Why is star effect a double-edged sword for NFT?

During New Year’s Day, the Phanta Bear NFT under the blessing of music superstar Jay Chou won the attention of countless people, and the subsequent reversals rushed to the hot search. Discussions inside and outside the encryption circle continued, adding the first fire for NFT in 2022. . Not only Jay Chou, but also news about celebrity artists and brand companies buying or participating in NFT are endless. This seems to indicate that in the new year, the use cases of NFT may continue to explode.

So why is NFT always tied to public figures and well-known brands? Can a market that grows under the blessing of star effects develop benignly?

Why are all the stars entering the NFT?

Public figures and well-known brands have brought tangible traffic to NFT and have a profound impact on the price of NFT. Therefore, it is not uncommon for project parties to use celebrity auras for marketing. This is particularly evident in the recent incident between Jay Chou and Phanta Bear.

On December 18, 2021, Jay Chou’s trendy brand PHANTACi cooperated with NFT distribution platform Ezek and announced that it would launch an NFT project called Phanta Bear on New Year’s Day. Phanta Bear’s publicity activities revolved around Jay Chou, which drew everyone’s support and attention. On January 1st, Phanta Bear NFT was sold out, and Ezek’s official website was stalled during the panic buying period.

But things quickly turned around. On the evening of January 3, Jay Chou’s brokerage company Jewell Music suddenly issued a statement on Weibo that Phanta Bear’s business activities had nothing to do with Jay Chou. The price of Phanta Bear NFT in OpenSea dropped accordingly, the floor price broke, and the lowest was around 0.23ETH.

Subsequently, the incident was reversed again. Jay Chou and Kun Ling changed their Instagram account avatars to Phanta Bear NFT, and issued an ins to support Phanta Bear again on January 6. JJ Lin, Ashin and others also posted their own bears one after another. The price of Phanta Bear NFT in OpenSea has rebounded accordingly. As of 15:00 on January 6, the average price of Phanta Bear NFT was 0.786 ETH, a 202.3% increase from the issue price.

Why is star effect a double-edged sword for NFT?

Phanta Bear transaction data Source: NFTGO

Several reversals of the event have caused large fluctuations in the price of NFT. From this we can also see that Phanta Bear NFT itself lacks solid value support. It is Jay Chou and the subsequent additions that play a decisive role in the price of Phanta Bear NFT. Many celebrities, most of them bought this NFT for their love for Jay Chou and the appreciation space of superstar endorsements.

What people value more is actually the value of Phanta Bear NFT as social capital.

Some people believe that looking at the development trend of avatar-like NFTs in 2021, from Hashmasks to CryptoPunks, BAYC to Nouns, it can be found that people’s pursuit of aesthetics is gradually decreasing, and the acquisition and appreciation of social capital is getting more and more attention. What matters is who is using the same series of avatars, who are in the community, who can share their identity with the community and resonate with the community. This is a new social experience that is more three-dimensional than the existing Internet.

NFT projects involving celebrities and well-known brands cater to this mentality. Many NFT projects send airdrops to celebrities, or invite brands to co-brand or settle in, in fact, they are incorporating these celebrities and brands into their communities, attracting fans and users to follow in. Moreover, the transaction history of NFTs is recorded and disclosed on the blockchain, and NFTs held by celebrities may be purchased and treasured by fans at high prices.

Taking advantage of this feature, 2021 has become a breakthrough year for the NFT concept, and the number of public figures and well-known brands entering the NFT has surged. Lu Han, Lin Junjie, Edison Chen, Xu Jinglei, Shawn Yue and other celebrities have changed their NFT avatars, many technology giants (Tencent, Alipay, Mega, Microsoft, Twitter, etc.), media platforms (Times Magazine, CNN, Vogue, Xinhua News Agency, etc.), Consumer brands and big IP (Nike, L’Oreal, Coca-Cola, McDonald’s, Disney, Sony, etc.), political and business celebrities (Jack Dorsey, Musk, Snowden, Melania Trump, etc.) buy and issue NFT or Layout this area. Even using NFT to create scarce rights and social experiences is becoming the traffic password for brand marketing.

