Having obtained a diploma in Intercultural Communication, Julia continued her studies taking a Master’s degree in Economics and Management. Becoming captured by innovative technologies, Julia turned passionate about exploring emerging techs believing in their ability to transform all spheres of our life.
As much as NFTs are the trendiest crypto asset class at the moment, the investment approach by most NFT owners follows a speculative model.
The Non-fungible token (NFT) market has grown significantly in recent months following an increased interest in digital collectibles. This young ecosystem is one of the crypto niches that has massively attracted new entrants, with celebrities and corporates also joining the ride. Some of the famous figures that have publicly declared their support for NFTs include Dallas Mavericks owner Mark Cuban and hip hop rapper Snoop Dogg.
According to the latest DappRadar analysis, games and NFTs got the most attention in Q3 as the number of Unique Active Wallets (UAW) increased by 27%. Most NFT users are focused on play-to-earn games such as Axie Infinity, which has racked up over $1.6 billion in volumes since the beginning of Q2. DappRadar’s Head of Finance & Research Modesta Jurgelevičienè was keen to note the shifting trends in favour of NFTs.
“If I were to sum up Q3 in a single word, it would be “diversification”. The play-to-earn movement became a key driver in the space, NFTs turned towards greater utility and secured record volumes”, noted Modesta.
While the growth has been tremendous, NFT holders are at crossroads due to liquidity challenges. Currently, most NFT owners are holding idle assets whose value can only be realized upon a market sale event.
HODLing NFTs is An Outdated Market Strategy
As much as NFTs are the trendiest crypto asset class at the moment, the investment approach by most NFT owners follows a speculative model. This means that one holds their NFT, anticipating that the floor price will be higher at a future date. The strategy has worked well for some stakeholders, with famous collectibles such as the Bored Ape Yacht Club (BAYC) going for as high as $2.25 million for a single NFT.
However, a report by Bloomberg has since revealed that the JPEG market is highly illiquid. Only a quarter of the NFTs sold through the OpenSea marketplace within the past 90 days have changed hands once or more. In addition, the top 3% traded NFTs account for 97% of the total NFT trading volumes. Gauthier Zuppinger, the co-founder of an NFT tracking website, told Bloomberg that 90% of the existing NFTs could be useless.
“Maybe 90% of collections minted today are totally useless and meaningless,” adding that there are a handful success stories, “It’s just really a tiny piece of the community and some extremely lucky or well-informed people.”
With Bitcoin resuming its bullish trajectory, the next few months will likely be harder for NFT owners as capital concentrates on the major crypto assets. Luckily, innovators in the NFT industry are coming up with value-added solutions to make NFTs a more lucrative investment. The following section of this article features some of the alternative investment strategies that NFT owners can leverage to increase or preserve their wealth.
Bringing Value to the NFT Ecosystem
At its current state, the NFT industry is not even close to reaching its full potential. This nascent ecosystem still has more room for growth and will likely set the stage for a working metaverse world. That said, innovators are building alternative investment ways to derive value from idle digital collectibles.
NFT lending platforms such as Drops allow digital collectible owners to lend or borrow loans while placing their NFTs as collateral. This NFT lending platform is a pioneer of its kind, with the primary goalbeing to provide an ecosystem where NFT owners can realize more value. Instead of holding an idle NFT, a metaverse item owner can leverage the Drop’s NFT lending platform to build their wealth further.
Drops feature permissionless lending pools, allowing NFT owners to create their own pools or join existing ones. Additionally, NFT holders can stake Drop’s native token DOP to support the network’s security and operations. DOP was launched in an Initial Dex Offering (IDO) held on Polkatstarter and is currently trading on Gate.io and Uniswap. So far, the Drops NFT lending platform enjoys a supply of $6.3 million, with Enjin (ENJ) coin and USDC leading in volumes.
Besides NFT lending platforms, innovators are also fractionalizing NFTs to allow market participants to buy or sell a portion of a specific digital collectible instead of the whole asset. This fractionalization model brings more liquidity to the NFT market, although prominent crypto stakeholders have previously stated it could come at a high regulatory cost.
“Fractionalization enables more people to have a piece of the investment pie. However, companies offering fractional NFTs to any investor may not have realized the regulatory implications of doing so,” Philipp Pieper, the co-founder of Swarm Markets,” told Decrypt.
While it might be still early to predict the future of the metaverse, trends are showing that NFTs could be the beginning of a new digital world. It is no surprise that big brands such as Visa and Budweiser have already joined the NFT bandwagon. The former purchased a CryptoPunk for $165,000 while the latter owns a hand-drawn beer rocket NFT which it bought for 8 ETH (roughly $26,000) back in August.
The crypto ecosystem is a sea of opportunities, especially for innovators and early adopters. NFTs which fall within this growing industry are no exception; in fact, die-hard NFT enthusiasts are optimistic that digital collectibles will shape the gaming ecosystem and other areas such as digital identity. As we move into the next era of NFT adoption, we will likely see more integrations with traditional systems across various industries.