7th Dec 2021
Non-Fungible Tokens, or NFTs, exploded into most of our consciousness after newsworthy sales. Like when Mike Winkelmann, the digital artist known as Beeple, sold an NFT of his work for $69 million at Christie’s1. Due to the heightened publicity around those events, many people automatically associate NFTs with art. While there is definitely great potential for NFTs related to art, their potential and that of NFT stocks is by no means limited to the art world.
NFTs are units of data connected to smart contracts and can serve a variety of purposes. They allow people to independently own digital content that is of value to them, and allow creators to monetize their creations without the need for middlemen or corporations. The options for using NFTs are almost infinite, but let’s look at some of the areas where NFTs are positioned to make a big impact in the coming years.
Sports fans are extremely dedicated and have always been willing to invest in memorabilia of the teams they love. In the past they focused on physical items like hats, jackets, pins, autographed balls, and jerseys, but as the world becomes more digital, it makes sense that they’d be willing to invest in digital assets from their favorite teams as well.
NFTs offer fans a great way to express their passion and show it off for the world to see on social media and other platforms. During the pandemic, when they couldn’t attend live sporting events, NFTs also offered a way for fans to connect and engage with their favorite teams without leaving home.
Sports business is already capitalizing on the NFT potential. In October 2020, the NBA launched the NBA Top Shot marketplace in partnership with Dapper Labs, a blockchain company, where fans can buy and sell highlight clips of top basketball games, coupled with NBA-licensed digital items. Less than a year after it was launched, NBA Top Shot had already made over $700 million in sales2. Some sports NFTs have sold for six or even seven figures3 but NFTs offer something for any committed fan—some sports NFTs are being offered for as little as a few dollars. Dedicated fans are expected to continue spending in this field as more sports NFT options are created, positioning this field for growth.
Video games have enormous NFT potential because even pre-NFT, they’ve already proven that billions of people are willing to pay for digital items within popular video games like Fortnite. In fact, many video game companies have already moved beyond the model of charging customers upfront for expensive games that they don’t even know if they’ll like. Instead, they offer games for free and provide ways to customize and enhance the gaming experience with things like outfits, accessories, or weapons for avatars that allow players to style their game identity for a fee.
To date, most of the items for purchase are created by the company that developed the game and cannot be transferred from one game to another. NFTs can change that calculus, giving independent digital artists the option to sell their designs within the game and allowing the buyers to claim ownership and transfer their purchases from one game to another. That has the potential to boost the video game economy as a whole—gamers might be more willing to invest in digital items that could be used in all their favorite games.
Platforms like Sandbox and Decentraland are already offering virtual worlds where players can build, buy, and sell NFTs, as well as create various gaming experiences for other players. Other companies are experimenting with a “play-to-earn” model where gamers earn NFTs for playing and can then sell them to other players for actual currency. In the video game world, the sky’s the limit for NFTs.
An NFT is a smart contract that can add value to all types of products, and events like concerts and shows are one option where that enhancement has significant potential. Imagine that instead of a ticket to a concert, you buy a concert NFT. The NFT could include artwork related to the concert, and serve as memorabilia from the event. Over time, that memorabilia might even gain value, like ticket stubs from iconic events in the past. However, an event NFT can provide value beyond memorabilia. At the event itself, the NFT could be used to access perks like drinks and snacks, or even backstage passes. It could also be used to create a concert community after the event.
Like in other NFT use cases, event NFTs reduce the need for middlemen. The revenue from the NFT sales can automatically be allocated to the performers or service providers according to pre-agreed percentages. NFTs could even be set up as event equity, allowing NFT owners to gain a small slice of the profits from the event. In that scenario, concert go-ers could even end up earning money for attending the concert becoming both investors and customers.
Debt financing and NFTs as collateral
NFTs are not only opening up new opportunities in leisure activities like sports, gaming, and concerts, they also have the potential to transform traditional finance. For example, marketplaces like NFTfi are now making it possible for people to put NFT assets up as collateral for loans or offer loans with NFTs as security.
It’s actually quite simple. Imagine that you purchased an NBA Top Shot NFT several years ago. In the meantime, you’ve experienced a financial downturn and need a loan to cover your monthly expenses. Instead of going to the bank, you can put the NFT up for collateral on an online platform. If you pay the debt on time, you get the NFT back, without middlemen, and without expensive fees. If you default, the lender gets to keep your NFT, without the hassle of chasing you down or dealing with debt collectors. NFTs have the potential to simplify the lending process significantly, both for borrowers and lenders.
Investing in the metaverse and metaverse stock
Virtual worlds aren’t new, but the metaverse, which is how many thinkers imagine the successor of the internet, is much more than a traditional world-building game like Minecraft and Roblox. Just as it was difficult to imagine the internet in the ‘80s, it’s hard to imagine the full scope of the future metaverse today. However, experts like Matthew Ball expect it to be all-encompassing, “An experience that spans both the digital and physical worlds, private and public networks/experiences, and open and closed platforms (and) offers unprecedented interoperability of data, digital items/assets, content, and so on across each of these experiences.”4
Unlike the traditional virtual worlds where creators didn’t earn anything for their creations, the metaverse is expected to be a fully functioning economy where people can monetize and trade their creations, often in the form of NFTs that can easily be transferred between platforms and domains. People may even be able to own NFTs of virtual real estate like convention halls that they could profit from renting out to others.
Like with the internet, the metaverse is expected to birth new domains, products and services, including ones that we can’t even conceive of today. And like with the internet, some early innovators in the metaverse and in NFTs will achieve inconceivable wealth and others will fail spectacularly.
Where does that leave investors? One option is to gamble, and bet on some of the platforms active in this space today, like a type of “metaverse stock”. However, that type of strategy is high risk—you may end up like the investors who bet everything on MySpace.
Another option is to diversify your investments in the field through an NFT ETF or Metaverse ETF (Exchange Traded Fund) such as Defiance’s NFTZ. Unlike a simple stock, NFTZ enables you to invest in several different companies in the NFT ecosystem rather than focusing on a single company or a specific NFT. Although it can be bought and sold like a stock, the net asset value of an investment in NFTZ is linked to the value of its composite stocks, which in this case, are stocks in an index of publicly listed companies with relevant thematic exposure to the NFT, blockchain, and cryptocurrency ecosystems. Therefore, investing in an NFT ETF gives you exposure to this new and exciting sector while mitigating the risk of buying an individual stock or asset.
1 “The 15 most inexpensive NFTs ever sold”, August 26, 2021, https://decrypt.co/62898/most-expensive-nfts-ever-sold
2 “How NBA Top Shot creator Dapper Labs is mainstreaming NFTs”, August 23, 2021 https://www.fastcompany.com/90668050/how-nba-top-shot-creator-dapper-labs-is-mainstreaming-nfts
3“Most Expensive Sports NFTs in the World”, April 20, 2021 https://www.stadiumtalk.com/s/most-expensive-sports-nfts-4ec81173615c44ba