Despite the many critics of the NFT market, following $17 billion in transactions last year, there are those who remain bullish. We are seeing an uptick in the utility of NFTs far beyond that of any fungible assets or tokens. There remains a unique, immutable nature to these digital assets which are transferable, saleable and usable as collateral.
We are on the cusp of NFT renting with a collateral-less solution that offers entry into the industry for all types of users.
The whole notion began with digital art, most notably profile pictures. But now, an observable shift into in-game and metaverse assets is seeing striking and sustainable financial growth for the NFT market.
What happens next? Is there a future for what one critic says is representative of “worthless, fraudulent magic beans”?
Where There’s Ownership, There Can Be NFTs
We’re moving irresistibly towards the asset-backed NFT where there is collateral behind it and yield can be accumulated by lending. The key here is the utility, which makes it timelessly valuable if the speculator is proven correct on their investment.
This idea follows that there will be two primary types of people in the space: asset owners and actual users. The former will buy to speculate, they think they can sell for more later, whereas users fulfill their end of the bargain by purchasing the rights to an NFT in order to deploy its utility. Some people may not like it, but the world already runs along the concept of pay to use as a small number of people currently own the majority of the world’s assets.
NFTs hold power to level the playing field due to the transparency inherent on blockchain. Middlemen are further cut out of the equation by aligning speculative investors with prospective users on platforms designed to facilitate direct transactions between them.
Consumers need this solution just as much as investors. NFTs can bring about the end of the ‘closed shop’ whereby relationships and networks are observably more important than the capital required to make a purchase. You don’t need to know someone with a boat if it exists as a leasable NFT on a secondary market platform. Prime tickets for a once in a lifetime sporting, musical or theatrical experience can exist here too. This might democratize the most prestigious experiences and assets many people may be able to afford, but don’t often get the chance to purchase.
Banner spaces for adverts, pop-ups, pop-unders and so on can be sold as NFTs. People are able to speculate on the future value of those lots, so if you think a website will in future generate a lot of traffic, you can buy them up and later sell for a higher price. Or rent the NFT out to third parties who run their banner ads on these lots, represented by this underlying NFT.
Stakes in a cryptocurrency pool can become NFT-backed by allowing people to obtain a unique NFT which represents their stake. So if a retail investor enters a private round in a token project, their allocation takes this form. It can later be sold on the secondary market.
Financing the purchase of an NFT may also become a possibility. Admittedly this is difficult to conceive of in a market where prices fluctuate wildly, but in a more stable economy we could see lease to own become more commonplace. A five figure NFT will see much higher demand if buyers can pay 12 monthly installments to become a fully-fledged owner. A lower barrier to entry into the space could indeed be a significant boon.
This all depends on how the feedback loop between asset price and yield manifests, as it’s an essential aspect in bringing a more dynamic NFT economy into fruition. Once these digital assets become a safer bet, effectively, we can expect to see more reliable yields which feed back into the economy and secure the price point of various NFTs.
NFTs Might Permeate Most Aspects of Leisure
Palpable excitement for real, practical solutions in the NFT space abound for those in the know: particularly in ticket sales, memberships, subscriptions and general access to content creators’ output.
Consider sports ticketing. A person has a season pass to a football or basketball team and wants to sell access to a game they can’t attend, or even possesses a single matchday ticket they choose to get rid of. Currently ticket scalpers operate in a gray area which often errs on the side of being illegal. Sometimes tickets you buy on the secondary market are fake, despite a hefty price tag, and even official-sounding resale sites will allow you to make a purchase before any tickets are secured. It’s a minefield and a nightmare for consumers.
Instead, verifiable NFTs representing a ticket purchase which can be transferred – perhaps through in-built transaction mechanisms – present a chance to clean up the market in a significant way. Not only can the potential buyer see the price history of the ticket, but they can also be assured it is authentic, will work on the day and won’t make them the victim of a scam.
This idea can be extended to tickets for any cultural event, especially sell-out concerts which provide fertile ground for scammers and scalpers. NFT renting could spark a revolution and indeed provide a service many would gladly seek after sub-optimal experiences. Any realized resale value can give a percentage to the NFT creator and thus provide artists with additional revenue if tickets to their shows are particularly active on the secondary market. While there are huge sums of money to be made here for those at the top of the industry, there is also potential to benefit smaller acts who play in more modest venues.
Royalties can be funneled to NFT owners too, providing content creators with a much-needed way to tokenize access to their product in a decentralized manner using smart contracts tied to an NFT. If this becomes mainstream, expect an army of creatives to hop on the bandwagon.
NFT 2.0 Is Here, NFT 3.0 Might be Around the Corner
People saw NFT 1.0 explode last year as digital art pieces (and glorified profile pictures) started selling for obscene amounts. These digital assets didn’t really have a use case, but the field is constantly evolving and now we have utility NFTs, or NFT 2.0 where you can rent an NFT.
Classified as representing utility or a right to something, whether it’s access to rights, content, services or software, NFT 2.0 is defined by the use cases from a dynamic NFT.
It’s possibly too early to talk about NFT 3.0 but crypto enthusiasts can certainly envision a future where we get there. Imagine if they began to represent physical items, like a car or even land? This requires proper regulation and lawmakers have a long road ahead of them if they seek to catch up with the fast-moving times we live in.
The details are furthermore hard to work out. Assets have to be stored somewhere, even if the data proving ownership is on-chain, and the actual file itself tends to find a home on centralized storage. A big danger here is the NFT issuer can essentially void its value: one day you might find your digital asset has been changed or deleted and is now worthless. There are new chains launching that allow you to store everything, including the URL metadata, on-chain without it costing a fortune. We’ll have to see where that goes.
Looking ahead, this new generation of NFTs will see metadata able to be transformed, such as in games where you can equip an NFT with different NFT assets and evolve it. There is scope to expand the collateral-less solution with uniquely valuable gaming NFTs accessible to more people than ever before, because of the option to rent an NFT.
Such truly dynamic NFTs carry a lot of potential value, especially when they find a home on a popular platform with a strong, self-contained economy. We just need powerful ideas and well-constructed systems to be built first, then NFT renting and transfers will become commonplace.
Author: Tom Tirman, CEO of IQ Protocol
Bio: Tom Tirman is the CEO of IQ Protocol, the leading NFT renting solution that allows games and other platforms to wrap digital assets and lend them out to users looking to play and earn. Before crypto, Tim graduated from a top technological university in Eastern Europe for Law and proceeded to continue his studies at the Stockholm School of Economics. In his free time, he also spearheads PARSIQ, a web3 data aggregator.