NFTs: A Revolution for Digital Capitalists

In letter

  • Trading volume for the NFT market rose 57% in the summer of 2020, increasing the value of the industry to around $ 100 million.
  • New NFT platforms enable fractional ownership of digital assets such as works of art.
  • DeFi platforms are starting to use NFTs as collateral for loans or derivatives.

When most people think of non-fungible tokens (NFTs) – cryptocurrency tokens that are proven to be unique – they conjure up images of virtual trading cards and digital art markets. However, it turns out that there is much more to the frothy financial asset.

The NFT market exploded this summer, with trading volumes increasing 57%, bringing the industry’s value to about $ 100 million. Now developers are feverishly designing platforms that use NFTs in innovative and surprising ways.

With new protocols for art markets, you can split NFTs Thousands of parts and sew them back together; Game platforms sell land for decentralized virtual worlds; and credit protocols accept NFTs as collateral.

Fractional digital art

The rise of decentralized finance (DeFi) – unprotected financial logs – has turned the NFT industry into a money-printing machine.

Increasing platforms make it easier to trade and speculate in digital art. Some give you additional cryptocurrency tokens to trade in NFTs, while others allow you to buy fractions of NFTs.

Based in Singapore NIFTEX enables the fractionation of NFTs into thousands of fungible ERC20 tokens. Instead of buying a piece of crypto art, you can buy a fraction of it and trade on Uniswap, a decentralized exchange.

“I think emotional attachment is very important. But still, when you’re on an NFT that’s worth 100 ETH, part of you can say, “It would be nice to get a little out of it”. Joël Hubert, co-founder by NIFTEX Decrypt.

“The Other Deadness”, a work of art fractionated on NIFTEX. Image Credit: XCOPYART.

Duncan Cock Foster, co-founder of Nifty Gateway, a crypto art marketplace, tells Decrypt that he thinks experimentation is “great”, although he is skeptical of dealers who might invest in art for purely speculative purposes. “If you’re just doing it as an investment and just trying to get some financial return, you’re doing it wrong and you are destined to fail,” he said.

The fractionation of NFTs opens completely new markets, however, said Hubert. Developers could develop tools that allow them to rent out virtual video game land, for example, and levy taxes on those who build on it. Or a clan could split stakes in a virtual sword so different members can kill dragons as they see fit.

“That will only continue to develop. These NFTs will have more rights and more complicated rights, ”said Hubert, whose platform has generated around $ 1.8 million since it launched in May.

Peasant uprising

One person working on it is Yat Siu, Chairman of Animoca Brands. Siu’s company sells NFTs, which represent video game items such as virtual racing cars and auto components. These NFTs are 100% owned by the player who can resell them in secondary markets.

“We believe that NFTs are essentially property rights in the digital world. And every time you socially introduce real estate rights into a community, magic happens, ”Siu said. This real estate-based “magic” is “essential for capitalism to work”.

For video games, Siu argues that NFTs could solve an unfair status quo where game companies control access to the items they sell you.

If you buy character skins and emotes from Fortnite, the world’s most popular game, you won’t own this content. If you break the rules of Fortnite, the developers can boot you from the platform and take your articles away.

“It’s a complete dictatorship,” sniffed Siu, who added that one has to believe “that the company has your best interests at heart – 90% of the time it doesn’t because the game company can’t.” Money.”

Now Siu is leading a peasant revolt; he sees himself as a medieval serf who frees himself from a feudal overlord.

The main game from Animoca Brands, The sandpit, is slated to launch its first public beta next month.

The sandbox looks like Minecraft and feels like Second Life, a virtual world where players can do whatever they want and exchange user-created items for Linden Dollars, the virtual currency named after the creator of Second Life , Linden Labs.

The sandbox sells $ LAND, an NFT that renders in-game plots on which brands can build their virtual world. The Smurfs pre-sold an entire property from $ LAND, which was paid for in $ SAND, the sandbox currency, on which they will build a virtual Smurf Village. Brands such as Care Bears and Shaun the Sheep are also represented on the platform via Animoca.

The revolution Siu speaks of is clearly capitalist. NFTs usher in a new wave of pay-to-win video games where financial freedom only works if you enjoy games that are microtransaction based. “It’s a niche,” says Siu.

DeFi supported by NFTs

The NFT market goes even deeper. Some platforms use NFTs as collateral for loans or derivatives.

“The ability to use creative works as collateral or derivative will open a whole new financial market that could have huge network effects,” said Eden Dhaliwal, Global Managing Director at Conflux, a Chinese blockchain network that worked with NFT artist Song Ting to build the NFT marketplace Tspace, told Decrypt.

This year, Annual finance insurance contracts The company, signed by DeFi Insurance Protocol Nexus Mutual, has been listed on Rarible, an NFT marketplace. Nexus’ coverage increased from $ 1 million in January to $ 48 million today.

Annual insurance packages are now being sold at Rarible. Image: Rare

This allows you to take out insurance for DeFi Smart contracts without the log itself having any funds. When hackers break the protocol, this contract pays out funds.

Rarible also offers users additional cryptocurrency tokens to use their platform. Trading in NFTs on Rarible for the sole purpose of acquiring these governance tokens is known as “yield farming”.

“This will only grow much faster over time as the infrastructure for DeFi continues to mature,” said Han Wen Chua, SVP for ecosystem growth at Zilliqa, a blockchain that supports multiple NFT marketplaces Decrypt.