Economic Effects of RMRK’s NFT Standard: New Opportunities to Create Value and Monetize NFTs

Summary

Adopting the RMRK 2.0 and 3.0 NFT standard[1] opens up a variety of new opportunities for creators and collectors to enhance the value and monetization of their NFTs, including:[2]

(1) Continuously adding new and different types of value enhancing NFTs (e.g., enhanced artwork and items, new utilities, complementary music, video, e-book files, etc.) to their existing NFT collections without decreasing scarcity.

(2) Composing their NFTs in a decentralized way, integrating first- and third-party “component” NFTs, to compose a higher-impact NFT with value exceeding the sum of its components.

Overview of Article

Section 1 provides a short overview of RMRK 2.0 and 3.0 (collectively, “RMRK standard”) as a background to the main contents of this article in Section 2, which discusses some of the significances of RMRK’s innovations from an economics perspective and how the technology enables NFT creators and collectors to add substantial value to their NFT collections. RMRK natives can skip Section 1.

Footnotes are denoted as [1], [2], [3], etc. and appear at the end of the article. Please review for clarifications and disclaimers.

Section 1. Non-Technical Intro to the RMRK Standard

My non-technical, simplified understanding of RMRK 2.0’s key innovations is that they enable multiple file types and NFTs to be bundled and combined (“multi-resource”), with some NFTs owning others (“nested”), some being transferable, and some being soul bound (non-transferable), with the additions and subtractions capable of changing the appearance and utility of the NFT (“composable”) now and in the future (“forward compatible”). RMRK 2.0 also enables other features like conditional rendering, emoting, fractionalization, etc.[3] (Graphic by RMRK).

RMRK 2.0 was initially launched on the Kusama blockchain. RMRK 3.0 was recently launched and is essentially “RMRK 2.0” compatible with EVM blockchains.[4]

Section 2. Economic Effects

[1] Increasing NFT Supply without Decreasing Scarcity

The RMRK standard has a number of technical features (e.g., multi-resource, nested, composable, conditional rendering) that make it practical for creators to dynamically add NFTs that provide new features and utilities to their initial collection without creating a new collection. Creators can, for example, refine and enhance their earlier work, add new art and other file types (e.g., video, music, e-book), and add various utilities over time without having to add to the initial supply. RMRK-based NFTs are dynamic in the way they look and what they can provide.

In contrast, very few NFT projects based on the prior-generation NFT standards (ERC-721 and ERC-1155) have been dynamic in that way. Those projects have typically chosen to launch new collections rather than upgrade their initial collection. For example, ERC-721/1155-based NFT projects launched “version-two” or seasonal collections (e.g., Halloween and Christmas collections) in 2021, making them claimable by owners of their initial NFTs or selling them to new and existing collectors. The launch of these new collections, however, have doubled or tripled (or more) the supply of similar-looking NFTs.

For utility focused NFTs, while their special or subsequent edition NFTs generally do not come with the same utilities as the initial collection, they nevertheless add to the supply and can dilute the existing owners’ shares.[5]

For pure art NFTs, additional supply of similar-looking artwork directly competes with the initial collection, leading to reduced prices for each (assuming demand is constant).[6] Mass producing similar-looking art can also erode collector confidence from an investment viewpoint, leading to lower demand for future releases. All else equal, collectors would be willing to pay less for artists who have a track record of flooding the market with new artworks.

Therefore, NFT creators have typically faced the dilemma of whether to (i) add new artwork and utility over time by launching new NFTs at the expense of decreasing scarcity or (ii) keep the NFT artwork and utilities constant to preserve the initial scarcity.

My understanding is that while it is possible to “wrap” or otherwise technically possible to add new features to existing NFTs using the ERC-721/1155 standards, they are often costly and impractical to do on a frequent basis. For example, the Doodles NFT can be converted to a Space Doodle NFT, but as I understand it, collectors cannot, for example, individually pick and choose which conversion they would like or dynamically add individual features (e.g., items, vehicles, video) of their choice.[7] Consistent with their apparent difficulty, very few prior-generation projects have even offered Doodles-type conversions to their collectors.

The RMRK standard improves on the prior-generation standard by enabling creators to airdrop for free or sell add-on “resource” NFTs that can be individually owned and equipped (“nested”) by the initial NFT. Creators can use the RMRK standard to make a variety of add-on NFTs for existing NFTs. These NFTs can be multi-dimensional in their file type (e.g., image, music, video, e-book). Collectors can then simply replace or update their NFTs with one or more of these add-on NFTs to update a specific portion of the artwork and/or have access to additional features and utilities.

For example, an item such as a new accessory or background can change the look of the initial art, a music, video, and/or e-book file can add to the functionality, and vouchers can enable the owner to unlock additional utility. The add-on NFTs can also be made non-transferrable (soul bound to the NFT), thereby making it possible to add, for example, derivative art and other substitute products, without competing with the initial collection – in this case, the derivative would always be bundled with the original.

