written by
Major Tom

Understanding NFTs: More than JPEGs

16 min read
Warning: Not a deep expert in NFTs or MUD’s. Open to feedback! Tweet thread here: 👇
Tweet thread for comments and suggestions 👆

If you think NFTs are only about insane amounts being paid for JPEGs or Tweets, you’ve been faked-out.

“Ownership” in a digital property through a non-fungible token (NFT) just scratches the surface of what’s possible.

Your skepticism of apes, punks, Beeples as NFTs being worth hundreds of thousands of dollars is warranted.

But don’t let that cloud your judgment on the potential of NFTs. The technology still has a role. It’s the business model that needs a re-think.

Ignoring NFTs because of what you see now would be like passing on Chewy because of the Pets.com debacle.

But first, which seems worth owning?

A cool status-signaling “ape”? Or white text on a black background?

So, let’s start with their similarities:

  1. Scarcity
  2. Status
  3. Proof of ownership
  4. “Membership”

#1 , #2, and #3 have been the common value of the “JPEG” NFT’s. I summarize my thoughts here:

  1. People demand status (Wei-conomics). [11]
  2. Demand for status-conferring goods increases price. Price increases demand (Veblen-nomics) [12]
  3. Those benefitting from price increases and monetary injection raise prices further to the detriment of others (Cantillon-onomics) [13]
  4. 1-3 rely upon ownership and the transferability of ownership

The twist: ownership of an NFT includes ownership of intellectual property and commercial rights. As a result, new monetization opportunities emerge, as it did for the Bored Ape Yacht Club (emphasis mine):

But it was also one of the first clubs to offer individual buyers the commercial rights to the apes they own: each member is allowed to brand his own projects or products and sell them independently. In the three months since the club launched, Bored Ape owners have put the cartoon primates on lines of craft beer and created animated YouTube series, made painted replicas, and designed skateboard decks. Kyle Swenson, the clothing reseller, launched a publication called the Bored Ape Gazette, to cover the community. One owner named their ape “Jenkins the Valet,” gave him a backstory as the Yacht Club’s chief gossip, and is crowdfunding an ape-themed novel. [5]

In each of these cases, the owners of apes are building businesses around the apes they respectively own.

However, they could have done so without relying on an NFT to prove ownership.

This type of commercial right already exists. Licensing deals for characters or songs is already common. Those examples, as a result, don’t fully demonstrate the power of NFT as proof of ownership.

These examples also don’t fully leverage the NFT itself as a business asset since each also requires another business built separate from the NFT. The ownership of the NFT, standalone, is not the asset which generates revenue (other than by trading).

However, in addition to granting intellectual property rights, the Bored Ape Yacht Club offers other benefits to owners of the BAYC NFT’s: for example, exclusive NFT drops and access to the graffiti bathroom.

While the value of those specific benefits may appear weak or debatable to some, the model becomes clear:

One enabler of NFT value is membership.

Membership has its benefits

Membership, for the purpose of this essay, means the members pay money (one time or recurring, fiat or crypto) in exchange for tangible benefits.

Bored Ape Yacht Club Membership Benefits

Membership businesses have grown alongside the Creator Economy. A typical benefit stack for membership includes “community” (usually Discord, Slack or Circle access) content (videos or blog posts), live webinars, and Q&A sessions.

Whether subscription or one-time, these membership fees for access are becoming normalized.

Later in this essay, I’ll share an example of how access to the NFT content alone, without requiring the development and maintenance of additional benefits, can be monetized.

Once membership workflows are enabled, digital property ownership (for the right type of asset) adds to the scarcity/status value stack. Some NFTs with the right level of status/scarcity may still hold increasing value over time (in the way artwork does) without additional membership benefits. But imagery not valued as art (it’s complicated which and why artwork does get valued and I don’t explore that here), it’s not the imagery, on its own, that will add value to ownership.

Value will come through membership benefits.

The question becomes, “What kind of form factors of NFTs and the associated benefits deliver value?”

