In this article, we will explore five of the most promising new use cases for NFTs beyond art and collectibles.
Original title: “NFTs: Beyond Art and Collectibles”
Written by: cr1st0f
Translated by: DeepTechFlow
From CryptoPunks and Rare Pepes to Fidenzas, the most famous and successful NFTs belong to the art and collectibles category. Although some generative art collections have begun to attract attention from the mainstream art world, most NFTs remain a very niche market, largely unrecognized for their cultural value by the mainstream media.
While the current popular types of NFTs are limited, there are several emerging use cases that claim to bring the benefits of decentralized ownership (composability, transparency, and security) to new asset categories. In this article, we will explore five of the most promising new use cases for NFTs beyond art and collectibles.
Currently, we are in a bear market for NFTs, with interest in all categories of NFTs declining from a few months ago, except for art. Nevertheless, recent research reports predict significant growth in the NFT market over the next decade. According to predictions from SkyQuest Technology, Verified Market Research, and FactMR, the NFT market size is expected to reach $120 billion to $320 billion in the next 5-10 years, perhaps driven by art, but more likely driven by a wider range of tokenized assets. In the following, we will focus on the main categories of these NFT-based assets.
We’ve recently seen five major categories emerge: membership tokens, financial NFTs, legal documents, real-world assets, event tickets, and media.
The development of these new use cases has largely been during and shortly after the 2021 NFT bull market, when they received a lot of attention and had enough resources to fund development. If some of these use cases prove themselves, we may see significant attention paid to these new product categories in the next cycle.
Membership Tokens
In addition to collectibles, the first use case for NFTs was as membership tokens. As early as 2017, the HAIRPEPE Rare Pepe card granted its holders access to a Telegram group called The Salon. Since then, we’ve seen several NFT-limited membership clubs. While many of these are aimed only at NFT collectors, such as Proof Collective, MetaverseHQ, and Grailers DAO, some are starting to push this definition forward, such as Crypto Blockingckaged Goods, which is more like a business club and incubator.
A case that combines NFT-limited online membership clubs with decentralized governance is Nouns DAO. Their treasury holds over 27,000 ETH and as a DAO, aims to manage the treasury and ultimately utilize it to bring value to Nouns holders. One Noun equals one vote and also grants access to private chats to discuss proposals and coordinate the use of the treasury.
With better tools and user experiences being built, users can interact with NFTs more easily without needing to understand wallets and self-custody, and we can expect to see an increase in membership clubs with NFT thresholds. As technology advances and becomes more accessible, we may see more diverse use cases and wider industry adoption of this membership and governance model.
One application closely related to membership tokens is brand loyalty rewards. While a few existing brands have already explored use cases for NFTs and Web3, including Reddit, Nike, and Adidas, one of the most interesting explorations comes from Starbucks.
In December 2022, Starbucks launched a new loyalty program called “Starbucks Odyssey” which allows members to earn and purchase 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 farms.
Starbucks’ Odyssey program is still in its early stages, but it has the potential to completely change the way brands interact with customers. By using NFTs, brands can create more personalized and immersive experiences for customers, and importantly, if these rewards are not of interest to the customer personally, they can sell them.
Financial NFTs
Starting with Uniswap V3 positions, financial NFTs have entered the mainstream consciousness of the DeFi world. Using NFTs as a receipt of a user’s holdings in a DeFi protocol can encode more information in metadata than just using ERC-20 tokens representing their holdings.
For example, in Uniswap V3, NFTs serve as receipts for storing LP position-related information: LP pairs, the minimum and maximum tick of concentrated liquidity, LP position size, and importantly, accumulated rewards to the LP. Because LP rewards are accumulated to the NFT itself, this further opens up more possibilities for DeFi applications built on NFTs, although we have not seen too many such applications yet.
