What is a 2nd Generation NFT?

A 1st generation NFT has several characteristics – a large collection (usually 10,000 or less) of randomly generated images designed to work as a profile pictures, which cost tokens to mint. 1st generation projects often provide little utility beyond holder-exclusive access.

A 2nd generation NFT project is characterized by free minting, strong holder incentives, a symbiotic ecosystem of NFTs, and utility of the project.

1st Generation NFTs – the PFP Meta

Let’s start out with some history. In 2017, Larva Labs launched Cryptopunks, the first non-fungible token project on Ethereum. Cryptopunks are a 10,000 unit collection of procedurally generated profile pictures, originally available to mint for free. Punks have since become a status symbol, a flex for whales and crypto OGs.

After the Cryptokitty bubble in 2018, NFTs went through a winter period. Platforms like OpenSea emerged during this time, and digital art started to drive interest back to the NFT space.

Fast forward to April 2021, when a new titan entered the game. The Bored Ape Yacht Club, a 10,000 unit profile picture project minting for 0.08 ETH, took the space by storm. Its success spawned an interminable wave of copycat projects following the “adjective-animal-organization” pattern.

These projects (Raccoons Secret Society, Koala Intelligence Agency, and Gutter Cat Gang, just to name a few of the many) rode the coattails of the BAYC and Cryptopunks projects to varying degrees of success. Some spun their own twists on the theme, but all were unable to escape the gravity well of the profile picture meta-theme. Many pumped on launch, driven by speculation and hype, only to slowly bleed out over time.

The Writing on the Wall

The cost of participation in the ecosystem during this meta was high. Mint costs were often in the 0.05 – 0.1 ETH range, and optimal strategy usually suggests minting 2-3 units of a project. This way if the project is successful and the price rises, the user can sell one unit to take profits and then hold the other units risk free for further profit taking.

This leads to several undesirable outcomes for projects:

  • Retail users can only participate in a few projects at a time due to entry cost.
  • The high entry cost generates laser focus on the floor of a project as users fear going underwater from their mint cost.
  • Unrestricted minting or multiple unit whitelisting reduces the size of the holder pool and the size of the community.
  • Value extraction up front (paid mints) makes for easy scamming
  • The only way to get liquidity is to sell your NFTs
  • Speculation overwhelmingly drives project value

That’s the story of the 1st generation NFT projects. Users became jaded with the prospect of giving their money to endless stream of low-imagination projects, and the stage was set for disruption.

2nd Generation NFTs – The Free Mint Meta

The new meta began with a single free mint.

Neo Tokyo

2,000 users who whitelisted through a series of puzzles and games in Discord minted their Neo Tokyo Identity for free. Little more than an image of some Javascript code that revealed the attributes of their NFT, the Identity was outwardly unassuming. Users who were unable to solve the puzzles or missed out on whitelisting seethed on the sidelines, and greedily bought into the project when gleeful holders sold their Identity for several ETH profit.

Then Neo Tokyo Vaults were released. They could be minted for free – but only by Neo Tokyo Identity holders. The Vaults contained BYTES, the Neo Tokyo native project token. Then came Neo Tokyo Item Caches, which could be minted for free – but only for holders of both an Identity and a Vault. Land Deeds were mintable for free to holders of Identity + Vault + Items.

Finally came the profile pictures – Citizens – requiring a full set of Identity + Vault + Land + Items.

This process created immense value for holders. The NFTs passively generate BYTES tokens, which have both utility and a secondary market. Owning a Citizen – particularly an Elite rarity – grants access to privileged communication channels and insider information. As Neo Tokyo expands offchain, the value continues to grow – the Neo Tokyo Meta Tournament currently commands a prize pool worth over $1 million USD.

For anyone wanting to take profits by selling, Neo Tokyo Citizen sets are going for hundreds of thousands of dollars.

How’s that for a floor?

The Smolverse

Then there’s the Smols. The SMOL BRAINS NFT minted 13,422 units for free – the only thing users had to do to whitelist was draw a picture of a monkey and post it in the Discord. Staked smols earn IQ, which increases the size of the brain on the NFT’s image. The IQ of a users smol(s) and the average IQ of the Smol project also affect the available technologies on the smol land NFT – another free mint for smol holders.

The floor for Smols on the Treasure Marketplace is now 3,800 MAGIC (2.825 ETH currently). Other NFTs such as Smol Cars and Smol Pets are in the works.

Both Neo Tokyo and the Smolverse cost users nothing but a little bit of their time and some puzzle solving. They extracted no economic value from their holders. The immense value of these projects is completely emergent from the community and the development team.

The 2nd generation NFT projects so far show some characteristics in common:

  • Free mints – any value creation is emergent from the quality of the project.
  • Secondary NFTs – symbiotic sub-projects mintable to holders of the genesis NFT
  • Native tokens – tokens generated by the NFTs provide liquidity to the holders without selling their NFTs, as long as the
  • Variety of unit counts – they are not married to the 10,000 unit number.
  • Highly competent project teams – emergent value requires teams who can continue to deliver integrations to increase the value of the project.

The 2nd generation NFT meta is just beginning. Only time will tell who will emerge on the other side, but one thing is sure:

It won’t be projects with names like *shuffles deck, picks card* Belligerent *throws dart* Beavers *rolls dice* Biker Gang.

Photo of author

Written By BowTiedPickle

Anonymous cartoon pickle inspired by BowTiedBull. Degen chemical engineer, moonlighting as a Solidity developer.


This article may contain links to third-party websites or other content for information purposes. BowTiedIsland may receive a commission at no cost to you if you purchase a product after clicking one of these links. The Third-Party Sites are not under the control of BowTiedIsland, and BowTiedIsland is not responsible for the content of any Third-Party Site. All information contained herein is the opinion of the writer and does not constitute financial advice. We aim to act as a neutral third party and aid in your research and analysis.

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