Lessons from the rise of Loot

The Loot Project, a fast-growing community that emerged from white text on black background released as NFTs, also illustrates points #1-3. The combination of demand, scarcity, and status contributed to the rise in prices, as reported in The Verge:

The 7,777 bags that Hofmann offered up for minting were all snapped up more or less instantly. In the next five days, Coindesk reported, Loot bags were resold for $46 million, and had a market cap of $180 million. On Wednesday, the cheapest Loot bag could be had for about $20,000. That price more than doubled overnight, and would now cost more than $46,000. [4]

Depending on what’s in the “bag of loot” you own, you are permitted membership in a “guild.”

For some, working on meaningful projects with like-minded people is the benefit.

Membership for HODLers of Loot

But there’s something more.

This is an expanded list of what was created by those in the Loot community (I don’t know if the only participants are original Loot owners or not):

Communities, projects, and developer tools propped up within seven days of the launch, creating an ecosystem around these “loot” primitives -- the NFTs. This is an illustration of the ecosystem from @lililashka:

Loot Ecosystem in days, not years

Why did the Ecosystem Grow so Quickly?

The building of software and creative assets around Loot reveals an unlocknot seen in even the most successful NFT JPEGs.

Most software companies dream for a vibrant ecosystem. And it often takes years to do so.

Yet Loot jumpstarted one in days. Will it thrive and grow further? That remains to be seen.

However, these were the elements which seem to have fostered this rapid growth:

  1. Permissionlessness (although many dev-first companies have this with open APIs, so it’s not sufficient)
  2. Decentralized ownership (the individual value of an NFT goes up when there’s more tooling and players adding value to the ecosystem)
  3. Pre-existing world-building scaffolding (this seems like a critical piece often missing in other ecosystem development)

The pre-existing world-building scaffolding is perhaps the most critical element.

In this case, a large community already knows the culture: the overarching, unifying narratives and rules of the game based on fantasy role-playing games (RPG). Strong affinities, experiences and imagination represent collective capital that can be applied on this new platform.

Unlike most software platforms that are trying to build an ecosystem, Loot taps into an expansive, fun, and creative realm which provides a form of implicit “integration.”

Shared imagination is to Loot what APIs are to software ecosystems.

In the end, will pragmatic efficiency (like Kubernetes, which has probably the fastest and largest ecosystem of recent history) win out over something facilitating fantasy game-play in total size and velocity? That remains to be seen.

But using K8s as a model and Loot as the galvanizing trailblazer, what is possible?

As quoted in the Verge article by Casey Newton, Kyle Russell writes:

But what if someone wanted to create an MCU competitor as a community, instead of going head-to-head with Disney?

Extrapolating from the last week of Loot…

You’d release a contract to generate sets of superhero names and associated powers.

People would mint those heroes and they would begin to trade on the open market.

People would build tools that determine which powers are more rare, especially around ones that sound cool (“flight” is a gimme).

They’d imagine their hero, illustrate them themselves, commission artists who could make them look cool, and eventually more technical folks in the community would do the heavy lifting to piece together tools that could generate art for characters in a common style, or customizable by some key parameters. [14]

Loot illustrates pent-up demand for collaborative world-building.

This line from the New Yorker article about Bored Apes describes this phenomenon (emphasis mine):

N.F.T. clubs aim for scalable culture; like open-source software, their cultural creations can expand organically through the efforts of many users while remaining recognizable, resulting in a kind of user-generated mythology. [5]

This has been described as the meta-verse.

But that common version has rich, 3D/VR interactive graphics that raise the bar of networking requirements per @MatthewBall:

we should think of the Metaverse as raising the requirements for all aspects of networking — latency, reliability/resilience, and bandwidth [15]

Raising networking requirements is necessary to support rich, animated digital assets and real-time, multi-user interactions. But those digital assets and demanding animations also limit the number of builders.

Loot reveals a far more inclusive world because it started with plain text.

Instead of computer-generated realms, text-based adventure games tap into the imagination.

I realize there will always be a much larger market for visually stimulating entertainment. The Marvel films had much larger audiences than the illustrated comic books. More people watch the film adaptions of blockbuster books like Twilight, The Hunger Games, or Harry Potter than read the original books.

Nevertheless, could there a text-based gaming model which can support a growing ecosystem of builders and attract large numbers of paying players?

On the one hand, Axie Infinity’s success (generated $364M in August, 2021) signals the future success of graphic-intensive play-to-earn multi-player games. [7]

But can plain old text capture a broad audience’s imagination?

