NFT Project Failures, Part Two
The Taxonomy of Failure in the NFT World
What is failure in the NFT world? What types of failures are there? Who’s doing the most epic failing?
Welcome to Part II of my discussion of NFT project failures! Thank you for bearing with me; I had meant to get this up much earlier but life got in the way.
In Part 1, I outlined a general definition of failure for an NFT project, the tensions that underlie the perception or admission of failure in NFT’s, and started to talk about some recent project failures. Today, I’m going to talk a little more about failure as both a concept and as it relates to some case studies.
Because this piece has metastasized into an extremely long essay, today’s installment will explore only two specific types of NFT failures: Backlash or “FUD,” and internal or team-related failure. Those of you who love schadenfreude might be happy to know that after spending whatever time I could on this piece, I had developed a very, very long list of failures, which we will investigate in almost painful depth over the coming days / weeks.
To recap: “Failure” in the NFT world reflects both qualitative and quantitative metrics, but traders and teams tend to rely most heavily on quantitative metrics and on market-related metrics. “Failure” in this context generally means a collapse of floor price or volume, or in rare and serious cases, external intervention like de-listing. Bloomberg front-ran me on this somewhat with an article a few weeks ago, but I’m exploring the role of failure and how it happens, not promoting a narrative about “mounting” NFT failures. (Even if we can enjoy some snark while describing a few of these failures)
How Do NFT Projects Fail?
Setting aside malicious failures like scams / deliberate “rug pulls,” I have seen projects fail for several types of reasons, which fall into some predictable categories, which I think will become evident as we explore each of them. Some projects fail for multiple reasons, but for the purposes of this list, I’m attributing “failure” to the most visible or most discussed reason that seemed to be proximate to the collapse of the project price, the stated abandonment of the project by the team, or the assumed abandonment of the project (i.e., deleting the associated social media and going silent).
I would put those reasons into several broad categories; those categories can consequently be grouped into internal and external causes. Today, we’ll focus on one external cause of failure and one internal one. But as you will see, the designation of failure in these examples comes from either an overwhelming public sentiment or a communication from decision-makers in the team.
External: Backlash (“FUD”)
Let’s talk about FUD. “FUD” (Verb forms: To fud, fudding, fudded, will have fudded…) is a crypto term that gets bandied about promiscuously. And let’s face it, it’s fun to say FUD. An acronym standing for “fear, uncertainty, doubt,” what many may otherwise define as asking difficult questions, departing from a general culture of positivity that can border on the toxic, or engaging in critical thinking is often dismissed as “FUD” in crypto and NFT’s. The discourse surrounding FUD itself is worthy of a longer essay (IMO! Would you read it?), but the ways NFT communities and groups guard against and react to it can create echo chambers or even constitute a form of censorship. Therefore, FUD is extremely impactful in NFT’s. FUD generally has the context of unfounded concerns, but I define backlash somewhat differently. FUD is rhetorical; backlash is action. FUD is singular, a point of origin. Backlash is the reaction to it. One person can start FUD, but it takes something of a popular or market consensus for backlash to have a meaningful effect.
Backlash, as I define it here, refers to negative community / market reaction to information, events, rumors, or assumptions. Backlash differs from FUD because FUD is often considered to be irrational, or even aggressive and tactical: I have witnessed conversations in which people admitted to spreading FUD on purpose specifically to gain a lower entry price into a collection. Seriously.
Unearthing a creator’s unsavory past, skepticism about a 10,000-item collection under particular market conditions, anxiety about roadmap wording that could raise red flags about securities regulation, or a reluctance to have one’s contract audited can all be considered FUD – but they only become backlash when there is an impact on sales.
In some cases, backlash might consist of a community or holder exodus after embarrassing or upsetting revelations regarding the team’s past, which could occur at any stage in the NFT project launch or life cycle. In other cases, it might consist of doubt about the project, the product, or the market itself. It is important to differentiate between backlash and general product disappointment, which I will discuss later in this series (because this is already really long).
Sometimes, backlash seems to be the result of nothing in particular, or the result of nothing more than growing popularity. In those cases, it is just the reflexive cultural backlash that arises against anything that is popular. Hence, this type of backlash occurs more often in the context of high-visibility and significantly scrutinized projects than those that fly further under the radar. Example: A few months ago, Ryder Ripps outlined what he saw as a pattern of neo-Nazi or racist dog-whistles in the iconography and branding of the Bored Ape Yacht Club (n=10,000, current floor price: 127.99 ETH; $APECOIN currently trading at $14.75). The accusations hardly impacted the price or overall public perception of the brand. Yuga Labs, along with a researcher at the American Defense League, denounced the connections Ripps outlined and pointed out some over-statements from his write-up.1
Backlash seems to be most devastating and impactful during the phase prior to a project launch. This is because post-launch backlash affects a more diffuse marketplace. It’s easier for people to shrug and leave a Discord than it is to list an NFT, and it may be easier to overlook backlash and FUD once someone can deploy the sunk cost fallacy – or after someone has spent enough time within a project to ignore what they perceive to be bad-faith arguments about the project or founders. Also, post-launch NFT communities are usually much smaller and quieter (because of the aforementioned diffuse market), and filled with believers in the project rather than speculators looking for a quick flip, so any backlash will reach a smaller audience.
Can backlash really kill a project, though? It depends when and how severe it is, along with how visible the project is. My perception is that backlash itself rarely leads to outright project failure, particularly after the launch, but it would be hard to prove this. Many teams or even collectors blame “FUD” for project failure or underperformance, and in some cases, “FUD” is used synonymously with market conditions that have not moved in one’s favor. Considering that the dominant ideology within crypto and NFT’s is market fundamentalism, it seems inconsistent to assume that when the markets move in one’s favor, it is the unerring wisdom of the market, but when the crowd and market moves away from something, it is the result of meddlers spewing poison around skittish investors. But maybe I’m just fudding fud here, and there are plenty who have made painful, public statements about how they could have better responded to or anticipated backlash and FUD. Doing that is hard and I respect them. Anyway, the way FUD and backlash get attributed is fundamentally about people, communication, and power, which is a nice segue into the next type of failure we’re talking about today.