When the add-on NFT is airdropped, and if the owner accepts it, they can (i) move it off the NFT or (ii) keep it owned by the NFT, and then (a) HODL, (b) sell the new NFTs individually (if it is separable), or (c) sell the new and initial NFTs as a bundle. The NFTs can also be soul bound to NFTs (not wallets), which is another useful feature of the RMRK standard.

For example, in the 2021 holiday season, rather than creating new collections, the RMRK team used the RMRK standard to make Halloween and Christmas items that could be equipped onto their Kanaria birds.[8] These add-on NFTs enabled the owners to turn their birds Halloween- and Christmas-themed without generating a 2x and 3x supply increase that the ERC-721/1155 projects were doing around that time. This is shown below with my Kanaria bird and inventory. I simply acquire and add items to the bird’s inventory and equip each item on the bird. The bird on the left is my usual setup. The bird on the right is the same bird with Christmas accessories. I also have a Halloween hat and tree in the inventory.

The RMRK team subsequently airdropped land deed vouchers to each Kanaria NFT. The owners could then redeem the voucher for land in RMRK’s metaverse called Skybreach or sell the voucher (i) individually or (ii) bundled with Kanaria and other items owned by the bird. The voucher used to be in my Kanaria’s inventory before I used them to acquire land.

Similarly, my Substra Knight below escaped from jail and made his way through town and to the docks, collecting weapons and loot (and even frames for the art) along the way based on his individual activities. (He still needs pants.) In this dynamic, individual updating would not be practical at this time without the RMRK standard – the collection is capped at 500 unique knights, so if there are 10 swords, shields, boots, gloves, and hats each, and if each combination had to be a separate NFT, then the creator would need to produce (or be ready to produce) 500 x 10 x 10 x 10 x 10 x 10 = 50 million knights. With the RMRK standard, however, there will only ever be 500 Substra Knights, thereby preserving the initial scarcity of the collection.

The NFTs need not all be made up of the same type of files. For example, a class of Rubble Punkz by Luigi Lucarelli comes with multiple NFTs, including three static images, one audio file, and one video file, all bundled into one inseparable set.[9] This feature enables Luigi to supply multiple forms of art in a Rubble Punk without decreasing its scarcity – the owner cannot, for example, sell each of the three images separately. There will only be one Rubble Punk of this kind.[10]

Similarly, Neon Crisis created the first-in-class EVM-compatible RMRK 3.0 NFTs, using RMRK’s multi-resource tech to bundle multiple image files, music, and e-book files into “one” NFT, bound to each other. This mechanism maintains the initial scarcity of the collection because it is not possible for the NFT owner to separate, for example, one of the music files and sell that as an individual item. But because the files are bound to the NFT (not the owner), they can still be traded as “one.”

The Neon Crisis NFT is also one of the first (or first) in which the team served as the executive producer to curate and compile different forms of art by different artists (neon crisis, leif wyn, pnin, silas crane, and opal) into “one” NFT, with the team and artists creating complementary work (art, music, fiction, and voice acting) that enhances the value of each other’s creations. (The next section discusses the possibilities for third-party creators to collaborate without a central organizer).

As shown above, the ability to have NFTs own other NFTs enables creators to offer, and collectors to benefit from, various forms of features and utilities connected to one set of NFTs over time.

This innovation is significant from an economics perspective because new art and utility NFTs can be created and launched without diluting the existing owners. In essence, both creators and collectors can take actions to increase demand for their collection without decreasing scarcity, enabling both the ability to capture more value and profits from their work without diluting the existing the owners. In addition, sequential releases of add-on NFTs can turn one of, say 50, edition collections, into a one of one set and increase uniqueness through rare combinations over time.

Of course, with the RMRK standard, the creator also has the option to launch new collections not tied to their earlier collections and the collector has the option to unbundle their NFTs in cases in which it is more beneficial for the NFTs to be standalone pieces (as long as they are not soul bound).

[2] Decentralized Composition of (First- and Third-Party) NFTs

In the examples above, the original creators produced all components of their initial and add-on NFTs. All components were composed and launched by the same team. The RMRK standard, however, enables any creator to produce NFTs for use with any other NFT, including those made by third party creators, as long as they are all using the RMRK standard.

Importantly, the RMRK standard enables creators to specialize in particular areas of work (e.g., environment vs. character art, technical vs. art vs. music / video vs. writing work) and collectors can decide how they want their NFTs to evolve, without having to go through a centralized entity that decides what gets to be compatible, who gets to be included, and/or how revenues are allocated. This could become a bottleneck for creation.

In essence, RMRK’s innovation decentralizes the division of labor (among creators) and the composition of NFTs (by collectors), thereby reducing the need for centralized entities to pick winners and losers, set prices and fees, and other terms of production and sale. Instead, creators and collectors can implicitly or explicitly cooperate with each other to produce or procure “component” NFTs that, when bundled together, add up to a higher-value NFT. At the same time, creators and collectors can individually set their own prices and supplies in the market. The composition of complementary NFTs can lead to a product with value greater than the sum of its components.

In the RMRK ecosystem they are free, within reason, to pave their own ways to “compose” value. Of course, creators have the option to make their art, for example, immutable by others and create allow lists of creators so that their NFTs are not spammed by inappropriate content.

