As the majority of the cryptocurrency market wallows in the slump of a downturn, one segment in particular continues to break new ground. The Non-Fungible Tokens market – which took center stage during the first and second quarter of the year – has started to draw the interests of hedge funds.
Though the concept of digital scarcity that is verified on the block chain has been around for a number of years, 2021 has been the year of the ERC-721 token. Until recently, the majority of these have come in the form of digital art – generating enough hype to attract the attention of veteran auction houses like Sotheby’s and Christie’s.
However, the buildup of excitement around digital art NFTs seems to have lost steam at around the same time that the rest of the digital assets arena began to reverse some of the gains it had made. Sales volumes and average prices have taken a hit, but this is as art and sport collectibles are concerned.
Quietly in the background, NFTs are infiltrating other industries, these include music and gaming. An example of this is the meteoric rise of blockchain based game Axie Infinity – which saw a more than 800%
increase in sales volumes since the first quarter. This is a massive step towards mass adoption, however, this growth comes with complications.
Growing Pains & Opportunities
One of the most talked about issues with blockchain technology is scalability – as more users join and participate in a network, the more expensive it becomes for newer entrants to join in and reap the rewards. Soaring transaction cost on the Ethereum (which is the most popular block chain for NFTs and DeFi) and Bitcoin blockchains are the most familiar example of this feature distributed ledger technology – more especially with the permissionless variety.
The rising costs of competing transactions is not the only problem for new entrants. As NFT adoption has increased, the value of the most popular NFTs has gone up to a point where it is out of the financial reach of many retail level investors. For example, the price of a plot of land on the blockchain based game, Decentraland, have grown to rival the value of real world real estate. The same is currently happening with Axie Infinity as “Axies” on the more affordable end of the the market are averaging $350 each.
Immediately, this represents a massive barrier to entry for the everyday person who wants to get involved. However, there are those who see this as an opportunity and are on a massive drive to democratic the rapidly growing sector.
Blackpool Finance, a digital assets focused hedge fund and also “the first decentralised autonomous organisation (DAO) built solely for NFT gaming and trading.” uses an approach that can be likened to scholarship programs.
When users stake Blackpool’s native ERC-20 token, BPT, for xBPT rewards, they become active participants in the collective ownership of “blue-chip” NFTs and are therefore entitled to a share of the rewards paid out to the pool.
Another fund, Multicoin Capital, also sees massive potential in the NFT sector, even going as far as creating a $100 million fund specifically for DeFi and NFT investment.
“One of the most important trends in the world over the last 20 years has been that people spend an increasing percentage of their time online. The Metaverse represents the logical conclusion of that trend.” as per managing partner of Multicoin Capital.
As the market continues to grow, so will the need for services that help the digital assets market keep in line with one of its founding principles, democratisation.