Architectural DiagnosisFailed Constitution

Formalising Value Without Institutions

NFTs as a Stress Test of Art Market Architecture

Why “Failed Constitution”?

Unlike the traditional art market (which is pre-institutional—architecture was never built), NFTs represent a failed constitution: an attempt to build market architecture that collapsed. The infrastructure existed; the institutional authority did not.

The rapid rise and collapse of the NFT art market is commonly explained through narratives of speculative excess, technological immaturity, or cultural backlash against financialisation. This diagnosis argues instead that NFTs failed for a more fundamental reason: they attempted to constitute a market for symbolic goods through technical representation and transaction recording without the institutional authority required to stabilise value across time.

Treating NFTs as a natural experiment in market constitution, this analysis shows that NFT infrastructures successfully solved several problems long identified as sources of art-market fragility. Yet these solutions were insufficient. Formalisation without authority cannot constitute durable markets for symbolic goods.

“NFTs did not fail because they over-financialised art, nor because artists, collectors, or builders acted irrationally. They failed because formalisation without authority cannot constitute durable markets for symbolic goods.”

Core thesis of this diagnosis

Related Diagnosis

A Market Without a Market

This NFT analysis builds on our diagnosis of the traditional art market. Where that diagnosis identifies architectural absence, this one examines a failed attempt at constitution.

What NFTs Actually Solved

NFT infrastructures successfully addressed several problems long identified as sources of art-market fragility. Their failure cannot be attributed to missing infrastructure.

Standardised Representation

Token standards defined ownership unambiguously, enabled interoperability, and reduced ambiguity around editioning and scarcity.

Persistent Provenance

Ownership histories were publicly recorded, tamper-resistant, and portable across marketplaces—no longer fragmented or vulnerable to selective disclosure.

Price Visibility

Transaction histories and prices were visible in real time. Price discovery became immediate rather than delayed.

Frictionless Global Exchange

Near-instantaneous global exchange without geographic, regulatory, or institutional gatekeeping. Settlement risk minimised.

Critical insight: NFTs addressed the layers most commonly blamed for art market dysfunction—lack of transparency, unreliable provenance, restricted access, and opaque pricing. Yet despite unprecedented visibility and liquidity, NFT markets failed to stabilise value across time.

The Brief Window of Market Coherence

The NFT market did not fail immediately. For a brief period, it exhibited economic properties largely absent from both the traditional art market and later stages of the NFT ecosystem.

Royalties as a Constitutive Market Rule

Enforced creator royalties on secondary sales functioned as a constitutive market rule. By linking future transactions to originating creators, royalties introduced temporal continuity between primary and secondary markets.

Reduced creator dependence on constant primary sales

Made future success economically relevant to present production

Enabled some creators to plan production over longer horizons

The Emergence of Operator Behaviour

With predictable participation in secondary market upside, some artists assembled teams, outsourced promotion and community management, and sought external support. Creators began to resemble cultural operators rather than isolated producers—approximating the economic properties of a functioning cultural market.

Why the Constitution Failed

The mechanisms that briefly stabilised NFT markets could not survive competitive pressure. Platforms cannot perform the constitutive functions of institutions.

Voluntary Coordination, Not Authority

Fatal Flaw

Royalty enforcement depended on voluntary platform coordination rather than binding institutional mandate. No higher-order authority existed to bind platforms to common standards.

Structural consequence: Rules became contingent, reversible, and subject to competitive arbitrage

The Royalty Wars (2022–2023)

Observed

As marketplaces faced competition from entrants optimised for high-volume trading, royalty enforcement shifted from mandatory to optional. New marketplaces attracted liquidity by minimising fees; established platforms relaxed enforcement in response. Identical assets traded under incompatible rule regimes.

Result: Creators could no longer rely on predictable participation in secondary market activity

Authority Denial as Structural Failure

NFT marketplaces did not collapse because they abused authority—they collapsed because they denied it. By refusing to recognise themselves as constitutive actors, platforms left no locus for legitimate rule enforcement.

Paradox: Platforms exercised power but disavowed governance, creating authority without legitimacy

Hyperfinancialisation

In the absence of institutional stabilisation, markets shifted toward hyperfinancialised trading. Assets were bundled, near-fungible categories emerged, and incentive schemes tied to transaction volume encouraged rapid turnover. Symbolic differentiation gave way to liquidity abstraction.