Internal: Interpersonal Drama, Conflict, Team Building
The NFT space is new, its population skews young, and many of the people working on these projects have little experience building things – much less working with one another. In addition, the opportunity for anonymity creates risk for those who are investing time and talents into NFT’s. You might work closely alongside someone every day for months, but never learn their real name. This can become a real problem if you discover, say, that your coworker has provided you with stolen art, or manipulated the project mint so they miraculously ended up with a rare item in an alt-wallet, or absconded with project funds, or abandoned a previous project. Many of the people on these teams are talented and hardworking, but they might find out the hard way that they don’t work together well, or that they lack a unified approach to navigating the roadblocks to their vision.
The most talented and experiences leaders are not always perfect fits with their teams, and the layers of complication added by remote work – which is more often than not the case in NFT’s – can make it even harder for a team to work together effectively. It is no surprise, then, that there are lots of examples of projects that failed because of internal drama. Sometimes this takes the form of individuals not fulfilling their obligation, or at least, that is the narrative promoted by the stakeholders in the space.
Earlier this year, I was in a Discord for a forthcoming 3-D PFP project, and one day the founders abruptly posted a message stating that their key artist had failed to meet deadlines and wasn't responding to their messages, so the project would be delayed indefinitely. Despite community consensus that the wait was worth it, there have been no updates on that project since mid-March.
Dentin, the original artist behind Weather Report (n=10,000, current floor price: 0.4), infamously split from the team, claiming that he had been misled and cheated. He then launched Dented Feels (n=11,111, current floor price: 0.11), what he claimed was a project with his own vision. Meanwhile, the project’s founder utilized unsavory techniques like giving away whitelist spots for unfollowing Dentin on social media. The weather jokes write themselves as the tempestuous situation has begun to wind its way through federal court, as result of Weather Report suing Dentin.
Yet despite this drama, I am not sure whether there is a market or public consensus that the project failed. Personally, I would argue that the brouhaha ultimately worked to the advantage of both collections. Both projects sold out quickly. As of today (April 22, 2022), Weather Report has traded a volume of 1,800,000 ETH and Dented Feels has traded 4,600,000 ETH. So, is this failure? Is it a case in which backlash against claims regarding two opposing parties successfully led to brand affiliation and loyalty?
I’ll leave it for you to decide, but the internal problems do illustrate some of the problems that occur in this space.
Backlash, FUD, and Interpersonal Drama
Backlash and internal drama are both umbrella terms that can overlap or refer to very different things, depending on when each occurs. Backlash against a project sucking liquidity out of the market or putting inordinate demands on its backers for the “opportunity” to spend money on it might differ from the backlash against a project whose ultimate reveal is, erm, underwhelming bordering on fraudulent.
Backlash against news that a project team misrepresented the role of a creator, or that they incentivized community members for discrediting a former team member might sink a project – or it might create a more differentiated market segment for it through the idea that any buzz is good buzz.
Some features of the current NFT space differentiate these failures pressure points from their analogues in the traditional business world. The warp speed of these markets, the relative lack of accountability and relative anonymity of NFT’s, and the demographics of a young, inexperienced, and globally disparate group of creators might make abandoning a project a more attractive option than weathering the storm. This is particularly true if it has not yet launched. Those who are unwilling to work through these difficult moments might publicly ascribe them to a single scapegoat on the team. Of course, there are bad actors, slackers, and people who make professional mistakes in good faith in NFT’s, as in anything else. Internal or team drama can remain invisible or internal if the team controls the narrative or, even better, is able to resolve the problems internally. Yet the locus of control for team drama often means that by the time this situation is communicated as a failure to stakeholders, the project has already been determined a failure, and the market does not get a chance to react and decide for itself.
The part of me that’s still an academic can’t help but notice that what both of these failure types share is a form of communication and labeling, which differs based on who and in what position is able to dub it a failure and what they should do in response to it. As I have said before, this is a common trope in failure (in general) and in NFT’s, but as we will see in the next installment, backlash and internal conflict differ from some other external and internal types of failure, such as technical (internal), infrastructural (external), hybrid (product disappointment), market / market timing (largely external), and so many more. So much failure!
What other types of NFT project failures have you seen? Am I missing any?
Thanks so much for reading, and for bearing with me as it took me longer than planned to get this article out! I have a lot more articles in the pipeline that should be out ASAP. I truly appreciate all the comments, both constructive and supportive, that you have given me, and am always eager to consider your feedback as I continue to develop new content.
Disclosures and disclaimers:
Nothing in this publication should be considered financial advice. What I have written is just my opinion.
No companies have paid me or given me anything for this coverage. They probably do not even know I exist. All the information about these projects was accurate as of the time I wrote this, and I have verified this information to the best of my ability. None of the links I’ve used in this post are referral links unless otherwise indicated.
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0x4E53CD9f9BF1A0C2f89E7af2Dd8F72b8f0cFC142
As a former college instructor, I want to say that I do appreciate the degree of thoroughness Ripps brought to his research, as well as his commitment to calling out potential injustice. As a former academic who has conducted significant research in and about Germany and German visual media, I do tend to agree with Yuga and the ADL here. However, I also think the conversation about racism that ensued was valuable and necessary, and hopefully highly visible NFT creators and entities will use this incident as an opportunity to be more sensitive and inclusive.