On Centralization and Business Development in the NFT Entertainment Space.
As the blockchain sector debates the potential migration of DeFi applications from Ethereum to other networks, similar considerations are being made about NFT-based entertainment applications. While Ethereum remains the smart contract platform with the highest level of NFT-related activity, there exist genuine concerns regarding its ability to scale in order to accommodate a growing userbase. For example, Cryptokitties famously congested the Ethereum network at its peak usage in 2017, leading Dapper Labs to develop its own NFT-focused blockchain, Flow. Likewise, substantial gas fees may also pose a barrier to potential new users. Thus, platforms like Flow, Wax, and Zilliqa are being considered by many as alternatives to Ethereum for NFT-related activity. This dispatch explores factors that may determine which platform will lead the NFT sector in the near future.
In many regards, it is understandable why Ethereum has proved dominant in the NFT space thus far. By and large, Ethereum’s success with regard to NFT usage can be attributed to its relative maturity in the smart contracting space. As the first functional smart contract platform—and, moreover, the first capable of hosting NFTs—Ethereum benefits from a greater number of developers familiar with and able to build atop its network, and is further assisted by extensive developer tooling relative to other blockchain ecosystems. Higher quality, breadth, and concentration of NFT-focused dApps are crucial drivers of usage. For competing platforms to convert Ethereum users, increasing platform specific-competency is and will continue to be paramount. Arguably, similar attention should be paid to marketing to developers such that building atop the platform is attractive regardless of learning curves. Additionally, the trending of NFT development and activity towards entertainment use cases has implications for competition amongst platforms. Such applications include tokenized gaming, collectibles, artwork, and some fan tokens. A significant portion of such projects require relationships with non-crypto-native entertainment industry players—for example, Dapper Labs’ partnership with the NBA Players’ Association facilitated the launch of NBA Top Shot, an NFT-based collectibles game, on the former’s Flow blockchain. The formation of such partnerships may indeed prove to be a key driver of platforms’ success relative to Ethereum.
The degree of centralization is a key distinction between Ethereum and its potential successors, including Flow. Unlike Ethereum, which is governed decentrally using a Nakamoto-esque model, Flow is owned and controlled by Dapper Labs, a for-profit, centralized entity. While the former’s non-profit foundation has failed to demonstrate the ability or willingness to actively engage in business development, Flow has done so consistently and aggressively. In fact, one may argue that Flow’s business development activities, rather than technological innovation, are the primary reason for its relevance in the space thus far. Partnerships with Warner Music, the NBA, Ubisoft have generated notable excitement around the platform, with much discussion revolving around its potential to onboard the largely non-crypto-native user bases of its partners.
In this regard, while decentralization remains a key tenant of distributed ledger technology, the NFT space perhaps uniquely benefits from more centralized operating systems. The ability for a platform’s team to engage in business development can ultimately drive engagement with previously untapped user bases of traditional entertainment organizations, offering it a competitive advantage over those largely only appealing to existing blockchain users. Further, platforms with business development teams have an increased ability to aid in the education and onboarding of developers. While the extent of its impact remains to be seen, centralized platforms’ ability to engage in business development has the potential to be a key determinant of which smart contract platform will emerge as the leading network for NFTs.