2021-01-31 20:00:57
Non-Fungible 2021: Prepare Your NFTs For DeFi
Cryptocurrencies are — or at least aim to be — money. This not only means that they need to function as stores of value, media of exchange, and units of account, but that they need to be fungible, in that any one unit of any cryptocurrency should be equal to and exchangeable for any other.
However, non-fungible tokens (NFTs) provide something of an exception to this latter rule. While they’ve remained fairly niche for several years now, they’ve grown in prominence over the past year or so, as tokens representing unique works of art, collectibles, and virtual game items have become more popular.
According to figures specialized in non-fungible tokens, the NFT sector is likely to witness significant growth this year, as demand for unique digital objects expands. At the same time, the sector is likely to intersect with decentralized finance (DeFi) and other areas to produce novel products and services, including “sharded NFTs” and NFTs as collateral.
NFT sector is small, but growing
To put the current NFT scene in some perspective, NonFungible provides various figures and data indicating just how large (or small) the sector is, as well as how quickly it has been growing.
For the week ending on January 29, the volume of sales in NFTs was equal to USD 6m. While this is only 0.003% of the daily volume (as of the time of writing) in all cryptoassets (according to CoinGecko), it still represents a noticeable rise compared to previous months and years.
For example, the weekly average volume was around USD 1m as of November, while NonFungible’s 2019 report indicates that monthly volumes were consistently under this figure for much of that year, even dropping under USD 400,000 in September 2019.
Meanwhile, according to Simon Seojoon Kim, CEO and Managing Partner at South Korea-based blockchain accelerator Hashed, so far the NFT market has exhibited graduated growth heavily dependent on powerful individual contents and intellectual properties, which, to note, is contrary to DeFi which grew organically.
"While we are expecting various use cases of NFTs to emerge in bar gaming, it is extremely difficult to predict the magnitude of growth level of the NFT market nor use any metrics as a holistic index," he said.
Sectors within the NFT sector
So while NFTs remain fairly marginal, the sector is undoubtedly expanding outwards, and according to John Crain — the founder of digital art marketplace SuperRare — this will be driven by a number of specific areas within the NFT sector.
“Digital art, virtual land, and DeFi NFTs will all experience explosive growth in 2021. Digital art is in the leading position and will be the category leader by an order of magnitude,” he told.
For Crain, non-fungible tokens provide a long-awaited means to replicate the collectibility of physical artworks, endowing digital objects with a stamp of individuality and uniqueness.
“For the first time we have a simple technical standard that creates digital scarcity for digital artifacts. Humans have been collecting artifacts for thousands of years, and there are now tools readily available to do the same in a digitally native manner,” he added.
While Crain is unsurprisingly optimistic about the future of digital collectibles, analysts and other industry experts largely agree with his forecasts.
“I think crypto art will grow in importance as artists see that they can actually get paid for scarce digital art,” said Fredrik Haga, Co-founder and CEO of Dune Analytics.
He added that gaming is another area where NFTs will find increasing joy in 2021, with Axie Infinity — an Ethereum (ETH)-based game that lets players battle using unique creatures — being the biggest product in the space, racking up some USD 8.1m in total transfers.
Aave’s Isa Kivlighan is another person who speaks the praises of Axie Infinity, and NFT gaming more generally.
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