NFT Volumes Rise 8 Fold in 3rd Quarter

The market for non-fungible tokens exploded in the third quarter, as high-profile launches and a stream of innovation put the digital asset on the radar for investors who hadn’t even heard of an NFT a year ago.

The NFT space recorded an eightfold increase in trading volume during the period to $10.7 billion, with almost half of that coming in August alone, according to DappRadar, which tracks digital markets. Artists, sports leagues, online gamers, musicians and more are increasingly embracing the blockchain-backed assets as a way to create new revenue streams and connect with buyers and fans.

We see some key areas for commercial opportunities, particularly for sport, music and film, with the commercialisation of content libraries that were previously difficult to capitalise on. NFTs create a type of provenance that is very helpful when dealing with memorabilia and collectables, because you can see who actually owned something on the blockchain.

While the technology has existed since 2014, the NFT market is still in its infancy. Potential buyers need to be cautious and understand exactly what they are getting with their token. With rapid innovation and a decentralised market, it can also be difficult to understand the product and know whether the seller is reliable.

Non-fungible tokens define an “original’’ version of a digital asset, which is then recorded on a public and transparent digital leger using the same blockchain technology that underpins cryptocurrencies. That means that minting an NFT creates an individual, unique and non-replicable certification of ownership for the buyer.

NFTs are mostly known to the wider public as a way to purchase and trade digital art and memorabilia, where the value is driven by scarcity, much like sport trading cards and other collectables. But the tokens can also represent ownership of real-world assets from building projects to a share of royalties from music and publishing.

It’s crucial for the buyer to know that an NFT does not include the copyright or reproduction rights of the work attached to it unless it’s specified in the contract. That means the owner of, say, several images from the popular Bored Ape Yacht Club, can’t stage a virtual exhibition or claim royalties from someone else using the image. There’s also the risk that the person selling the NFT doesn’t own the rights to the original work, and that could expose the buyer to legal peril and destroy the value of the asset.

But let’s not only look at the buyer’s perspective, we’re seeing plenty of incentives for those who are creating, or “minting’’ NFTs as well.

From individual musicians to global sport leagues like the NBA, the tokens serve as a vehicle to boost fan engagement and loyalty as well as a tool for marketing and merchandising. As I wrote earlier, the market for NFT collectables got a big boost when the NBA launched its “Top Shot’’ minting, which offers ownership of individual plays and iconic moments in the league’s history.

Golden State Warriors star Stephen Curry quickly turned his record for 3-point shots into a collection of NFTs that commemorate each of his 2,974 threes. That allows him to generate funds for his Eat. Learn. Play. charity, build fan loyalty and promote the NBA all in one package.

While collecting and trading cartoon apes and slam dunks may be a bit esoteric for some, the gaming world presents a more straightforward approach. Games are increasingly using NFTs for play-to-earn strategies that reward players for their performance with tradable and sellable assets, giving rise to the term “GameFi,’’ a blend of game playing and finance. NFTs can also represent tools within a game that help a player improve their performance.

Musicians are getting on board in increasing numbers. Tired of the paltry returns and the relative anonymity of streaming, they’re using NFTs of songs and albums to build a closer relationship with their fan base and distribute loyalty rewards. Some have started to crowdfund new projects through tokens that include a share of future royalties.

Buyers and sellers need to decide whether they want to trade person-to- person or use NFT marketplaces such OpenSea and Rarible. While a marketplace centralizes browsing and discovery of NFTs, some creators may want to work directly with customers and avoid the cost of commissions.

The coming months and years will no doubt bring us more stories of the most outlandish and daring NFT issues, such as the video of a Banksy original work being torched and then sold as a token. While many of these will certainly be ridiculed and dismissed as stunts, the exposure can only add to the growing interest in the market.

Francis Menassa is the CEO of JAR Capital. JAR Capital is the largest shareholder in BlockEx, an award-winning white label exchange platform for cryptocurrencies and NFTs.

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