Evaluating The Right NFT Drop Style For Your Project
Cory Hymel
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March 16, 2022
If your company has a great idea for releasing an asset as an NFT, you need to think hard when bringing it to market. A variety of drop styles exist, and choosing the right one gives the token the buzz, impact, and customer engagement your organization wants.
In the end, you don’t want to waste all that effort just to throw it up on OpenSea to see what happens. Four major drop styles exist for companies interested in making their NFTs available to this emerging market. Deciding between the seller mint, buyer mint, generative mint, and reveal mint requires understanding the attributes of each style.
This post provides a high-level overview of each, helping you determine the right approach for your company’s entry to the global NFT marketplace.
A drop type seen since the early days of NFT marketplaces, a seller mint means the NFT creator produces a digital or physical asset themselves and publishes it on a certain marketplace, subsequently paying any mint costs. When a buyer purchases an item from a marketplace, they view the art piece, decide to buy it, and pay for the NFT itself plus the gas cost of the transfer. Early on when gas prices on Ethereum Mainnet were low, a lot of projects used this type of drop because it most closely aligned with how things are done IRL.
Now, with gas prices on ETH Mainnet holding north of $100, minting out your own 10k collection could cost you more than $1m out of pocket. If you’re looking to mint on other chains such as Polygon, Flow, Skale, or others where transaction cost is low (some near zero) then doing a seller mint isn’t a bad idea.
The buyer mint works in a similar fashion as a seller mint, but in reverse. In this scenario, the seller produces art or some other item and lists it for sale. At this point, the item is not yet “on-chain” or on an actual blockchain. When the buyer purchases the item for sale, they also pay the underlying cost to mint the item.
This approach makes more sense as the item itself, before purchasing, is considered to be “off-chain.” After the purchase, the buyer pays the minting cost, and the underlying NFT for the item is stored on a blockchain; it’s now considered to be on-chain. The upside of doing this versus a seller mint is that if you don’t know if your drop will sell out (hopefully it does) then you can hedge risk.
The downside is that if gas prices are soaring then customers will wait to mint until gas drops, killing any momentum you may have gotten. You can also enter into what’s known as “gas wars” in which people willingly pay high gas fees during a customer mint to get their transactions executed first, ensuring they get one of your NFTs.
This effectively drives the overall price of the mint higher and can shoulder people out who may have been valuable members of your community.
In a generative mint, the actual digital asset isn’t available for viewing at the time of purchase. The buyer might understand some of the inherent characteristics of the art, but the actual piece gets generated at the time of purchase. Additionally, the buyer ends up paying for the mint costs. You can think of this as a spin on the buyer mint mentioned above. This generative approach creates a certain uniqueness to the underlying art piece, helping to drive scarcity and the ultimate value of the NFT.
It also triggers a cognitive reaction in buyers hoping that the generated artwork has rare characteristics that also increase its value. It’s a similar concept found in collecting trading cards in sports or even collectable card games, like Magic: The Gathering. Generative mints are also advantageous from a CAPEX perspective because your artists don’t have to manually create X number of artwork themselves. They create certain components then they are assembled on the fly as users mint them.
This can lower the barrier to entry to the NFT space. The generative mint drop style remains relatively popular among NFT traders. Perhaps this same concept might apply to generative music pieces, which only get created by leveraging algorithmic composition routines after the user purchases a track?
The reveal mint follows a similar approach as the generative mint, with the only exception being the buyer doesn’t even see the artwork after purchasing it and paying the minting costs. The art assets associated with the NFTs get generated at a later date.
You can think of it as buying a piece of artwork with a veil over it, once all the pieces in the exhibition are sold, all the veils are removed. So why does this work and why do drops do this? The reason lies in the floor. One of the main metrics for success in an NFT project is what the floor price is. Floor price = the lowest listed price of one of your NFTs. In a generative mint as mentioned above, if someone mints a non-rare NFT they may immediately go list it for sale at a low price to make their money back to mint again and try for a more rare NFT.
This hot selling can cause the floor price of your project to drop like a rock, which is bad. One way to solve this hot selling is to avoid revealing the artwork until the project has sold out. Anticipation is a hell of a thing and makes markets go crazy. A great example is the HAPEBEAST project.
Before their reveal the floor price was as high as 8.3ETH. Since then the floor price has dropped (at this time of writing) to 1.9ETH. Having the floor drop after the reveal is common and shouldn’t be seen as a negative thing. It’s up to you as the community leader to keep everyone engaged which will help maintain or increase the floor price of your collection.
Again, remember that NFTs provide producers and sellers with multiple benefits. The first involves building value in the actual digital asset. But don’t forget the point about growing customer engagement into this overall value equation. Generating buzz around an entire collection becomes easier when using a “big reveal” to digitally craft the underlying art assets at once. The psychology of both purchasing and collecting come into play in this scenario.
Getting users engaged in wanting to own a part of that collection helps drive interest for your big reveal. It’s an approach worth considering for any business making their first foray into the world of NFTs. In the end, this strategy gives you more control over the messaging and ultimate value of your collection.
Also check out our video on NFT drop styles for more information on this crucial topic. If your company wants to make its first foray into the emerging world of NFTs and needs a guiding hand, connect with the experienced team at Gigster. We are a hip and knowledgeable technology services provider with both the technical chops and blockchain business insights to help make your initial NFT projects successful. Schedule some time with us to discuss your business ideas and let’s change the world together.