Going Deeper Into the Web Track: NFT’s
In March 2021 Jack Dorsey raised USD$2.9mm for charity by selling his first tweet in the form of a NFT. That same month a work of art called Everyday: The First 5000 Days was sold for USD$69mm also as an NFT at a Christie’s auction. In February 2022 an NFT from the “CryptoPunks” collection sold for USD$23.7mm.
But have you ever thought about what an NFT is?
The term NFT stands for Non-Fungible Tokens. Non-fungible tokens (NFTs) are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can serve as a medium for commercial transactions (Investopedia).
In addition, NFTs represent real-life items such as art, real estate or relevant events that can be digitally represented for buying and selling while minimizing the likelihood of fraud. NFTs can also function to represent an individual’s identity, property rights and others.
The first NFT on the Ethereum Blockchain platform was minted on 7 August 2015 under the name Terra Nullius which allowed you to write a permanent short message on the blockchain that you owned. In June 2017 Larva Labs created a collection of 10,000 unique 8-bit images called CryptoPunks where some are selling for approximately USD$200k. In November 2017 a collection of collectibles 8-bit kittens called CryptoKitties was born.
The last few years have seen an impressive boom in NFTs attracting many participants such as the NBA league with its Top Shots collection which has raised over USD$230mm in sales to over 67,000 users. In 2021 the transacted value of NFTs amounted to USD$25bn on more than 30 blockchains (Dapp Radar).
The largest marketplace in transacted value of NFTs is OpenSea which has facilitated transactions of USD$15bn. The second largest marketplace is Axie Infinity with USD$4bn and the third largest is CryptoPunks with USD$2.4bn. In January 2022 alone, NFTs peaked at nearly USD$5bn in sales from 258mil users on OpenSea alone. More than 1.1million users have transacted NFTs on OpenSea. The average price in January 2022 for an NFT was USD$3,250 a year ago it was USD$347. Usually, the prices of NFTs show a slight correlation with the price of Bitcoin and Ethereum.
The most valuable collections of NFTs are:
- Bored Ape Yacht Club: This collection was developed by Yuga Labs representing 10k NFTs of stylized portraits of apes using different accessories and styles. The market cap is around USD$2.9bn. Some investors include Neymar Jr, Steph Curry, Justin Bieber, Snoop Dogg, Jimmy Fallon, Kevin Hart, and Mark Cuban.
- Crypto Punks: Some of the NFTs in this collection are among the most expensive transactions in history. Larva Labs’ success has achieved a market capitalization of close to USD$2bn.
- Mutant Ape Yacht Club: Half of the 20k NFTs that make up this collection are linked to Bored Ape Yacht Club. In August 2021 this release was mutated and minted on the market, the market cap of this collection is close to USD$1.1bn.
- Clone X-X Takashi Mura: It is a collection of 20k 3D NFTs that randomly have their own characteristics. It was designed by RTKFT Studios and Takashi Murakami with the goal that owners can use these avatars in the metaverse, in zoom call or on other platforms. The market capitalization value of this collection is close to USD$800mm.
The process for creating an NFT is very simple, the only thing you need is the digital file with which you intend to create the NFT which must contain the artwork, collection, song, etc. choose a blockchain and have a Crypto wallet.
Any real-life item can become an NFT so think of any kind of artwork, songs, gifs, videos, or any other collectible item. NFT is not limited to one format, the sky is the limit when it comes to creativity and NFTs.
There are several blockchains you can use to mine your NFT. The Ethereum network was the first; however, there are other networks such as Binance Smart Chain (BSC), Polkadot, Tron, Tezos, among others. An important element of mining and managing your NFT is the cost of Gas, networks such as Ethereum may be more expensive than networks such as Binance or others.
Most wallets support networks like Ethereum or Binance Smart Chain. The most important thing is that the blockchain network on which the NFT is created supports the wallet you are going to use. Some recommend using Metamask or Trust Wallet as they can be used on a wide variety of blockchains.
Next you need to select a platform to mine your NFT. If you are going to use BSC you can use Bakery Swap or Treasureland, in the case of Ethereum you can consider OpenSea or Rarible. Once the NFT is mined, you just need to list it to sell it at the price you decide or migrate it to another platform and occupy it in the metaverse such as Descentraland.
Additionally, some NFTs can provide certain benefits to their holders. Buffalo Wild Wings auctioned 3 NFTs during Super Bowl LI to provide a year’s supply of wings to those who won the auction, which is an example of a real-life use case for some brands. Likewise, some projects, such as the Bored Ape Yacht Club, give members access to private events and interaction with other owners of the collection, forming an exclusive “society”. The band Kings of Leon was the first to release their album “When you see yourself” as an NFT, including limited edition vinyl and exclusive seats for future concerts. Another example is the use of NFTs in e-sports or video games immortalizing or commemorating great achievements.
The NFT ecosystem involves multiple counterparts linked to infrastructure, collections, marketplaces, games, VR, among others that interact efficiently to enable the creation, distribution, and exchange of NFTs among users. The NFT market has been growing rapidly in recent years and more and more projects and users, both individuals and corporations, are becoming involved in the ecosystem.
VC funds are actively participating in this ecosystem. One of them is A16z who has invested in multiple NFT platforms and projects such as Mythical Games, Axie Infinity, OpenSea, Faraway, Dapper Lab, among others. Firms such as Coatue have joined A16z in funding Dapper Labs. Others like Benchmark are funding other NFT projects such as Sorare, Moonrock Capital has invested in Coinburp a Coinbase for NFTs and Coinbase Ventures funded Anima an augmented reality NFT platform and Makersplace a digital art platform based on NFTs.
The NFT universe is undoubtedly attracting users, creators, and the necessary capital to grow and become a reference in the market. This industry will probably continue to evolve, and we will see more and more projects with greater added value.
Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.
Ricardo Latournerie. VC Investor at ACV.
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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