“Non-fungible assets are unique assets that cannot be interchanged for another of the same type because they have inherent and intangible value. Examples include real estate, derivatives, art and collectibles. Most investable assets in public and private markets are non-fungible“– Paul Ebeling
Non-fungible tokens (NFTs) are ways to record, verify and track ownership of non-fungible assets, like an official register of homeownership. Once a unique digital object is created a unique ID (hash), a token name and token symbol are ‘minted’ and given to the author. This information is stored and transferred on a blockchain, such as Ethereum.
Collins Dictionary recently announced ‘NFT’ – an abbreviation of ‘non-fungible token’ as its Y 2021 word of the year. The award captures the meteoric rise in popularity of NFTs this year. In 1-H of Y 2021, NFT sales rose to a record $2.5-B
- A new working paper by the IESEG School of Management in France examines the risk and return characteristics of the NFT-based startups listed on Binance.
- It finds NFTs earn 130% on average on the 1st listing day, yield an average investment multiple of 40 over the long term, and deliver large alpha and above-average beta.
- The author also explains why the clear-cut solutions NFTs offer will likely lead to higher trading volumes and market expansion in the future.
From the paper
The author draws data from Binance on projects that embed NFT technology as the central element of the business model, i.e., the whitepaper mentions it. In total, as of 31 August 2021, they find 20 NFT-based projects that list 22 different tokens. They categorize these into 6 groups: NFT purpose-built blockchains, NFT gaming, NFT music, NFT media, NFT DeFi and NFT other.
The largest group are NFT gaming projects, followed by DeFi. Most of these projects issue tokens that intend to facilitate the governance of the network/ Also, about half intend to converge gradually into decentralized autonomous organizations (DAOs).
According to the author
“The NFT boom of 2021 demonstrates convincingly that blockchains are able to one, solve real-life problems, two, be deployed fast and three, create value both for the users and the underlying networks.”
The bottom line
The NFT world is on a high. Even the editors at Collins Dictionary know it. But with the likes of Snoop Dogg selling unique memories, you wonder how much the speed of its rise relates to the hype. As, the digital ID that proves ownership is only as valuable as what the next person is willing to pay for it.
Given NFTs usually come without physical objects, it is hard to gauge intrinsic value. So, a heightened level of speculation will certainly influence token prices, and NFT startups are cashing in.
Fundamentally the technology is exciting.
The paper also uses the example of derivatives which were they to be replaced by NFT counterparts would be a $580-T market. Watch out for upcoming NFTs…
Have a prosperous week, Keep the Faith!