Fungible: adjective: Said of things that are consumed by use and can be replaced by an analogous thing (commodity, cash).
Although present for years, the sale in March 2021 of a 10-second video for $6.6 million spotlighted a market that can be extremely lucrative. Public opinion then went wild, experts hailed a new digital El Dorado; in short, we will discuss the topic of NFTs today.
I – Technical and Technological Innovation
First of all, what is an NFT (Token Non-Fungible? How does it work and what is it used for?
The concept appeared in 2015 with the Etheria project, a virtual world in which it was possible to buy plots of land. The characteristics of these plots were recorded on the Ethereum blockchain and you received a token corresponding to your plot. Each token issued is unique and cannot be replicated.
The essential characteristic of digital goods is that they can be duplicated. To be considered NFTs, they must therefore be «certified» and made non-fungible or unique. This is done through the blockchain. These tokens have found their utility in numerous markets that we will examine below.
II – The digital art market
The first market to launch into the NFT adventure on Ethereum was the digital art market in 2017, with the now-famous Cryptopunks.
CryptoPunk 7523 is now the second most expensive NFT in history, having sold for a modest 11.7 million $ in March 2021 at Sotheby's.
Although emblematic of this new movement, Larva Labs' Pixel art are far from being the only ones to have experienced incredible popularity on social networks and within the crypto community.
Between 2020 and 2021, projects and auctions multiplied, pushing the limits of the reasonable ever further to reach their peak on May 3, 2021, when no less than 100 million dollars were spent on certificates that single day to create NFT tokens associated with works of art that would then be sold at prices averaging around a hundred thousand euros.
This sudden and exponential interest in digital artworks in 2021 is the result of a large number of factors, but among them is one whose contribution allowed this market to be recognized within the most prestigious auction houses alongside works by masters: an artist, Beeple.
Mike Winkelmann, known as Beeple or Beeple Crap, is a British digital artist and US citizen. By selling a digital artwork as an NFT for $69 million in cryptocurrency on March 11 at Christie's, he achieved the largest sale ever recorded for a digital asset.
III – The sports industry is increasingly monetized
At around the same time, another player is preparing to enter the field—a player who is never far away when it comes to monetizing media content: the professional sports industry, of course!
It is hard to forget the era of Panini sticker albums and the hours spent collecting stickers and trading players with friends. This is what several crypto-asset projects have set out to replicate using NFTs.
Based on the blockchain system, NBA Top Shot combines trading and collecting. The concept unites a passion for sport with business. The basketball league selects moments or video highlights of basketball players. Dapper Labs, the Canadian company behind CryptoKitties, then links them to a blockchain to finally sell them in packs on the official NBA Top Shots website. Their prices range from 9 $ to 230 $.
According to Tedman, one of the founders of Top Shot, sales reached $230 million. A large portion of this money, however, comes from collection trades between traders after their initial sale. Recently, the company released 5,000 new packs, and currently, they are sold out.
And as for football, the reigning world champion simply had to have its representative in the ecosystem. The French start-up Sorare, founded in 2018, has announced the largest fundraising in the history of French tech with more than 500 million $ upon signing.
It allows users to acquire and trade football player trading cards in the form of NFTs. It is then possible to build your own team and earn points based on the actual performances of the players.
IV – A utility that has expanded to gaming
Which brings us to our final point, undoubtedly the off-chain market with the strongest growth in recent years, the video game market.
Gaming tokens are the crypto assets of the moment, drawing high trading activity. The trend is therefore upward. But as is often the case in the crypto sector, it could quickly fade or even reverse.
Nevertheless, like sports, gaming is establishing itself as a mature field generating substantial revenue. The worlds of gaming and sports also share another asset: NFTs. Furthermore, in the first half of 2021, NFT sales skyrocketed to $2.5 billion.
In virtual worlds, such as Decentraland, users can display their NFT art collections, open businesses, walk around with friends, visit landmarks, and attend events. The price of blockchain-based real estate in virtual worlds has thus surged with the NFT market boom this year.
Other games like Axie Infinity seek to gamify financial mechanisms to enable players to generate income while playing under a «pay-to-play» and «play-to-earn» format. They then use NFTs to create unique characters or equipment that users can buy and then resell or use to make money in the game, and then transfer it back to their wallet.
V – Conclusion
Thus, this native blockchain technology innovation has managed to make its way to the highest levels of the ecosystem, dethroning many markets in terms of sales volume, generated fees, and capitalization.
Certain decentralized protocols also make it possible to use NFTs as collateral to take out loans, while others use them to tokenize future yields and thus create new financial vehicles in the ecosystem, namely AAVE and APWine respectively.
It is now a certification and value-creation tool recognized by numerous institutions as well as by communities revolving around crypto-assets.
There is still a lot of potential utility for this asset class and we are curious to see what the future holds for us!
