[77] NFTs: Beyond Economic Signaling
[NFTs, Signaling Mechanisms, Need to Flex]
GM Readers!
This past week, I thought about how NFTs are being used to signal economic status. Since NFTs are infinitely programable, I wondered what other types of signaling they can be used for. As we continue to spend more time online and adoption picks up for Web3… understanding how / what we signal online will be important. After all, the need to flex is innate for us.
-LJW
(P.S. For the summary and further breakdown of this essay, follow me on Twitter)
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One of the many use cases for NFTs is to signal. Whether it’s owning a particular type of NFT or using that NFT as a profile picture, holders are making some implicit statement to the world about themselves.
So far, it’s largely looked something like this: owning a high priced NFT that you use as your profile picture on social media signals status through owning an asset that has some price.
And there is an entire hierarchy here — from most expensive to least expensive.
For many NFTs project, floor price has been the metric used for this kind of signaling, which is a proxy for economic status.
But signaling economic status is just one way to flex.
_What is the point of signaling?
The goal of signaling is to make a statement, or go so far as to tell a story where the thing that does the signaling is a representation of something else it is signaling for.
But of course that is more a “technical” definition.
Signaling touches a way deeper thing that we all share — the need to flex.
The need to flex creates an organization system. Those who can flex, flex on those who can’t — creating a hierarchy.
We naturally think success comes from a need to stand higher on some pyramid than the next person. This concept is as old as the actual pyramids where the ability to flex was the difference between ruling or being ruled.
The question is not whether we want to signal or not, we have an innate need for it.
The more interesting question is how we prefer to signal and flex.
_Different Ways to Signal
_Signaling through Economic Status
A common way that we signal in society is through the value of the things (assets, items, etc) we own.
If it can be valued, then it can be compared.
If it can be compared, there is an opportunity to flex on the others.
This is the “leaderboard” approach, which creates a game of winners vs losers. Even if the game is not structured as a pure winners vs losers game, there is still a top vs bottom dynamic. If unchecked, this becomes a game about keeping scores.
Signaling through economic status gives us an easy form of measurement that decides who wins the “signaling” game. For example, in NFTs, this is the value of your NFT. In real life, this could be the value of your watch.
_Signaling through Ideology
Signaling through ideology involves flexing on others through the ideals you believe in.
When people come together to support a company, a creator, a movement or a cause, they select into an ideology.
The ideology isn’t always clear, sometimes it’s called a vibe, other times it’s called culture. But these are the harder to measure, intangible things that reach us on a deeper level — often beyond economic status.
Something that cannot be measured is priceless. Ironically, the priceless things are beyond signaling through economic status.
For example: Taylor Swift is re-releasing her music under “Taylor’s Version.” It’s the same music. The message behind Taylor’s Versions is that she, as an artist, want to take back control of her music. [context here] … By listening to Taylor’s Versions, fans are subscribing to her ideology that artists should own their music (in addition to supporting her, etc).
In NFTs, this is owning anything that represents some ideology, beyond just owning it for the value.
_Signaling through Work
Signaling through work is flexing through action. Work spans anything from engagement within a community to more formal contributions.
In the traditional world, we flex our work through our resume, awards, accomplishments, etc. We have things that formalize and represent the work we’ve done and our accomplishments.
It’s actually harder to signal through work digitally and online. In the digital world, the challenge with the traditional way of signaling is that new forms of work are not captured in the old framework. Not everyone that is doing worthy work can signal that work through traditional professional experiences. (And not everyone in traditional work arrangements are doing worthy work).
Examples of this can be found in the creator economy, online communities, and Internet native work.
How do you represent your contributions in an online community?
How do you represent the value you add to a creator by way of work?
How do you signal that you’ve completed that work?
The broader point here is that with a rapidly growing digital economy that we all increasingly spend time in, we need a new paradigm.
We also new mechanisms to signal and NFTs are at least one way to do this. For example, a creator can issue an NFT to someone who has achieve x-accomplishment or completed y-work.
_Signaling Building Blocks
Each one of these signaling building blocks don’t have to exist by themselves. Most of them are usually combined, which is what makes it hard to understand which building block is influencing which. (i.e. an NFT can signal a few things).
Instead of reasoning from which building block is the best or the worse, the reality is that people segment themselves based on preferences in how they want to signal … a subset of holders might believe that the NFT signals one thing whereas another subset of holders might believe the NFT signals another thing.
_NFT Utility: Beyond Economic Signaling
Currently, most signaling through NFTs is largely signaling economic status.
This might work for some communities, but growth naturally comes at the cost of dilution. If something is scarce, expansion naturally leads to dilution. For NFT communities that want to grow, having your NFT signal economic status might hinder that.
Since NFTs are an infinitely composable canvas, they can also be used to signal in other ways.
If a community is built around a specific ideology, they can use the NFT to signal that ideology (e.g. through the art). If the primary reasons holders hold the NFT is to signal ideology, then the more people that hold the NFTs, the better. Unlike signaling through economic status, signaling through ideology benefits from a greater supply and number of holders.
And then if we push this further and signal through work, then we can reward people based on their contribution. Holding a NFT might signal you did a significant amount of work for a community, which allows the holder to instantly garner status even if they don’t own the more expensive NFT.
I am not saying that Economic Status games will go away or rather that they should go away.
But a one size fits all never fits all.
🏆
🛟 Disclaimer:
This post is provided for educational and informational purposes only. Nothing written in this post should be taken as financial advice or advice of any kind. The author(s) may own some of the NFTs, art and/or collectibles mentioned in this post. The content of this post are the opinions of the authors and not representative of other parties.
Empower yourself, DYOR (do your own research).