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Are NFTs Dead? Or Is There Exciting Latent Potential in NFT Technology?

NFT hype has cooled with the recent wave of rug pulls, trademark lawsuits (like Bored Ape Yacht Club’s), declining NFT sales, a challenging crypto bear market, and scams. In January 2022, OpenSea, one of the largest NFT marketplaces, tweeted that 80% of NFTs minted through its NFT creation tool were plagiarized, fake, or spam. But are NFTs dead?

Deep dive
April 18, 2023
Lead Content Manager
The Potential of NFTs

The truth is NFTs are just getting started. NFT trading volume is showing a strong recovery at the beginning of 2023, and that’s just the beginning. NFTs are still in their infancy, and there is a long list of potential use cases for NFTs. In the long run, these applications will cement NFTs’ place in history as a legitimate asset class.

Beyond being digital collectibles and digital assets on the crypto market, NFTs have potential practical use cases and functionalities that we’ve only started exploring. Let’s dive into the world of NFTs and examine how this nascent technology could be used in different industries. 

NFTs Can Bring Fine Art Into the Digital World

NFTs are already popular in the art industry, which is being transformed by this technology. NFTs ensure scarcity, and blockchain technology verifies digital art’s authenticity. These features will boost the popularity of digital art as an asset class. In 2021, the total volume of art NFTs sold was over $2.79 billion across 774,307 sales at an average price of $3,282.

Through NFTs, artists have new ways to monetize their work and ensure residual income by getting a percentage of the sale every time the work is resold. NFTs also help art buyers access additional utilities, such as using the art as their profile picture and granting immutable proof of ownership. Most importantly for collectors, NFTs enable increased liquidity from a global market because of the permissionless and democratized nature of NFT marketplaces.

NFT marketplaces serve as new sales pipelines for art. The digital nature of these marketplaces enables disintermediation to fast-track sales between artists and collectors without the need for gatekeepers. 

Buyers and sellers can find each other in a public forum, and these marketplaces are gaining ground. In 2021, dealers and auction houses recorded aggregate sales of an estimated $65.1 billion for art and antiques. In the same year, art-related NFTs accounted for additional sales of $2.6 billion and collectibles for $8.6 billion.

NFTs Can Streamline Identity Authentication

NFTs have profound use cases for digital identity in a Web3 world. In Web3, identities are linked to wallets; for instance, to “log in” on a DeFi app, you only need to connect your wallet. However, as simple as that sounds for crypto natives, it makes it harder to onboard new people into the crypto economy—managing the long string of alphanumeric wallet addresses is poor UX.

Services such as Ethereum Name Service (your_name.eth) and Blockchain Name Service (your_name.btc) provide a human-friendly way to manage identity in Web3. These services offer NFT domain names associated with a wallet that can be used to log into Web3 applications and let users imbue their Web3 presence with personality.

NFTs Can Support a Stronger Financial System

NFTs are a valuable part of any portfolio, but there are NFT use cases that go so much further than simply investing in NFTs as an investment. Starting with DeFi, NFTs could manage participation in Initial DEX Offerings (IDOs), public token offerings on decentralized exchanges (DEXs). 

For example, Mech Master used an IDO to sell tokens on a first-come, first-served basis. However, early supporters could win, earn, or buy different classes of NFTs that would guarantee token allocations. The project used NFTs to reserve access to those holders, and you can imagine a whole host of finance use cases leveraging NFT-gated features.

Uniswap also uses NFTs to manage liquidity provider (LP) positions and facilitate greater liquidity in traditionally illiquid assets, such as real estate. For example, Propy demonstrated how NFTs could work in real estate by selling a Kyiv, Ukraine, apartment.

We are also seeing emerging markets where valuable NFTs can be used as collateral. NFTfi, for instance, already enables people to unlock value from their NFTs by using its platform to put up NFTs as collateral to secure loans. When the loan is repaid, you get back the NFT; if you default, the lender receives the NFT instead.

NFTs Can Create Valuable Game Assets

Axie Infinity was the first popular gaming use case for NFTs. In Axie Infinity, players breed Axies that are represented as NFTs. These Axies are used in gameplay, and the NFTs representing them can be traded on the game’s marketplace for different cryptocurrencies. Sorare is another popular NFT gaming platform. On Sorare, users play fantasy football games in which the footballers are represented as NFTs, and players can trade those NFTs with each other.

