With revenues totaling $10.7 billion in the third quarter, it’s time to look at the broader picture.
Unique on-chain assets are set to rapidly extend beyond profile images of punks and apes, despite the fact that the new asset class has mostly captured the art and collecting market.
Investors are flocking to a new industry characterized by rapidly expanding online communities and a thriving creator economy. On the first day of Coinbase’s NFT platform’s launch, an amazing one million people signed up for the queue.
As more people become acquainted with the technology, we will begin to see more usefulness and real-world integration, enhancing the value of the already enormous NFT market and expanding the paradigm shift from physical to scarce digital products.
Institutional capital is flowing into the space, which should come as no surprise. Despite having a market valuation in the billions and representing one of the most culturally transformational technologies, NFTs are extremely illiquid. However, credit markets are forming, providing a fresh source of yield for a yield-starved economy.
Investors can gain more than just a simple store of value from their NFT assets. NFTs are one-of-a-kind on-chain assets that provide digital scarcity and provenance. As the globe moves on-chain and the metaverse economy becomes more mainstream, solid infrastructure is required to keep up.
For a new asset class with a trillion-dollar total addressable market (TAM), mark-to-market pricing, valuations, and credit markets will be critical moving forward.
Getting stuck on the chain
People are making a lot of money selling these rarities, and the combination of market activity and high-profile sales of what many still consider to be a simple ‘jpeg’ has everyone on the lookout for the next golden ape or extraterrestrial eight-bit avatar. In fact, certain ‘blue chip’ collections, such as Bored Ape Yacht Club and Crypto Punks, are transforming into digital country clubs, with everyone wanting to join.
Some high-profile photo collections and digital art pieces are fetching prices comparable to physical paintings like Picasso, Monet, and Van Gogh. However, despite a thriving market worth billions of dollars, there is no way to access any of that money without selling the asset in question — and therefore forfeiting any benefits that came with holding it.
Pains of maturation
The NFT marketplace as a whole needs to mature in order to fix this problem and take use of the enormous market capitalization behind some projects. Most people, especially those who aren’t familiar with decentralized apps, are still perplexed by the technology behind NFTs and participating with the market. Regardless of technological knowledge, everyone should be able to easily onboard.
Another issue holding back the NFT sector is the lack of a standardized authority on collection rarity rankings. While there are a few places where NFT aficionados can get information, investors and artists alike would benefit from a widely agreed method of valuing these precious digital assets, particularly when it comes to something as important as ranking.
The perceived worth of the item in question may be validated once a standard for appraising the ranking of collections has been established, giving lenders the confidence they need to grant loans based on that value.
Unlocking the liquidity of high-value NFTs also allows holders who have built up a sizable portfolio to use it as collateral for other investment opportunities without having to sell it, just like they could with a tangible collection in the traditional art world.
A future-oriented marketplace
Unlike physical collectibles, some of these digital goods are useful to their owners. Owning a specific NFT could give you access to special events or passive income opportunities like token yields or play-to-earn games.
Plots of land are already being sold for large sums as the metaverse expands, and owning virtual real estate might someday be a lucrative source of revenue through leasing.
We’re just getting started in the NFT space, with only 20% of Americans participating. The market will see a tremendous flood of new investors now that famous companies like Coinbase and FTX are establishing their own NFT platforms. With the financialization of NFTs, this developing market begins to mirror current art markets, which will help attract even more participants.
Integrating some of these protocols into the NFT industry should be the next step, as it will benefit not just creators and holders, but also the marketplaces with which they interact.