Other examples of financial NFTs include Liquity Chicken Bonds, Superfluid streaming payments, NFTfi term tickets, BendDAO bNFTs, and Solidly’s innovative veNFTs. The recently launched product Chicken Bonds uses NFTs as deposit receipts for bond positions. With the launch of this feature, Liquity also stated that they want to try changing the appearance of bond NFTs, and some bonds are even sold above face value due to their collectible value.
Superfluid allows for streaming payments, and recently turned streaming payments into NFTs, which make payments more transparent and composable. Although these funding stream NFTs are currently only for display, they may be transferable in the future.
Legal documents
Traditional legal documents are often paper-based, 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 Wrappr. Wrappr is focused on building transparency, allowing NFT-based companies to register files and quickly set up US companies. These documents facilitate secure record-keeping, quick registration, and easy access to files. By using NFTs to leverage the security and transparency of the blockchain, Wrappr creates a more efficient and secure process for building and managing crypto-native companies and legal structures.
Another interesting example of NFTs as legal documents is the case of RBB Labs, who airdropped NFT court summons to defendants in copyright infringement cases. According to a Cointelegraph article, RBB Labs created a verifiable digital document using NFTs that can be easily distributed to defendants even if their true identity is unknown, with just a wallet address to identify them.
The trend of using 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 documents that can be easily managed and distributed.
Real World Assets
Consulting firm BCG estimates that tokenization of illiquid real world assets will bring $16 trillion in business opportunities by 2030. Some of these tokenized assets will be ERC-20 tokens, but some will also be ERC-721 or NFTs. Currently, the range of assets tokenized through NFTs is quite limited and mainly consists of luxury goods 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 good example where more data is involved. In this case, NFTs are used to store and update important information on infrastructure projects funded through the platform. Structural, financial, technical, and sustainability information is stored in the NFT, providing easy access to data while ensuring that it cannot be modified or tampered with without records.
4K, on the other hand, provides the ability to tokenize anything you want, with physical objects held in a secure facility by their partners, with NFT owners able to exchange the NFT for the physical object at any time. One of the most popular tokenized items is high-end watches, and several tokenized Rolexes have been used as loan collateral. Collectible sports cards have also been tokenized by 4K. As the user base expands, the types of objects being tokenized are expected to expand beyond jewelry and collectibles.
Perhaps tokenizing real estate as NFTs is one of the biggest and most obvious assets. The global real estate market was valued at $326 trillion in 2020, so if it can be introduced on-chain, it would be a very valuable market. There have already been several high-profile real estate transactions that have occurred on-chain in an attempt to achieve this goal.
As this use case is proven and legal uncertainty is resolved, it may become one of the biggest use cases for NFTs supporting physical assets. Real estate transactions are costly and time-consuming, meaning that both buyers and sellers have an incentive to explore this avenue. Perhaps we will first see this happening in commercial real estate transactions, where complex participants can reach agreements on systems that give transactions legal force. However, the biggest benefits will be realized when complexity and technicality are abstracted away and the average person can cut out intermediaries from these transactions.
Event Tickets
Issuing event tickets as NFTs has several notable advantages. They provide exceptional security, almost impossible to counterfeit, which is crucial for organizers trying to reduce fraud and scalping. NFTs also facilitate seamless transfer between buyers and sellers, significantly streamlining 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 offer exclusive content or experiences to fans, enhancing engagement and fostering closer relationships between audiences and organizers.
Some companies have already been 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 performed at Art Basel with NFT tickets and offered fans the ability to customize their tickets with their own photos or artwork. In 2022, Kings of Leon used NFT tickets for their tour, allowing fans to access exclusive content such as behind-the-scenes videos and photos. Similarly, Live Nation has teamed up 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 offer fans a more secure, efficient, and personalized experience.
The Future of Non-Art and Collectible NFTs
In the previous sections, we looked at some emerging applications and use cases that go beyond collectibles. But what’s the point of tokenizing things that already exist? Of course, some financial NFTs bring entirely new functionality that didn’t exist before DeFi — but why make event tickets into NFTs, why tokenize your Starbucks rewards or your house? Many critics would say that putting existing things on the blockchain is just a waste of time, so here we discuss some of the benefits as well as opportunities for NFTs outside of collectibles.
