- Introduction to Cryptomedia & Digital Scarcity
- Rare Cryptomedia & NFT Marketplaces
- PFP NFTs as Identity & Community Membership
- Generative Art Cryptomedia
- Dynamic Cryptomedia & Programmable Art
- Web3 Monetization – Music NFT Case Study
- Crypto Crowdfunding & IP-NFTs
- Fractionalization & Financialization of NFTs
This NFT Design Course will help product designers and digital creatives harness the power of cryptomedia and non-fungible tokens (NFTs). This course teaches you the fundamentals of what cryptomedia is, important NFT product categories, and emerging NFT trends. It’s totally free to read or watch.
Introduction to Cryptomedia & Digital Scarcity
Digital files are not scarce. We can duplicate digital files on our computer any number of times, or send them to thousands of friends, all with the click of a button, at no cost. There is great utility in this. Information transfer is instant and free, and the worldwide web acts as a public repository for all human knowledge.
However, this poses a problem for digital creatives. Humans value scarcity making it difficult to earn a living by selling digital media unless you’re a well-known artist. Blockchains change this and, for the first time ever, make it possible to create scarce, limited, or rare digital media that others can “own”. We’ll call this “cryptomedia” from now on. Cryptomedia opens up new monetization channels for artists, and fundamentally changes the creator-fan relationship.
Cryptomedia is simply a record on the blockchain that points to a media file. Some powerful properties follow. First, the record is public so anyone can view its contents. Second, the record cannot be changed – it is immutable. Finally, it cannot be deleted, and will exist on the blockchain forever.
Going back to the first point – anyone can verify who created the cryptomedia, when it was created, and who currently owns it. Also, anyone can verify the cryptomedia’s full ownership history, and how much it was purchased for each time it changed hands.
This is called “provenance” and is necessary for assessing any given cryptomedia’s authenticity and rarity. For example, you can prove that your cryptomedia was minted, by the artist, before any imposters were minted down the line. Cryptomedia provenance is superior to that of the traditional art world in terms of accuracy and openness.
Finally, there is a live, 24/7 marketplace embedded in each cryptomedia. Potential buyers place bids on cryptomedia. Owners can set reserve prices for the minimum they are willing to sell the cryptomedia for. At anytime, owners can accept a buy offer, and the cryptomedia and cryptocurrency is automatically swapped via a decentralized exchange. Okay, this last part hasn’t been fully realized yet, but Zora Protocol is close to making it a reality.
Let’s talk about a common criticism of cryptomedia. The media itself exists on the internet and can be accessed by anyone. For example, the cryptomedia shown above, a digital collage by an artist named Beeple, sold for $69M. Anyone can view, download, and share the collage on the internet. Some argue this makes it worthless, but they miss the point. Is the Mona Lisa worthless because anyone can visit the Louvre, view the painting, and take pictures of it? No.
Everyone inherently understands that the original Mona Lisa should be worth more than any reprint, or rendition. And, actually, the demand to see the Mona Lisa increases its notoriety, driving up its economic value in a positive feedback loop.
The same goes for cryptomedia. The more people who view and share it, the more it will be worth. Valuing cryptomedia, like any other work of art, is cultural and subjective. Cryptomedia simply makes it possible for people to own digital media. And this is a very deep idea. It means that individuals can literally own digital culture.
Still not impressed? Let me take one more stab. Why do we value blue check marks on Twitter? The blue check mark indicates that the person behind a Twitter profile has some sort of social status. Twitter has verified this person’s profile for one reason or another, and distinguishes that person’s profile with a blue check. But this simple visual element has real-world value, or significance attached to it.
Right now Instagram is testing similar UI elements that verify the authenticity and ownership of cryptomedia. So, one day, you will be scrolling through your feed, and a post will display a “digital collectible” button on the bottom left, signifying that the Instagram account owns the cryptomedia that was posted.
Now imagine that cryptomedia was created by a famous artist, and several hundred people have placed $1M+ offers on it. This post, the account, and the person behind the account would catch your attention like a blue check mark does now. Of course, not all cryptomedia will be this valuable, but still, most users will want to signal their ownership of digital collectibles on social media.
