Exploring the possibility of NFT future: more than art and collectibles

Author: cr1st0f

Compilation: Deep Tide TechFlow

From CryptoPunks and Rare Pepes to Fidenzas, the most famous and successful NFTs fall into the arts and collectibles category.

While some generative art collectibles are beginning to garner attention from the mainstream art world, most NFTs remain very crypto-niche, with their cultural value largely ignored by the mainstream media.

Despite the limitations of currently popular NFT types, several emerging use cases claim to bring the benefits of decentralized ownership (composability, transparency, and security) to new asset classes. In this article, we’ll explore five of the most promising new use cases for NFTs, not just art and collectibles.

We are currently in an NFT bear market, with all categories of NFT interest down compared to a few months ago, with only the art category relatively strong. Nonetheless, several recent research reports predict that the NFT market will grow significantly in size over the next decade. According to SkyQuest Technology, Verified Market Research and FactMR, the NFT market size will reach $120 billion to $320 billion in the next 5-10 years, perhaps driven by art, but more likely by a wider range of tokenized assets promote. Next, we’ll look at the main categories of these NFT-based assets.

The five main categories we’ve seen emerging recently are: Membership Tokens, Financial NFTs, Legal Documents, Real World Assets, Event Tickets, and Media.

Most of the development of these new use cases occurred during and shortly after the NFT bull market in 2021, when there was a lot of attention and sufficient resources to fund development. If some of these use cases prove themselves, we may see a huge focus on these new categories in the next cycle.

Member Token

Outside of collectibles, the first use case for NFTs is as membership tokens. Back in 2017, the HAIRPEPE Rare Pepe card gave the holder access to a Telegram group called The Salon. We’ve since seen several NFT-only membership clubs. While many of these are just for NFT collectors, like Proof Collective, MetaverseHQ, and Grailers DAO, there are a few that are starting to push that definition forward, like Crypto Packaged Goods, which is more of a business club and startup incubator.

A case that combines NFT-limited online membership clubs with decentralized governance is Nouns DAO. Their treasury holds more than 27,000 ETH, and as a DAO, aims to manage the treasury and ultimately use it to bring value to Nouns holders. One Noun is equal to one vote, and also provides access to private chat to discuss proposals and coordinate how the treasury is spent.

As better tools and user experiences are built, users can more easily interact with NFTs without having to understand wallets, and self-regulation, we can expect to see an increase in membership clubs with NFT thresholds. As technology advances and becomes more accessible, we are likely to see more diverse use cases and wider industry adoption of this membership and governance model.

One application closely related to loyalty tokens is brand loyalty rewards. While several existing brands have explored NFT and Web3 use cases, including Reddit, Nike, and Adidas, one of the most interesting explorations has come from Starbucks.

In December 2022, Starbucks launched a new loyalty program called “Starbucks Odyssey,” which allows members to earn and buy digital collectibles called “journey stamps.” These stamps can be used to unlock new perks and immersive coffee experiences. For example, members can use their stamps to get discounts on coffee, access exclusive content, and even win trips to Starbucks coffee plantations.

Starbucks’ Odyssey initiative is still in its early stages, but it has the potential to revolutionize the way brands interact with customers. By using NFTs, brands can create more personalized and immersive experiences for customers, and importantly, they can sell these rewards if they are not of interest to the customer himself.

Financial NFT

Starting with Uniswap V3 positions, financial NFTs have entered the mainstream consciousness of the DeFi world. Using an NFT as a receipt for a user’s holdings in a DeFi protocol allows for encoding more information in the metadata than is possible with just an ERC-20 token representing their holdings.

For example, in Uniswap V3, NFT acts as a receipt for storing information related to LP positions: LP pairs, minimum and maximum ticks for pooled liquidity, LP position size and importantly, rewards accruing to LPs. Since LP rewards are accumulated to the NFT itself, this further opens up more possibilities for DeFi applications built on top of NFTs, although we haven’t seen many such applications yet.

Other examples of financial NFTs include Liquity Chicken Bonds, Superfluid streaming payments, NFTfi promissory note, BendDAO bNFT, and Solidly’s innovative veNFT. Chicken Bonds recently launched a product that uses NFTs as deposit receipts for bond positions. With the launch of this feature, Liquity also stated that they want to try to change the appearance of bond NFTs, and some bonds have even been sold above face value due to their collection value.

