Non-fungible tokens (NFTs) are one-of-a-kind tokens. Popularized by CryptoKitties, these crypto collectible tokens enable application providers to manage digital scarcity and rarity through a new form of token which can carry unique metadata.
NFTs are unique but tradeable blockchain assets, which can be used to represent all types of virtual and real-world goods. They are increasingly becoming popular for tokenizing markets as diverse as video game items, digital art, and fantasy sports. They have been intensively exchanged over the past couple of months as volumes on peer-to-peer marketplaces surged. From NFTs representing NBA finals moments to crypto industry character cards, the total lifetime NFT volume on the Ethereum blockchain alone has exceeded $120 million, according to crypto research firm Messari.
NFTs have captivated investor attention quite recently, in parallel with the recent DeFi boom. The excitement engendered this summer by yield farming is progressively arriving at NFTs. Indeed, NFTs and DeFi have similar use cases, even if we are only at the beginning of this trend.
NFTs are actually a financial asset class that needs its own financial infrastructure. Digital content is finding a path to fair remuneration on Web 3.0. Where DeFi is a toolbox to manage the remuneration of digital content creators, NFTs are managing their properties. In this sense, DeFi and NFTs may merge to create new forms of yield around the digital content industry.
It will bring new tools to manage fractional ownership, auctions, and sales platforms to build a dynamic market out of the financial applicative segment.
Recently, the number of use cases for NFTs has been growing fast. The most important ones are around art, collectibles, virtual worlds, and tokenized real-world items. As this sector is progressively being integrated with the DeFi space, we may see a number of new asset classes enter the decentralized financial sector. The dynamics in these ecosystems revolve around minting and trading entities, explaining the current boom around NFT exchange platforms.
From the digital content industry to a large range of use cases
There are different types of marketplaces around NFTs, to manage transactions within a given community (around a specific game for instance), or to aggregate the exchanges coming from different communities (potentially applied to a given market sector as the art or gaming industry). For now, NFT assets are still relatively illiquid: the volumes on NFT marketplaces are much lower than on DEXs.
But new players are progressively entering the market, as announced by KuCoin. As the first major crypto platform to support the deposit and withdrawal of NFT assets, KuCoin is willing to contribute to the NFT industry in the long term. NFT is regarded as the next trend in crypto following DeFi as its value is increasingly recognized by the market.
But NFTs are also starting to integrate with other financial concepts. For instance, yInsure NFTs on Rarible enables users to buy and sell insurance for certain DeFi projects. The insurance is limited, but the concept shows how NFTs can be used to create a liquid market for such an asset.
There has also been some experimentation with NFTs in the Aave ecosystem, the leading lending and borrowing decentralized platform. They have created a specific game named Aavegotchi, which may become an interesting implementation of NFTs in DeFi. These assets are simultaneously collectibles and revenue-bearing entities.
Moreover, several other initiatives are looking to tokenize real-world assets. In these instances, NFTs can be used as ownership certificates that give the user the right to exchange these tokens for the underlying goods. It would not be surprising to see these assets become accepted as collateral in DeFi applications.
NFTs are progressively becoming an exciting instrument within the crypto industry. By guaranteeing unique properties, they open the door to a number of different assets. Everything from asset tokenization to content distribution can be enriched with NFTs. While NFT based assets and marketplaces have limited use and scope for now, there is growth around experimentation and implementation of this technology.
Currently, most of the adoption is centered around the games, collectibles, and art segments. While these sectors have not attracted the same level of capital as DeFi, they may hold greater retail appeal.
As an example, Sorare is a blockchain-based game creating collectible and tradeable digital cards for major international soccer clubs. They are already working with a hundred international soccer clubs among them Juventus, PSG, Atletico Madrid, and Zenith St. Petersburg.
Blockchain player cards can be exchanged with other managers, and gamers can play games as soon as they have a minimum of five digital cards. The score of each player card is tied to their real-life performances in soccer league tables. Since its launch in March 2019, Sorare has grown an average of 52% month-on-month and today counts +45,000 registered users and +2,200 paid users who have purchased Sorare cards.
A wide range of franchises, from top soccer clubs to Formula 1, are increasingly recognizing branded digital collectibles, NFT auctions, and other blockchain-based ecosystems as efficient means to monetize fan engagement and construct markets for online viral phenomena and trends.
Digitally native ecosystems will experience the most immediate synergies with the blockchain industry. In the sports industry, crypto-assets could first intersect with the e-sports world and – the physically adjacent – fantasy sports industry. Blockchain-based fantasy sports are poised for consumer adoption.
Fantasy Sports: Crypto’s Next Consumer Application - Messari ; Nov 17, 2020 
KuCoin Enters NFT Market with the Plan of Launching NFT Exchange - Cryptonews ; Nov 14, 2020 
The Nifty Ways That NFTs Become DeFi - The Defiant ; Nov 13, 2020 
Zebpay is launching a nonfungible token marketplace in India - Cointelegraph ; Nov 10, 2020 
Peer-to-peer NFT sales surge as average purchase price increases 7x - Cointelegraph ; Oct 21, 2020 
Zenit St. Petersburg are creating collectible blockchain cards of their players - Cointelegraph ; Oct 15, 2020 
The Inevitable Marriage of Yield Farming and NFTs, Explained - Cointelegraph ; Sept 29, 2020