David Z. Morris is CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.

Of the top 10 NFT collections by market cap, seven, according to CoinMarketCap, are what could be called “avatar NFTs” – headshots, basically, of cartoon characters or pixelated people. The collections topping the charts include CryptoPunks, Bored Ape Yacht Club and Pudgy Penguins, all of which have been feverishly fawned over in recent weeks in my corner of Anglophone Crypto Twitter.

These cartoon headshots are, for now, edging out a lot of other types of NFTs, including “metaverse” game assets like Meebits, the fine art pieces sold by SuperRare and even NBA Top Shot, the biggest mainstream brand in the category.

But why?

David Z. Morris is CoinDesk’s Chief Insights Columnist. This article is excerpted from The Node, CoinDesk’s daily roundup of the most pivotal stories in blockchain and crypto news. You can subscribe to get the full newsletter here.

Today we’re publishing a deep dive into the inexplicable allure of non-fungible tokens. On the face of it, these are lines of code and (in many cases) links to JPEGs, which wouldn’t seem likely to make them the object of a near-obsessive collecting frenzy. But they clearly are, with trading volumes on leading marketplace OpenSea continuing to surge.

The dominance of avatars is a powerful window into this mysterious, seemingly nonsensical explosion of interest. A set of social norms is quickly emerging, primarily on Twitter, that assumes you only display an NFT in your avatar if you own it. Getting caught posting something you don’t own is a reputational risk, and Crypto Twitter is a significant professional venue, so there’s a very clear status game afoot: The people who can display the most expensive NFT is showing off just how rich and successful they are.

NFTs, then, are tapping into some of our deepest instincts: Humans, just like our close chimpanzee relatives, are obsessed with social status and hierarchy.

Avatar NFTs leverage this with their issuance structure, which CryptoPunks somehow got right the first time out of the gate. Most of the avatar series are issued in large but strictly limited quantities of roughly 5,000 to 10,000. And they’re mostly algorithmically generated from a set of “features” with varying rarities, which creates a fairly simple internal hierarchy. At the same time, the wide variation in features makes it easier for buyers to choose something that speaks to their identity or taste.

Contrast that with “art NFTs” – that is, single pieces or very short-run multiples. The hierarchy of art across artists and styles is pretty nebulous and subjective by comparison to a huge coordinated set. Some CryptoPunks, clearly, are cooler or more rare than others, but the most coveted also make the rest of the set appealing. A single piece of art can have deep personal appeal but provides a less obvious connection to a (hierarchical) community.

The limited nature of these series is also crucial. Contrast CryptoPunks with CryptoKitties, an NFT series also released in 2017 that hasn’t had the staying power of the Punks. That may have something to do with their distinct art styles, but the “breeding” features built into CryptoKitties are likely their biggest Achilles’ heel.

This sort of programmability is very interesting and remains an exciting frontier in NFT design. But in this case, it means there are just too many kitties – theoretically, up to 4 billion. It seems to have really held down the price – you can still buy a CryptoKitty, even some pretty early ones, for dust.

For the NFT avatar status game to hold, the emerging norms around their use on Twitter will need to be increasingly formalized. What’s unspoken among crypto insiders will need to be formalized as the trend spreads, particularly through software systems for publicly verifying ownership. Building entirely new NFT social networks is likely a fool’s errand, but users on platforms like Discord or YouTube would probably love a verified way to display their NFT avatars, whether on-site or third party. Eventually, they’ll demand it.

That would mean even more chances for status-chasing human apes to exercise their instincts online, which sounds like money in the bank for NFT creators.


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David Z. Morris is CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.

David Z. Morris is CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, and small amounts of other crypto assets.