Overall, new NFT use cases can be divided into two categories. The first category is valuable things, such as real-world assets, event tickets, membership tokens, and even brand loyalty rewards. The second category is information and documents. Examples include corporate formation documents, procedural documents (such as subpoenas and summonses), and use cases where Silta offers project metrics via NFTs.
For the first category of “valuable things,” NFT finance and incorporating NFTs into a broader DeFi ecosystem seem to be the main driving forces behind asset tokenization. There are currently five main NFT financial primitives that have been widely applied: collateralized lending, where NFTs can be used as collateral for loans and liquidity can be obtained without selling assets; fractionalization, where NFTs can be divided into smaller parts, allowing more investors to participate in asset ownership; derivatives, where NFTs can serve as underlying assets for options or futures contracts; leasing, where NFTs can be lent to others for a fee; and liquidity pools, where NFTs can provide liquidity for trading in automated market makers (AMMs) and earn trading fee rewards. The NFT financial ecosystem brings many benefits, such as ease of trading, removing intermediaries, capital efficiency, and transparency. Additionally, it is possible to build entirely new financial products that cannot be created in the traditional financial system.
In the more common scenarios of NFT financial applications, you can imagine a world where a wide range of commodity and service markets becomes more efficient. The removal of intermediaries and the transaction costs they generate is beneficial in itself, and perhaps it is already enough to demonstrate the rationality of tokenizing a wide range of assets. If smart contracts can execute transactions for legally enforceable items such as houses, commercial real estate, or planes, it may save significant fees charged by lawyers and intermediaries.
Imagine the benefits of transparency that these systems bring – imagine if NFT-based real estate ownership and debt were widely used during the subprime mortgage crisis. The lack of transparency and accurate information on underlying mortgage assets in subprime mortgage-backed securities (MBS) and collateralized debt obligations (CDO) was one of the main reasons for the crisis. If NFTs were used to record ownership and debt of these financial products, anyone could check the underlying mortgages and make better risk assessments of MBS and CDOs, potentially revealing the risks in these systems before they collapsed.
When considering the benefits of decentralized ownership and self-custody, imagine renting out your Starbucks rewards or memberships that you don’t use often. Or being able to quickly obtain competitive loans by pledging almost anything you own, such as your house, car, watch, a collection of sports cards, or physical artwork on your wall.
There are several other common DeFi products that may also be attractive when applied to new NFT assets. Options that use individual attributes as underlying assets can allow speculation on specific communities or even individual house prices. They can also allow homeowners to hedge against their property prices by purchasing put options. Covered Call Vaults like the one offered by Ribbon have already become popular products in DeFi.
Perhaps this is not very attractive for individuals, but it may be a way for large institutional landlords to generate additional income. Overall, one can imagine a world in which many DeFi-native products can be applied to real-world assets, creating truly novel financial products that were previously unimaginable before the advent of blockchain technology.
Summary
NFTs demonstrate the enormous potential beyond traditional art and collectible use cases. The most promising applications involve representing assets as NFTs, to help unlock previously illiquid assets, increase transparency and auditability, offer more personalized and customizable services to customers, or reduce transaction and intermediation costs, among other things.
However, some challenges still need to be overcome, including legal and regulatory clarity around the NFT representations of these assets, as well as the technical complexity required by end users. By addressing these challenges, the NFT revolution can be better realized and change industries such as real estate, legal documents, and financial assets. In addition, it is important to continue developing the ecosystem around NFTs, and NFT finance is a particularly important area for developing new categories of asset tokenization value propositions.
With ongoing innovation and collaboration, we can expect NFTs to play a more important role in going beyond art and collectibles, changing industries, and creating new opportunities in the future.
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