Superfluid allows users to make streaming payments, and recently converted streaming payments into NFTs, which makes payments more transparent and composable. Although these money flow NFTs are just a display for now, they may be transferable in the future.

legal document

Traditional legal documents are often paper-based and difficult to manage and verify, while NFTs offer a unique opportunity to create secure, immutable and verifiable digital documents.

The first example of an NFT legal document I saw was at the company Wrappr. Wrappr focuses on building transparency, allowing NFT-based company registration documents to quickly establish US companies. These documents facilitate secure record keeping, quick registration and easy finding of documents. Leveraging the security and transparency of blockchain through NFTs, Wrappr creates a more efficient and secure process for forming and managing crypto-native companies and legal structures.

Another interesting example of an NFT as a legal document is the case of RBB Labs, who airdropped NFT court summons to defendants in a copyright infringement case. According to an article in Cointelegraph, RBB Labs used NFT to create a verifiable digital document that can be easily distributed to defendants even if their true identities are unknown and there is only a wallet address to identify them.

The trend of NFTs as legal documents is closely related to the broader trend of using blockchain technology to achieve transparency and on-chain identity, in this case, for legal entities. By leveraging the security and transparency of the blockchain, NFTs offer a unique opportunity to create secure and verifiable digital files that can be easily managed and distributed.

Real World Assets

Consulting firm BCG estimates that the tokenization of illiquid real-world assets will represent a $16 trillion business opportunity by 2030. Some of these tokenized assets will be ERC-20 tokens, but some will also be ERC-721 or NFTs. The range of assets currently tokenized via NFTs is rather limited, mainly luxury items such as high-end watches, physical collectibles, and real estate.

While NFTs have historically only been used to represent ownership of real-world assets, Silta is a great example where more data is involved. In this case, NFTs are used to store and update important information about infrastructure projects funded through the platform. Structural, financial, technical and sustainability information is stored in NFTs, making data easily accessible while ensuring that it cannot be modified or tampered without a record.

4K provides the ability to tokenize any object you want, the physical object is stored by their partners in a secure facility, and NFT owners can redeem NFT for physical objects at any time. One of the most popular tokenized items is high-end watches, and several tokenized Rolexes have already been used as loan collateral. Collectible sports cards have also been tokenized by 4K. As the user base expands, it is expected that the types of objects being tokenized will expand beyond jewelry and collectibles.

Perhaps the tokenization of real estate into NFTs is one of the largest and most visible assets. The global real estate market is worth $326 trillion in 2020, so it would be a very valuable market if it could be brought on-chain. There have been several high-profile real estate transactions happening on-chain in an attempt to achieve this goal.

As this use case is proven and the legal uncertainty resolved, it has the potential to become one of the largest use cases for NFTs backing physical assets. The high legal cost and time-consuming process of real estate transactions means that both buyers and sellers have an incentive to actively explore this avenue. Perhaps we’ll see this happen first in commercial real estate deals, where complex players can agree on systems that make deals legally enforceable. However, the greatest benefit will be realized when the complexity and technicalities are abstracted away and ordinary people can cut out the middleman from these transactions.

Event Tickets

Issuing event tickets as NFTs has several compelling advantages. They offer exceptional security and are nearly impossible to counterfeit, which is crucial for organizers trying to reduce fraud and scalping. NFTs can also facilitate seamless transfers between buyers and sellers, significantly simplifying the process of buying and selling tickets.

Perhaps most interestingly, these tokens can provide fans with a more personalized and immersive experience. Event organizers can use NFTs to provide fans with exclusive content or experiences, enhancing engagement and fostering a closer relationship between viewers and event organizers.

Some companies are already using NFTs in their event ticketing systems. For example, YellowHeart has partnered with artists like Kings of Leon and Grimes to sell NFT-based tickets. In 2021, Grimes used NFT tickets to perform at Art Basel and gave fans the ability to customize their tickets with their own photos or artwork. In 2022, Kings of Leon used NFT tickets for its tour, giving fans access to exclusive content such as behind-the-scenes videos and photos. Likewise, Live Nation has partnered with Ticketmaster to develop an NFT ticket sales platform.

