A central theme on Uncomfortable Profit the past few months is how NFTs are equity-like because they distribute assets similar to a dividend. ENS domains are the most recent example. The project airdropped hundreds of millions of dollars’ worth of ENS tokens that give holders the right to govern the system. The tokens I received are worth more than what I paid for the domains I own.
The ENS distribution made me wonder: What if traditional equities started issuing digital dividends like we see in crypto?
They already have. Last May, Overstock issued a digital dividend to OSTK shareholders of one digital preferred share for every 10 shares of OSTK they held. The OSTK digital preferred shares pay a cash dividend to holders. Overall, the OSTK digital dividend isn’t all that different from a traditional stock dividend except that it was done in tokens traded on the blockchain.
As of yesterday, the Overstock digital dividend trades for $83.50 per share. That’s about an 80% return vs the OSTK share price at the time of record. In a sense, the digital dividend covered the cost of buying the stock in retrospect, just like the ENS airdrop for me.
While there are questions from short sellers about whether the digital dividend should have been subject to securities law, the more interesting idea is how other companies might use digital asset distributions to regular stockholders in the future.
As I’ve written here before, identity is the megatrend of the 2020s, and now, more than ever, stock ownership is part of our online identities. Many investors identify as TSLA bulls or bears with simple tickers in their Twitter profiles, but that’s a weak signal in the age of verified ownership. How much Tesla you own and for how long would be a much stronger signal.
There’s a future where publicly traded companies issue digital dividends to shareholders. Not necessarily as preferred stock like OSTK, but as unique, collectible NFTs. Imagine if Tesla airdropped Elon-themed NFTs to shareholders based on how long the shareholders owned TSLA stock. Imagine if AMC sent out NFTs based on epic movie moments. Or if GME did it with classic video game characters. An ESG-themed ETF could airdrop assets that verify an investor’s environmental or social consciousness. The possibilities are endless.
Distributing NFT collectibles to stockholders may seem silly to traditional investors, but it’s not for the current generation of investors whose identity is tied to all money decisions. In the era of meme stocks, digital asset distributions could serve as a tool for companies to attract a new generation of investors who build identity on the assets they own.
NFT distributions don’t change the reality that companies will be worth the value of their future discounted cash flows in the long term, but we’re living in a world of game mechanics. The equity world is not immune from them. If a company were to do a quality NFT distribution, it would propel itself into social relevance and probably provide a short-term boost to share price, even if it doesn’t change the fundamental reality behind the stock. As we’ve seen with GME and other meme stocks, the market can stay irrational for a long time, giving meme companies a new lease on life as part of an investor’s identity, not just a ticker on a monthly statement.