Understanding the Strange World of NFTs and “Tokenomics”
I love flowers—a statement that has nothing to do with flowers as you know them.
This is the type of flower that I love:
It’s known as a “SOL Flower,” a non-fungible token that trades on the Solana blockchain. Each of the more than 3,000 SOL Flower NFTs, as they’re called, are unique, one-off digital assets, no two the same. They were created by an Emmy award-winning street-artist who had a hand in animating the movie Kung Fu Panda 2.
I minted this Flower back in January for 1 SOL, or roughly $220.
Today it’s worth somewhere between $4,000 and $7,000 because I got lucky and minted a rare one (the Tron glasses are 1 of 10 that exist; the crown is 1 of 25. Combined, those two traits are super rare; none with either trait, much less both, are available on the market anymore).
But the point of this story actually isn’t the rise in the value of my Flower.
It’s the income it creates.
Every week, this SOL Flower drops about $18 worth of a cryptocurrency called $FLWR into my wallet. I have five Flowers, meaning I am collecting $360 per month for doing nothing. And right now, the price of the $FLWR token that these NFTs spin off is down because of global market angst. Before the Russia/Ukraine war, each of my Flowers was spitting out $60 per week, so I was earning $1,200 per month for all five.
The big question everyone asks when I talk about NFT-based income is: Where does the money come from, Jeff?
And that’s a very fine question, which is why I am writing this dispatch.
SOL Flowers are one of the more notable examples of a trend that has become exceedingly popular among NFT buyers today: passive income. Those NFTs are popping up like, well, wildflowers in the spring.
The truth is, though, only a handful of income NFTs have staying power. Most will fade away because lots of NFTs rely on what NFT buyers jokingly refer to as “ponzinomics,” the idea that the only reason an NFT can pay out is because existing owners convince others to buy the same family of NFTs, and in doing so the original owners share in the royalties generated by each sale.
That strategy doesn’t last long because at some point there are no NFTs to sell, or people get bored with the project and few new sales happen, radically reducing the royalties.
But some NFT projects have designed smart “tokenomics,” the economics of how their tokens work. SOL Flowers is one of them. I won’t numb your brain with all the finer details. I will only say that SOL Flowers has built an ecosystem in which users actually need $FLWR for several purchase/upgrade functions. And non-Flower owners will need $FLWR in order to use a new, unique marketplace that SOL Flowers is building for the entire Solana community.
Again, all those details aren’t relevant for this dispatch. Instead, I point them out because this is the type of research necessary for finding useful income opportunities.
To succeed with income NFTs, you need to read the project’s whitepaper—the tokenomics section specifically—and understand how the token will be used and how the project will generate the revenue necessary to keep income flowing to the NFT.
I tend to gravitate toward projects that have the capacity to attract outside users who then need to buy the in-house token to do whatever it is they want to do—be that playing a game, or trading, or paying for some service.
That’s not a guarantee that the project will succeed and continue to spit out free money. Who knows if a better mousetrap will come along, or whether consumers get tired of the game/service/whatever?
But it does give a project a stronger standing to at least generate enough money so that you will recoup your initial investment and then some.
As I continually say, this is the future of passive income. And it’s a great way for retirees to generate extra cash to supplement Social Security and a nest egg.
Frankly, I’d much prefer to own several SOL Flowers and others like it than own shares of dividend-paying stocks these days. I can earn much more money for the same investment.
SOL Flowers was a bit of an experiment for me. I happened onto it in the early days of NFT investing…that’s how new this marketplace is. But there are other opportunities like this popping up literally weekly. And I’ll be bringing you details about some of them.
So, welcome to the wild world of income-generating NFTs.