs. This clustering maybe created by design as the NFT team might want to reward the first 100 most active NFT community members in promoting the NFT collection. However, it is generally not encouraged, because the distribution isn’t equitable. A good distribution of NFTs should look more like the dots represented in the second half of the chart whereby the NFTs are scattered throughout the chart with no discernable clustering.
So, how can a programmer help? A decent programmer should be able to source existing open source libraries that can simulate the graph shown above. They need only input their NFT collection’s traits into the programme then the programme will plot the graph.
Once the NFT smart contract is deployed into the public blockchain, a programmer or a sufficiently technical person is required to go through the process of verifying and publishing the contract code to the public. When a smart contract is verified and published, users can interact with the smart contract directly using code or from the blockchain explorer. This gives confidence to the users that this project is not a rug pull. And most importantly, it also attracts seasoned NFT collectors. The NFT team would want seasoned NFT collectors to purchase their NFTs because these NFT collectors are influencers in helping the NFT gain traction as many users follow their NFT purchases.
Finally, if the team has a sufficient budget, they can hire a team of smart contract auditors to audit their smart contract. This lends legitimacy to the NFT project. However, even some of the best NFT collections don’t do audits. Audits are normally reserved for DeFi type smart contracts.
When all is set and ready, the NFT collection is ready to launch. As mentioned earlier, the launching an NFT is like creating a new brand, the brand should stand for something that users associate with like a status symbol. Such intangible assets are hard to measure, but a project with lots of goodwill bode well for it in the long run. As such it is important for NFT launches to be as fair and as inclusive as possible. This allows for more NFT collectors to participate in its ownership. The more diverse the NFT owners, the better chance it has in attracting believers to contribute to the NFTs for the long haul. Long term holders of NFTs are generally more ideal than NFT flippers because they have an intrinsic interest in building the NFT collection.
Therefore, this is where the go-getter plays a crucial role in attracting the right crowd. Go-getters will have to find ways to gather a community of believers in addition to generating hype for the NFT collection. Reaching out to a community of NFT collectors requires the use of different tools. Due to the social nature of the NFT ecosystem, conventional tools like digital advertising and email lists are rather ineffectual compared with Twitter and Discord. If the go-getters have their hands full and they need support like answering community questions or marketing their NFT collection, they can run simple campaigns to identify the most active members. Those campaigns can be simple requests for members to retweet or help answer questions in the questions section. Then, those contributors can be rewarded by whitelisting them to mint the NFTs earlier than others.
The launch of an NFT can be straightforward. However, there are many pitfalls on simple launches that might affect its success.
One example is the time zone problem. Say, an NFT collection is slated to be launched at a certain date and that it is first-come-first-served basis. Users with the best internet connection and the best time zone will be better placed to mint the NFTs than other less fortunate users. For example, if the NFT is launched at 2pm EST, that will be roughly 3am Hong Kong time. And if NFTs sell out within minutes, this means that Hong Kong NFT collectors will have to stay up in the middle of the night to compete with their more alert counterparts in the EST timezone.
Other than that, race conditions are also another problem. Race conditions are a situation where the NFTs are minted on a first-come-first-served (FCFS) basis. FCFS will cause gas fee bidding wars and network congestion, causing unnecessary losses for paying fees on failed transactions. To avoid this, the NFT team can launch tokens whereby it acts like a ticket. Users will have to purchase the tickets/tokens so that they qualify to mint the NFTs if they are successfully chosen randomly. This is still not perfect though, because not all users might like the random factor. Additionally, the NFT team needs to be transparent and prove that the randomness is authentic. One way to do this is with Chainlink VRF. They might also have to create another smart contract for the tokens. All these add complexity for the programmer and designers of the NFT launch. It may increase the odds of mistakes during the launch, eroding the good will that the NFT community has with the NFT team.
Besides that, NFT teams have to be diligent with seasoned NFT collectors gaming NFT launches to the detriment of others. For example, to gain the confidence of the NFT community, NFT teams are well placed to show that their NFT smart contracts are verified and published. However, because the NFT smart contracts are published onto the blockchain, users can interact with it directly. Why would users want to interact with it? Because it allows them to prod the smart contract for weaknesses. For example, they can exploit the fairness of the smart contract by looking at the metadata, then calculate which NFTs are more rare by identifying the clustering effect of rarity traits. Therefore, the users can then interact with the smart contract to directly specify which NFTs with token IDs they would like to mint. This can be avoided by changing the NFT smart contract to only reveal the NFT traits after it is minted. But again it is not entirely foolproof as tenacious highly skilled users can work around the obscurity through trial and error playing with the smart contract.
Other ways highly technical users can game the system is to interact with the smart contract directly. This is done by submitting direct-to-miner transactions, circumventing front end websites and mempools. This means these users are able to mint NFTs faster than anyone else. One way to solve this is to limit the number of NFTs each wallet can mint. The astute reader will be able to identify the problem with this solution. A user can create multiple wallets, hence bypassing the limit.