Using NFTs for event tickets is still in its early stages, but it has huge potential. By using NFTs, event organizers can provide fans with a safer, more efficient and personalized experience.

Non-Artwork and the Future of Collectible NFTs

In the previous sections, we looked at some emerging applications and use cases beyond collectibles. But what’s the point of tokenizing something that already exists? Sure, there are financial NFTs that bring whole new capabilities that didn’t exist before DeFi - but why make event tickets into NFTs, why tokenize your Starbucks rewards or your house? Many critics will say that putting something that already exists on the blockchain is just a waste of time, so here we discuss some of the benefits and opportunities that NFTs may present outside of collectibles.

In general, new NFT use cases can be divided into two categories. The first category is things of value like real-world assets, event tickets, membership tokens, and even brand loyalty rewards. The second category is information and documentation. Information such as company formation documents, procedural documents such as subpoenas and subpoenas, and use cases that Silta provides project indicators through NFTs to explore.

For the first category of “things of value”, NFT finance and the integration of NFTs into the broader DeFi ecosystem seem to be the fundamental drivers of asset tokenization. There are currently five major NFT financial primitives in widespread use: mortgage lending, where NFTs can be used to secure loans and gain liquidity without selling assets; fragmentation, where NFTs can be divided into smaller parts, Allowing more investors to participate in the ownership of assets; derivatives, where NFTs can serve as the underlying asset for options or futures contracts; leases, where NFTs can be lent to others for a fee; and liquidity pools, where NFTs can be traded in automated market makers ( Provide liquidity in AMM) to trade and get rewarded for trading fees. The NFT financial ecosystem brings many benefits such as ease of transactions, removal of middlemen, capital efficiency, and transparency. In addition, there is the potential to build entirely new financial products that cannot be created in the traditional financial system.

In the more general scenario of NFT financial applications, you can imagine a world in which the market for a wide range of goods and services becomes more efficient. Removing the middleman and the transaction fees it generates is beneficial in itself, perhaps enough to justify tokenizing a broad range of assets. If smart contracts could enforce legally enforceable transactions for things like houses, commercial real estate or airplanes, it could save lawyers and intermediaries large fees.

Imagine the benefits of transparency that these systems bring—imagine if NFT-based real estate ownership and debt were widely used during the subprime crisis. The lack of transparency and accurate information on the underlying mortgage assets in subprime mortgage-backed securities (MBS) and mortgage-backed debt securities (CDOs) was one of the main causes of the crisis. If NFTs were used to record the ownership and liabilities of these financial products, anyone could inspect the underlying mortgages and perform better risk assessments of MBS and CDOs, which could reveal risks in these systems before they collapse.

When considering the benefits of decentralized ownership and self-custody, imagine renting out your Starbucks rewards, or memberships that you don’t use very often. Or be able to get a competitive loan quickly by pledging almost anything you own, such as your house, car, watch, collection of sports cards or physical art on the wall.

There are also several common DeFi products that may also be attractive when applied to new NFT assets. Options using individual properties as underlying assets can allow speculation on home prices in specific neighborhoods or even individual homes. They could also allow homeowners to hedge the price of their property by purchasing put options. Covered Call Vault like Ribbon has become a popular product in DeFi.

Perhaps personally, this is not very attractive. But for large institutional landlords, it could be a way to generate additional revenue. Overall, one can imagine a world where many DeFi native products can be applied to real world assets and in doing so create truly novel financial products that were unimaginable before the advent of blockchain technology of.

Summarize

NFTs demonstrate great potential beyond traditional art and collectible use cases. The most promising applications are representing assets as NFTs to help unlock previously illiquid assets, improve transparency and auditability, provide more personalized and customizable services to customers or reduce transaction and middleman costs, etc.

However, several challenges still need to be overcome, including legal and regulatory clarity regarding NFT representations of these assets and the technical complexities required by end users. By solving these challenges, the NFT revolution can be better realized and transform industries such as real estate, legal documents, and financial assets. In addition, it is important that the ecosystem around NFTs continues to develop, and NFT finance is a particularly important area for developing value propositions for the tokenization of new classes of assets.

With continued innovation and collaboration, we can expect NFTs to play a bigger role in the future beyond art and collectibles, transforming the industry and creating new opportunities.