To answer this, I went down the Zork and MUD rabbit-hole.

Zork - Text-Based Game Play MUD-enabled via NFT

Zork (according to Wikipedia) [8] was an interactive fiction computer game created in 1977.

The player could use sentences to play an adventure, all in text. Here’s a screenshot from my recent game:

Zork game

Given the lower barrier to entry for Creators (text being easier than 3D graphics), would it be possible to create a collaborative and immersive text-based adventure game (a MUD, or multi-user dungeon).

More importantly, if one were built, would there be a large enough audience willing to play and pay?

At this point, I’m going to explore the business model.

Business Model

I recognize currently that no one pays to play these MUDs.

That sentiment was made very clear to me when I entered a Discord for MUDs.

Dungeons and Dragons is an analog version of MUDs in a way. While not the same, the ethos described in this Vox video probably captures the same sentiment:

Vox YouTube Video

Most MUDs are about community, belonging, and artistry.

That being said...

Just because the current users don’t believe this form of games can be commercialized doesn’t mean a different, perhaps even wider, audience won’t.

After all, passionate hobbyists often signal the coming of something mainstream.

Users of the Well believed the Internet was a non-commercial source of good, and the Internet has minted billionaires multiple times over. Couch surfing was a movement of “hobbyists” traveling and hosting each other for better connection; Airbnb took a similar concept and has a market cap larger than the major hotels combined. The Homebrew Club were hobbyists who didn’t envision commercialization; then Steve Jobs came along.

The reason I am focusing on the demand side is because, for this marketplace of players and builders, demand drives the value. If there were a large and growing audience of paying consumers, there could be a large group of Creators building upon or starting new text adventures.

Before I drill into the specific mechanics, here is how I am envisioning the ecosystem and business model:

Create. Interoperate. Monetize.


Storytellers and Game Builders create the adventure. I’ll talk about the mechanics later. But imagine they had the ability to write a Zork-like story: rooms, objects in the rooms, a map interconnecting rooms or other kinds of places, and people (both scripted and perhaps other players)


MUDs enable a community of players to also create rooms and storylines. The key is to allow Story A to interoperate with Story B. Without it, the world building cannot scale and keep players interested.


IF the gameplay were engaging with good cliffhangers (the way a great television series fosters binge watching), there could be an opportunity to monetize.

In the illustration above, in an interoperating world, both Creators could monetize: the original storyteller who built the audience and the Creator who extended the experience.

An “upsell” could look like this from the User’s perspective:

Monetizing a MUD experience extension

Here’s a simplified picture of how these could come together using NFTs and Smart Contracts:

Building an Ecosystem of Players and Builders

Given that the NFTs (the white boxes) represent the story, probably saved as JSON metadata on the NFT, an engine needs to be able to parse the Player’s actions and responses from the game.

There are already many engines. They don’t need to live on the blockchain.

The smart contract also permits other builders to piggy back (with the original writer’s blessing) onto the first story/NFT and extend the game play. If it’s compelling enough, the player will then pay another fee.

Most of that fee would go to the extending author, some would go to the platform, and some would go to the original author.

Imagine an extensible, interactive, and aligned system for fan fiction

In the fan fiction world, writers cannot charge for their work, and already live in a sort of grey area since they are piggy backing off of existing literary work.

What if there were an easy and trusted way for the original author to earn royalties on fan fiction generated (maybe there already is, I just haven’t found it -- tweet to me if there is so I can update)?

We’ve seen how franchises like Star Wars and Star Trek were extended by licensing rights to other authors.

These similar concepts can come together with lower friction:

1. Extensible: same model as MUDs that already exist, but still some opportunity for a better UX

2. Interactive: already exists as MUD; new skill for traditional writers but can extend their existing linear stories

3. Aligned: the platform earns a small fee and is incentivized to attract and retain more creators; lead creators which attract audiences earn from those extending their platform; creators who piggy-back reward leads while growing their own audience.

So what can unlock this?

Unlocking the Business Model

An example of NFT-based tooling is Unlock.protocol:

Unlock Protocol: Keys to the Kingdom

Unlock enable developers and creates to generate locks and keys.

A lock is smart contract. Each contract can create and manage NFTs which are used as “keys.”