Not surprisingly, RMRK-based creators have already started to collaborate to produce work that would not have been practical to create individually (or without a centralized entity). For example, Archiverse has pioneered the creation of equip-able banners using the RMRK standard, from which background and item NFTs can be equipped. Various artists supply the backgrounds or items, and then sell them or airdrop them to collectors, and Archiverse supplies the banner and underlying technology to be able to integrate them into “one” NFT. Collectors can then trade their components with each other to compose their unique NFT.

For example, starting with the base model with the equip-able tech by Archiverse:

The collector can add a background by Marlua:

Or a Rubble Punkz background:

And place individual art items, like Elly’s below, on the background:

In the example above, the tech and artwork by three to four different creators are composed into the banner. This is the first application (or one of the first) of its kind. Future iterations can be much more expansive. In fact, the decentralized composition of NFTs need not be limited to art. The composition can include video, music, e-book, 3D, animation, passes, property rights, and many others. There are many exciting possibilities that can potentially create a lot of value for NFTs.

In effect, the RMRK standard enables creators and collectors to start with one NFT and then continuously produce or acquire new (first-party and third-party) NFTs in a decentralized way that increases the uniqueness and value of their collection. Creators and collectors share the added value from this dynamic process, with creators gaining additional revenues (from sales and royalties) and collectors gaining additional utilities (from holding or using) and revenues (from resales).

The value creation made possible by adopting the RMRK standard can bring new creators and collectors into the RMRK community, which, in turn, can entice even more creators and collectors to adopt the RMRK standard and make the ecosystem even more valuable with network effects.

Other Effects and Considerations

There are other potential effects and new opportunities that are not covered in this article.

Another important consideration is the economics of standards and adoption. The RMRK standard would be much more valuable and create a much larger economic impact if it gets adopted by many more creators and collectors.

Acknowledgements

Many thanks to the editors at WagMedia (@thatMediaWag), Artuc (@artuc_ct), Csaint02 (@csaint02), JB (@businessj386), PNin (@BalanceBorn), and Sanchez (@sanchzeph), as well as Kenji (@CrisisKenji), brandon (@blocksbrandon), and Tricky NFT Art (@Tricky_NFTs) for their helpful review and comments. All errors are mine.

Disclaimers

This article is based on information I have reviewed at this time. Certain content may need to be updated or corrected based on new information. I also own one or more NFTs from each RMRK-based project referenced above at this time. I have selected these projects for the examples above as I have first-hand knowledge of them as a collector.

Technical References

https://docs.rmrk.app/getting-started

https://twitter.com/bitfalls/status/1534413718611800064?s=20&t=PgHCrA1Lqah4SGoNMkxsYg

https://twitter.com/KusamaNFT/status/1544715914121199627?s=20&t=hz%5FLlS-dLe-5jcZMmTQFmA

https://github.com/rmrk-team/rmrk-spec/tree/master/standards/rmrk2.0.0

NFT Project References

RMRK: https://www.rmrk.app/

Kanaria: https://kanaria.rmrk.app/

Skybreach: https://skybreach.app/

Substra Knights: https://singular.app/collections/7472058104f9f93924-SKC

Rubble Punkz: https://singular.app/collections/924cf81bb52a1b5c57-RP%F0%9F%92%80

Neon Crisis: https://neoncrisis.io/; https://moonbeans.io/collections/neoncrisis

Archiverse: https://archiverse.art/home; https://singular.app/collections/36bad3dc147db9792b-ARCHIVERSE%5FBANNERS

Marlua: https://singular.app/collections/b4d42c2aa369ee1f27-PREZT

Elly: https://singular.app/collections/9e42ace6713ae9334b-BOOOO

---

[1] For the purposes of this article, “RMRK Standard” means RMRK 2.0 or 3.0 (not RMRK 1.0).

[2] These are not exhaustive.

[3] See the Technical References section below for a more comprehensive description of RMRK’s functionalities.

[4] There may be over-simplifications and unintended imprecisions throughout this article in the way in which I described the NFT technology and applications. The technical specifications of NFT standards are beyond the scope of my expertise.

[5] Utility focused NFTs are those in which the provision of “utilities” (e.g., special access to community, private sales, games, etc.) drive demand for the NFTs. The artwork on the NFT is not the primary driver of demand.

[6] Pure art NFTs are those in which the artwork and artist, in and by themselves, drive demand for the NFTs. Additional “utilities” are typically neither promised nor expected.

[7] These characterizations may be oversimplified and imprecise. The technical specifications of NFT standards are beyond the scope of my expertise.

[8] See the NFT Project References below for a link to all NFT projects mentioned in this article.

[9] My understanding is that one NFT is designated as the “parent NFT” and all others are designated as “child NFTs” and the “child” NFTs are always bound to the “parent” NFT. Therefore, all NFTs within this set are transferred as one.

[10] In terms of transferability, my understanding is that the RMRK standard enables NFTs to be: (i) universally transferable, (ii) not transferable, (iii) transferable until a specified block, or (iv) transferable for a certain number of blocks after minting.