Outcome: A system optimised for extraction rather than value formation

Volatility as Architectural Outcome

The extreme volatility observed in NFT markets is often attributed to behavioural excess or speculative mania. This analysis argues that volatility was a deterministic architectural outcome of the market’s institutional design.

Visibility Without Stabilisation

Visibility alone does not stabilise value. Without institutions capable of anchoring comparability, visibility amplifies feedback loops rather than dampening them.

Speed Mismatch

Circulation outpaced interpretation. Meaning formation in symbolic markets is slow; NFT markets operated on compressed temporal cycles.

No Exit Buffers

Without royalties or long-horizon confidence, volatility translated directly into extraction pressure. Dumping behaviour was structurally induced.

Expectation Failure

Once institutional continuity dissolved, expectations became unanchored. Even small shocks produced outsized responses.

A Note on Framing

This diagnosis does not attribute failure to participants. Artists, collectors, and builders acted rationally within the constraints of the system. Creators sought sustainable income; collectors sought value; platforms sought growth. Each responded to incentives as structured.

The failure was architectural. Markets for symbolic goods require shared authority capable of enforcing comparability, continuity, and temporal stability. Platforms, by contrast, are structurally bound to user growth and competitive positioning—incentives incompatible with long-horizon governance.

RCA Framework Analysis

Applying IRSA’s Regenerative Capital Architecture framework illuminates the constitutional failure more precisely.

Delta (Δ) — Decoupling

Temporary

During the royalty-enforced phase, creators were partially decoupled from primary-sale dependence. This decoupling collapsed when royalty enforcement became optional.

Brief: Secondary income enabled planning

Collapsed: Reversion to primary-sale trap

Lambda (Λ) — Alignment

Failed

Platform incentives were never aligned with market health. Competitive dynamics rewarded volume over coherence, leading to rule abandonment under pressure.

Platforms optimised for transaction volume

No mechanism to coordinate competing venues

Amplification, Not Repair

NFTs were presented as remedies for the traditional art market’s opacity. In the absence of institutional authority, they instead amplified existing structural failures.

Problem	NFT Solution	What Actually Happened
Opacity	Full transparency via blockchain	Transparency exposed volatility without mechanisms to contain it
Provenance gaps	Persistent, portable provenance	Provenance existed as data without authoritative interpretation
Gatekeeping	Open, permissionless access	Removed friction without replacing stabilising functions
Primary-sale dependence	Creator royalties on resale	Collapsed under platform competition; trap reproduced at higher speed

Post-Collapse Developments

Subsequent developments in NFT markets—including state regulation (the CLARITY Act, MiCA), hybrid legal–technical contracts, and participation by established cultural intermediaries—further clarify, rather than undermine, this diagnosis.

What Regulation Addresses

These developments address several failures identified in this analysis: replacing voluntary platform coordination with enforceable legal mandates, reducing opportunities for rule evasion, and stabilising transactional expectations.

Enforceable ownership and compliance standards

Reduced platform rule evasion

Stabilised contractual expectations

What Regulation Cannot Resolve

However, this evolution does not resolve the deeper problem. While regulatory oversight and legal enforcement can stabilise ownership, compliance, and contractual rights, they do not themselves constitute markets for symbolic goods.

Shared interpretive authority—law cannot generate this

Legitimacy formation—emerges from cultural consensus, not statute

Temporal coordination of judgement—requires institutional mediation

Key distinction: The post-collapse institutionalisation of NFT markets confirms the central claim—authority is necessary for durability—but also reveals its limits: compliance-oriented authority alone is insufficient to stabilise meaning, legitimacy, and long-horizon value in art markets.

Theoretical Contribution

“NFTs function not as a speculative anomaly but as a stress test that clarifies the distinction between technical infrastructure and institutional constitution.”

This diagnosis contributes to regenerative systems theory by demonstrating:

Technical infrastructure ≠ institutional constitution. Ledgers record history; they cannot generate legitimacy. Platforms host exchange; they cannot bind competitors to shared rules.
Partial institutionalisation is fragile. Brief periods of market coherence can emerge, but cannot persist without constitutional authority.
Visibility amplifies without authority. Where authority is absent, increased visibility and liquidity amplify volatility rather than stabilise value.
Compliance ≠ constitution. Regulatory authority can stabilise transactions but cannot generate the interpretive authority required for symbolic value.