NFT is a digital asset that everyone can understand, and its popularity is relatively high. Compared with traditional forms such as language and text, NFT’s social interaction is also more intuitive. Through large-scale dissemination in the entertainment industry, the concept of NFT gradually moved towards the mainstream public and was loved and accepted by more people. Today’s NFT has been able to transform the relationship between the fan economy and the brand market in a wide area of ​​consumption, and gradually expand the radius of radiation.

But at the same time, the star effect is a double-edged sword, and it also brings some risks to the NFT market.

What risks will the star effect of the NFT market cause?

First, the behavior of fans is often driven by emotions and may be deceived in decision-making. For example, Kardashian and boxer Floyd Mayweather previously promoted a token called Ethereum Max on social platforms, making a fuss about the name to deceive investors and make them mistakenly believe that they are buying Ethereum. These celebrities may not know that they are promoting scammers, but they have lost real money to fans.

Of course, this kind of fraud project is only an extreme event. For a successful NFT project, the participants must not only be fans attracted by celebrities and well-known brands. The enthusiastic participation of early fans will gradually highlight the wealth effect of the project and attract users from all circles. A large number of influx, in the process, may appear more general crises.

For some NFTs, especially avatar-type NFTs, their price fluctuations are more driven by the community. In fact, they do not have quantifiable value coordinates like most financial assets, but are more similar to cultural assets. Compared with financial assets, cultural assets are difficult to value systematically, which is similar to our inability to price art. At the same time, the demand for cultural assets will fluctuate like culture itself, turning cultural bubbles into financial bubbles.

Therefore, it is actually difficult for users to judge the true value of an NFT. When making investment decisions, they only have incomplete information, and to a large extent they have to refer to other people’s behaviors to form their own judgments. At this time, the celebrity effect and the power of fans are revealed. Once a large number of fans rush to buy in a short period of time at the beginning of the release, or gear up during the project warm-up period, it may trigger the fomo mood of the non-fan crowd and form a large-scale “Information Waterfall”.

What is an information waterfall? We know that the lower the waterfall, the greater the water volume, and the greater the impact. This is the same way of information transmission as a waterfall of information. When making decisions, latecomers will be affected by the signals of the people in front of them, and even in extreme cases, latecomers will Change one’s original expectations or impressions. The later, the stronger the message conveyed by the first action, forming a waterfall of information, which is overwhelmingly overwhelming.

Moreover, each NFT is unique and is often sold in limited quantities. The issuer can easily create an imbalance between supply and demand, forming a common expectation of “future value will rise” among the crowd. Therefore, in the short term, everyone will buy, attract speculators to speculate on prices, form a real rise, further strengthen the expectations of the rise, and make the project’s popularity lasting for a long time, and even intensified.

In this process, we can see the celebrity effect and the key role of fans. The first batch of fans who rushed to buy were not pure investment decisions, which were mixed with many emotional factors, but they became the first drop in the information waterfall. After the enthusiasm is brought up, outsiders will be attracted, including speculators and potential people who don’t know the truth… Everyone is not blindly following the trend, but making rational decisions as much as possible under the situation of asymmetric information. Some people think that everyone is Like it is valuable, and some people take a fancy to the hype space, even those who don’t pay for it will be affected and stir up market sentiment.

However, the prosperity caused by the information waterfall is very fragile. A sufficiently strong reverse signal will interrupt the information waterfall. Just like this Phanta Bear NFT incident, Jewell Music suddenly dismissed the relationship between Phanta Bear and Jay Chou, and Phanta Bear NFT fell immediately. If Jay Chou didn’t change the ins head portrait to support it, the price might have reversed from then on. Even people may trample on each other and compete to sell in panic mood, causing prices to deviate further and making the situation worse.

Moreover, the other key prerequisite for the formation of the information waterfall mentioned above is “incomplete information”, that is, investors will choose to follow their predecessors when it is difficult to judge the true value of an NFT. However, over time, incomplete information will definitely Towards complete information, investors may also move from a state of information asymmetry to a state of symmetry, making it difficult to sustain a false bubble.

Concluding remarks

In short, the cultural and social attributes of NFT make it easier to reach cooperation with various big names or celebrities, and it also makes it easier to get out of the circle than other tracks in the encryption field. But such a business model may not be a long-term solution. Some collection NFTs need to continue to find more solid value support and develop more application scenarios.

As V God once said at the Ethereum community meeting: I hope NFT can benefit the wider society, not just celebrities.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/why-is-star-effect-a-double-edged-sword-for-nft/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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