An Oversupply of NFTs Is Going to Kill the Golden Goose
Welcome to the new tragedy of the commons
In the 1950s, the Grand Banks off the coast of Newfoundland was, as it had been for centuries, one of the richest fisheries in the world, home to a massive and endlessly replenished population of cod. The fishery provided food for people across North America, and jobs to tens of thousands of fishermen and fish plant workers. But new technology — radar, sonar, electronic navigation systems, and massive drift nets — was allowing trawlers to fish for longer, and to take more fish with every trip. The result was that cod were being pulled from the ocean faster than they could replace themselves. In the early 1970s, the cod harvest collapsed, and while it rebounded temporarily, by the early 1990s the Grand Banks were effectively fished out. The Canadian government shut the fishery down, putting more than 35,000 people out of work.
What happened to the Grand Banks fishery was an example of what the ecologist Garrett Hardin famously called “the tragedy of the commons.” If there’s a common resource that everyone has an individual incentive to exploit, it will eventually be used up in the absence of regulation or communal norms. It’s a problem that’s not unique to fisheries. It helps drive deforestation and the depletion of water resources. And now we can see the tragedy of the commons at work in an unexpected place: the market for non-fungible tokens (or NFTs). In this case, though, instead of people aggressively taking as many fish out of the sea as they can, people are aggressively adding as many NFTs as possible to the market, trying to cash in before the bubble bursts. And just as the fishermen trying to catch as many fish as possible helped destroy the Grand Banks fishery, the people and institutions producing NFTs by the minute are only hastening the end of the NFT boom.
History suggests that oversupply is a reliable way to end a collectible boom.
The signs of oversupply are easy to see. A Brooklyn film director sold an NFT of an audio clip of a year of his farts. TIME magazine has put out NFTs of three variants of its famous 1965 cover, “Is God Dead?” Charmin is releasing NFTs of its toilet…