Web3 Community Evolution: The Decline of the PFP Community and the New Dawn of NFT

Author of the original text: Ally Zach Compilation of the original text: Deep Tide TechFlow

Key Insights:

• Initially, PFP NFT projects emphasized community, but over time, many projects shifted their focus to financialization, with NFT holders prioritizing financial returns over community engagement.
• Applications focused on decentralized social media, digital identity, and blockchain-based domains have experienced a unique increase in user adoption in the NFT market, surging nearly 10x from mid-2021 to early 2022.
• By prioritizing natural network effects through user connections and providing opportunities to meaningfully connect and curate online identities, NFTs have laid the foundation for success for new consumer applications.

Historically, PFP NFT projects have emphasized "community" as a fundamental value. However, over the past year, many high-profile NFT projects have become increasingly financial-focused, with NFT holders prioritizing financial rewards over the emotional value of being a community member.

From a user perspective, the shift from community-driven projects to financialization can occur through two paths. Either the same users change their values, or new financially motivated users replace the original community-oriented users. The latter is more likely to happen, as the customer profiles of early adopters of community-driven IPs (NFT projects) differ significantly from those of individuals trading tokens solely for financial purposes. Assuming that community-driven users are more valuable to early consumer projects, the question arises: where will these users turn once financialization develops?

In large part, these users will migrate to new consumer platforms that value Web3's underlying community engagement. These platforms include decentralized social media, digital identity solutions, and blockchain-based domain names. Not only do they fill the void created by the changing NFT landscape, but they also usher in a new era of full participation. By studying the user behavior of different NFT applications on the EVM chain, we can extract valuable insights into user migration and the formation of sub-communities in this rapidly evolving industry.

The Decline of the PFP Community

In the early days of NFTs, they were mostly associated with digital art and collectibles. Artists and creators have quickly embraced the concept, tokenizing their work on blockchain-based platforms. Ethereum has become a pioneer in facilitating NFT transactions.

However, the launch of the Bored Ape Yacht Club in early 2021 marks a turning point in the evolution of NFTs. BAYC introduces a community-focused approach, combining unique artwork with member privileges and a strong social component. Every Boring Ape NFT holder becomes part of an exclusive club with special events, virtual parties, and other perks. This community-focused model proved hugely influential, serving as the catalyst for many subsequent NFT projects to adopt a similar approach.

The community-driven success of BAYC and similar ones has captured the attention of retail investors, leading to a nearly 10-fold surge in user adoption in the NFT marketplace from mid-2021 to early 2022. Community engagement, a committed roadmap, and the potential for continued value growth have attracted many investors to these collectibles.

In late 2022, the narrative shifted with the launch of the Blur trading platform. The Blur platform, along with its ongoing, publicly publicized airdrop program, quickly gained popularity and attracted a large number of users. This success has paved the way for other marketplaces, including industry giant OpenSea, to either adopt or launch their own specialized trading platforms. As a result, this shift has also resulted in a significant drop in creator royalties as new-age NFT traders shift their focus from community and roadmaps to trading activity. The focus has shifted from NFT as a representation of digital identity and community to being a major speculative asset.

New Dawn of NFTs

PFP projects, especially those on Ethereum, used to be the main entry point for novices into the Web3 world. However, with the rapid rise of platforms such as Blur, the landscape has changed significantly, focusing more on catering to traders rather than the core players that drove its growth in the first place, such as collectors, creators, and community members. As a result, PFP projects on various EVM chains have experienced a steady decline in attracting new users since January 2022, with an almost 50% drop in adoption.

Over the past 18 months, the development of consumer applications on various EVM chains has increased, with a focus on decentralized social media, certificate-authenticated digital identities, and blockchain-based domain names. These apps reactivate Web3 by providing users with opportunities for meaningful connection, self-expression and collaboration. They provide a platform where individuals can curate their online presence, engage with peers, and foster a sense of community in a more inclusive manner.

In order to provide a seamless user experience, consumer applications beyond traditional NFT marketplaces require high throughput and low gas fees. In response to this need, many of these applications have turned to Layer-2 scaling solutions and sidechains. This shift has prompted Ethereum-based PFP traders to explore new links, with approximately 80% of users exhibiting "nomadic" behavior between different networks.

Nomadic users tend to interact with platforms with similar purposes on different chains. For example, the decentralized social platform CyberConnect and Polygon's Lens on BNB have more than 37,000 common users. Additionally, new-age Web3 users, without previously participating in PFP, are already engaging with other new consumer applications.

These emerging consumer apps have managed to attract not only previous cryptocurrency users, but entirely new user groups. Notably, platforms such as ENS, Galxe, Lens, and CyberConnect allow users to experience their first NFT interactions on their respective chains. This is a departure from the previous norm, where the NFT marketplace was the main entry point for users.

While the PFP narrative has changed, users still seek to build online personas. Users are discovering new tools and apps to replicate the experience beyond social media or status symbols. Notably, users who interacted with PFPs in the community-focused era constituted the largest portion of new consumer app users compared to early NFT traders or participants in the financialization era.

These emerging consumer apps, while still in their early stages, have managed to attract cryptocurrency-specific users eager to witness the success of these platforms. These applications provide a comprehensive representation of digital identity, a crucial aspect in an era where robots and artificial intelligence play an increasing role.

The core values of these consumer apps are so compelling that they attract users from across the web. Users are willing to interact with these platforms on multiple chains, underscoring the importance of improving the interoperability of credentials, domain names, and configuration files. Supporting user base preferences and trends is becoming increasingly important to achieve seamless interoperability and foster a cohesive user experience across diverse ecosystems.

** Looking to the future **

Early NFT users were primarily looking for online identity and community exploration. Initially, the PFP project addressed this need, but later shifted its focus to the financial side. Currently, participating users are mainly involved in decentralized social network, identity and credential projects. Looking ahead, consumers are expected to continue to seek meaningful connections and unique identities. As consumers work to satisfy these desires, consumer protocols that facilitate user connectivity and identity are likely to flourish.

To succeed in the competition, protocols should prioritize building natural network effects through user connections. One example is Lens, which integrates profile NFTs and follow NFTs into the protocol platform to create connections between users. This approach integrates the network effects of user connections into the protocol itself. In contrast, traditional PFP or standalone identity protocols rely on external platforms to facilitate user connections, resulting in less value from network effects captured internally by the protocol.

Profitability in this case is not limited to low-volume, high-volume markets such as DeFi applications. These new consumer applications present promising opportunities by leveraging natural network effects and market positioning. They provide valuable experiences and services to community-focused users, fostering engagement and potential long-term growth. With the dynamic development of the PFP NFT trading market, these applications play a vital role in providing users with alternative ways to connect, collaborate and manage their online presence in more meaningful and inclusive ways.