The key to unlock the content protected by the smart contract.

From a simple web UI, a Creator can not only issue this smart contract, but integrate its access control to common community tools like Discord, Discourse, Wordpress and Webflow:

A Web UI to create a smart contract for Creators and Memberships

Granted, access to those systems is a far bigger use-case because creators are already using these tools.

This same concept could apply to access into a decentralized game where rooms and storylines need an NFT key to be purchased. (It doesn’t currently as it stands, but since Unlock is blockchain-native, it’s best positioned to do so).

Here’s a recap of a possible user experience:

A couple of things:

1. The main storyline grows in value as other storytelling piggy-back on the initial storyline and community. In other words, the initial story (with the right quality of writing or notoriety of the author) can become a platform

2. Good storywriters can apply a freemium model: provide compelling experiences for free and charge for deeper engagement. These storywriters no longer have to be limited to the original author. It’s interactive fan-fiction where the good writers can earn.

3. The main storyline author could also charge a small royalty for other authors piggybacking, incentivizing them to expand their universe. It also solves for the “cold start” problem for most of the writers.

But how would this be adopted if currently people don’t pay?

Working backwards from other observations, it seems feasible and possible, but only an experiment will prove it out:

1. People do pay for games, albeit high-graphics, high-animation. Would those same users be open to just text-based games? Sadly, this is unlikely. I suspect those games have overstimulated the players, going back would be a let down.

2. People do buy books. Would readers of books and fan-fiction be willing to pay for text-based games (also not clear, but possible). And if extension of existing books they are fans of, could be more willing.

3. People who don’t read much, but also aren’t into gaming. They might become customers by filling a middle ground of the “boring” nature of reading, without the high-intensity, high-commitment of current games. In fact, it’s possible a subset are those who would otherwise fill their time with social media might get intrigued by the more narrative-intensive interaction.

In other words, I’m not sure. I do think it means re-segmenting the market outside of the current MUD user-base, and possibly tapping into an overlap of fan fiction writers/readers and net-new players (for example, interactions through Messenger).

But a few things might unlock adoption beyond current systems:

1. Easy UX for Players: currently, many games require a special client or a traditional telnet. The right way to broaden adoption should be via web or messenger.

2. Easy UX for Story Tellers: as noted above, super-easy to write and design the stories.

3. Cross over: a few writers with existing fan bases who cross-over could jumpstart the audience and builder base.


The idea came to mind while writing a multi-player Rock Paper Scissors in solidity. A given player could play against the last hand.

I then thought each player can input 10 throws and compete against the prior player or even all other players to see how their specific sequence would score.

But after coming upon the Loot project, I pivoted away and began thinking if there were a distributed earning model, similar to Axie Infinity.

I am not super bought-in yet on the ‘play to earn.’

But writing small interactive stories....I could say that fitting within a ‘learn to earn’ model. Writing short, interactive fictional vignettes teaches the writer psychology, narrative design, game theory.

I’m still pulling on the thread and building an MVP.

Thank you for reading. Comments and suggestions helpful on the Twitter! 👇


  1. https://www.redlion.news/article/loot-mania
  2. https://www.lootproject.com/resources
  3. https://metaversal.banklesshq.com/p/loot-explained- (https://twitter.com/WPeaster)
  4. https://www.theverge.com/22655077/loot-social-network-open-source-nft
  5. https://www.newyorker.com/culture/infinite-scroll/why-bored-ape-avatars-are-taking-over-twitter
  6. https://twitter.com/_rbart_/status/1434198800839622664
  7. https://nairametrics.com/2021/09/06/axie-infinity-generates-364-million-in-august-highest-revenue-since-inception/
  8. https://en.wikipedia.org/wiki/Zork
  9. https://medium.com/fractional-art/what-is-fractional-dd4f86e6458a
  10. https://www.youtube.com/watch?v=2PEt5RdNHNw
  11. https://www.eugenewei.com/blog/2019/2/19/status-as-a-service
  12. https://www.investopedia.com/terms/v/veblen-good.asp
  13. https://mises.org/library/richard-cantillon-founding-father-modern-economics
  14. https://collisions.substack.com/p/gimme-the-loot
  15. https://www.matthewball.vc/all/networkingmetaverse