As is evident in both Axie Infinity and Sorare, the power and appeal of NFTs in gaming are primarily in the commodification of in-game assets. Gamers spend considerable time, effort, and often money to complete levels and acquire trophies, new items, and more. There is a $50 billion gray market for the primary and secondary sales of these assets, despite most gaming assets being locked inside the game.

NFTs commodify these assets by enabling peer-to-peer public marketplaces where users can trade in-game items with each other and trust the authenticity of what is available on the marketplace. This could significantly increase liquidity and help tie real-world value to those assets, allowing gamers to cash out for different cryptocurrencies.

As a result, NFTs increase player interest and attract more gamers willing to spend more money. Unsurprisingly, 63% of gamers say they’ll spend more on virtual goods if they have real-world value. Institutional gaming companies like Ubisoft are already exploring how to introduce NFTs to their games.

NFTs Can Help Luxury Brands Provide More Value

The potential of NFTs for luxury brands starts with the authentication of luxury goods. Fake goods are the bane of luxury brands: they rob the brand of revenue and dilute the exclusivity of the brand. 

Through NFTs, consumers can authenticate that they are buying genuine luxury brands. Forty-one percent of luxury consumers say they are excited about the possibility of digital traceability of luxury products, and 21% would like to see more NFT engagement from their favorite brands.

The potential of NFTs in luxury brands also extends into digital fashion across online personas, avatars, and potentially in the metaverse. Luxury fashion brands are already exploring opportunities to collaborate with developers to dress up avatars in high fashion that can participate in social media across platforms.

In 2021, famed watchmaker Jacob & Co. turned its SF24 Tourbillon timepiece into the first watch NFT that sold for $100,000 at auction. Gucci is also continuing to explore digital fashion after its successful collaboration with Roblox. They released Aria, an NFT version of their runway show which sold for $25,000 at Christie’s. 

Vogue also reports that several other luxury fashion houses are close to releasing NFTs. It is not a matter of if more luxury brands release NFTs, but when.

NFTs Can Democratize the Music Industry

NFTs can help fans support their favorite musical artists by allowing artists to sell unique music, art and experiences directly to fans, unlocking new revenue streams for artists. Today, the music industry is skewed in favor of record labels at the artists’ expense.

When Linkin Park’s Mike Shinoda raised about $10,000 from an NFT containing one of his songs, he tweeted that it was impossible to earn a similar amount from streaming platforms when you account for cuts from the label, marketing, Digital Service Providers (DSPs), and other stakeholders.

Beyond song ownership, NFTs can be a way for artists to offer additional perks to fans. The Kings of Leon started a project they called “NFT Yourself.” The project was an NFT sale that included a recent album, unique art, musical outtakes, and even exclusive concert perks for certain NFTs. Similarly, the British-based band, The Amazons, also released a “Fan Pass” project that gave NFT-holders access to exclusive content from the group, including unheard demos and more.

Innovators are also using NFTs to change the structure of music royalties. For example, Royal enables musicians to sell a percentage of a song’s royalty as an NFT. In turn, the owners of those NFTs earn pro-rata part of the streaming royalties alongside the artist. The holders of the NFTs can also sell their NFTs, in which case, the IP rights are transferred to the new buyer.

In a world where artists struggle to make ends meet (Spotify pays artists just $1 for every 250 streams), NFTs offer a possible solution for artists to find new ways to monetize their art and earn a living while creating new experiences for fans in the process.

NFTs Aren’t Dead—They’re Just Getting Started

NFTs have infinite potential utility beyond cartoon ape NFTs, speculative assets, and status symbols for the crypto-rich. While today NFTs primarily have explored the concept of digital art, the world will see NFTs transform many essential industries in the future.

Check out our article on Bitcoin NFTs to learn how to build NFTs secured by Bitcoin. If you’re interested in learning from NFT entrepreneurs on Stacks, learn how Gamma empowers NFT creators with its Create Portal and how Byzantion (now TradePort) built an order book for an NFT marketplace.

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