The decentralised and transparent nature of NFTs creates a wealth of innovation; yet also creates a host of challenges unique to the industry. The points presented in this section aren’t exhaustive as the NFT industry is constantly changing in a race to solve known and unknown issues.
Nonetheless, the overall complexity of NFT launches presents plenty of opportunities for entrepreneurial individuals. Countless numbers of NFT solutions are created to fix these challenges. Some compete through curation of NFTs, others compete on transaction fees, some choose to focus on specific NFT sectors, yet others add new incentives like decentralised finance, and others try to own the entire blockchain etc.
So there are no hard fast rules on how to properly launch an NFT collection. It all depends on the NFT team’s original purpose for the NFT.
Assuming that the NFT team successfully cleared the launch hurdle intact, they now need to contend with the future. In the immediate future, the NFT team can focus on the road map they presented during the launch. Meanwhile, it is also good for the NFT team to start thinking about how to get the community more involved. So in addition to status signalling using the NFT, a sense of ownership, fun activities in the form of rituals etc are needed to sustain the NFT.
A good way to start is to communicate with the community for ideas. When communicating with the community, it is important to be cordial and generally helpful. Generally don’t ban community members for asking tough yet genuine questions. Instead, encourage questions that are thoughtful. Even so, some do abuse. In such cases, banning is not out of the question, but the NFT team must demonstrate fairness. If required the NFT team can use Discourse to formally receive proposals or ideas from the community to make some improvements to the NFT collection because it can be rather difficult to coordinate with Twitter and Discord.
Some ideas are rather easy to implement, like airdropping new derivative NFTs. However, others are not so. Even though many NFT team may start out in one NFT sector (i.e. PFP NFT) it can expand into other NFT sectors. For example, an NFT collection can start as a PFP NFT. But with community ideas, it can develop into an NFT mobile game. Real world merchandise or real world event tickets can be rewarded to NFT holders. Those real world interactions also can be used as a means to do KYC and collect real world data from NFT collectors. For that reason, the NFT team should keep an open mind for infinite possibilities to monetise the NFT brand while engaging with the NFT holders and the NFT community.
In a few years time, as the NFT community matures. The original NFT team can start contemplating for an “exit”. The conventional “exit” that we know off in the world of business and finance is through Initial Public Offerings (IPOs). However, the cryptocurrency world offers alternatives. One of them is called the decentralised autonomous organisation (DAO). Essentially, it is a terminology used by the crypto community to create a loose collection of contributing members. It can be akin to a cooperative, but with a global jurisdiction. At the time of writing, the DAO is still a relatively novel concept. It is only officially recognised in a handful of jurisdictions like the state of Wyoming. The tools to manage a DAO are still nascent. For example, assuming the NFT team is able to assemble a motley crew of believers. How will they vote and reward their contributors especially when the contributors are spread out globally with different financial systems?
On the voting issue, the NFT team can issue governance tokens. Governance tokens are essentially like shareholdings. When the DAO is launched, it will be distributed to the community. With these governance tokens, the community can vote on ideas and how to implement them. This effectively makes the NFT project a publicly owned enterprise.
On the rewarding issue, the NFT team will have to create a treasury. The treasury is like the DAO’s bank account. But instead of holding conventional fiat currencies, it holds cryptocurrencies. It can hold bluechip cryptocurrencies like Bitcoin and Ethereum. It should also hold stablecoins like USDC so that the DAO can meet its financial obligation. The treasury is replenished with the royalty fees (aka revenue) whenever there is a transaction with the NFTs or through other revenue generating activities. The community with governance tokens can then vote to select who are contributors and how much reward they receive.
So going back to the original point, how do NFT teams “exit” with the DAO? This can be done by selling the governance tokens. When the governance tokens are distributed to the community, a portion of it is also given to the NFT team. It is typical for the NFT team and contributors to get anywhere between 12% to 25% of the tokens, and the community to get around 25% to 50% of the tokens with the balance stored in the treasury. The average token distribution percentage to the NFT team is on par with traditional IPO.
With the tokens, the NFT team can sell them in the open cryptocurrency market in exchange for other cryptocurrencies like Bitcoin, Ethereum, USDC etc. If the DAO of the NFT collection has established itself to be valuable, there will be a high demand for the tokens in exchanges. This causes the token prices to rise after it’s launch. Traders will speculate; while others will buy it because they believe in the NFT project and want to grow it further by influencing its direction. The DAO method can then be considered a form of “exit” for the NFT team.
In closing, the NFT workflow above is meant to create a mental model for readers to understand the nuances of launching an NFT collection while tying together the points mentioned in the previous article. If you have read this far, kudos to you. I hope you are able to identify the threats and opportunities in this growing industry. Most importantly, this article would have served its purpose if you are now able to ask the right questions when assessing the viability of NFT launches.