I believe that cryptomedia will go mainstream when “cryptomedia verification” UI is launched on popular social media platforms. People will get curious when they see this pop up in their feed, and it will be easy to onboard them by offering them a free, and unique cryptomedia that they can post on their account. Twitter, Facebook, and Reddit are all clearly heading in this direction as well.
Cryptomedia is actually part of a larger technology called NFTs, or non-fungible tokens. Cryptomedia is just a specific use-case of NFTs, and what NFTs are most well-known for at this time. You will see NFTs and cryptomedia used interchangeably; however, just know that NFTs are highly general, and being experimented with to represent a variety of digital things like identity, data, in-game items, and land in the metaverse. We will talk more about these emerging use-cases in later Web3 Design Courses.
Rare Cryptomedia & NFT Marketplaces
Perhaps the most obvious use-case for cryptomedia is one-of-a-kind digital art. Some cryptomedia artists have made millions selling their cryptomedia creations with top mentions including Beeple, Pak, TYLERXHOBBS, XCOPY, and others.
Remember, cryptomedia encompasses all types of media and can range from static images, gifs, videos, 3D models, and blog posts.
Some of the original open-source code that made the internet possible was sold as an NFT for $5.4M.
And viral memes that have graced the internet for over a decade have sold for millions as well, like one of the most viewed YouTube videos: Charlie bit my finger. Turning the video into cryptomedia made this piece of internet history sellable and ownable
One of the most important product categories in Web3 is NFT marketplaces. This is where people buy and sell cryptomedia, and NFTs of other sorts.
There are generally two types of NFT marketplaces: curated and open. Curated marketplaces only sell NFTs by pre-approved artists in an effort to control quality. These marketplaces tend to have “NFT drops” where an artist’s collection is promoted ahead of time and a public countdown signals when bidding starts on their cryptomedia collection. It’s the first time the cryptomedia is available for purchase, and there are a variety of drop styles that artists can chose from. Curated exchanges include Nifty Gateway, SuperRare, Foundation, and KnownOrigin.
Other NFT marketplaces are open for any artist to list their cryptomedia. Open marketplaces are popular because they facilitate the secondary sale of cryptomedia. These marketplaces are similar to eBay in that cryptomedia can be listed in an auction with live bidding, or as a buy-it-now offer.
OpenSea is by far the most popular NFT marketplace. They charge a 2.5% fee on all purchases, and their revenue soared with the explosion in NFT popularity starting in 2020. OpenSea is a hybrid between a Web2 and Web3 app. OpenSea matches buyers and sellers with its off-chain orderbook, and facilitates the actual swap of currency for cryptomedia via smart contracts. It is criticized for it’s closed, and centralized order book, which limits liquidity and allows for censoring trades.
Rival marketplace Rarible takes one step closer to fulfilling the ethos of openness and censorship resistance with its governance token ($RARI), and by opening its orderbook up to third-party developers as an open-source API.
NFT aggregators like Genie and Gem improve UX for NFT buyers. Instead of having to manually search through multiple marketplaces for the NFTs they want, NFT aggreagators show all listed NFTs across all NFT marketplaces from one UI. It also allows users to buy multiple NFTs with one transaction, which saves the user network fees.
Zora Protocol enables a fully open NFT market. Zora builds an orderbook into each NFT, so buyers can place bids directly on the NFT without it needing to be listed on a marketplace. At any time the NFT owner can accept an offer, and initiate a decentralized swap. Also, owners can set ask prices, which is the minimum price they are willing to accept. Zora provides developer tooling for querying this NFT data, and standing up NFT marketplaces.
As you’d expect, marketplaces allow users to explore trending NFTs, as well as search for specific NFTs with filtering options. Once you land on a particular piece you can see that NFT’s ownership and bid history.
Finally, marketplaces allow users to mint their own NFTs. This provides creatives a simple UI for minting cryptomedia, as opposed to requiring them to manually deploy smart contracts to the blockchain.
The marketplaces we’ve discussed sell all sorts of cryptomedia. Specialty NFT marketplaces include:
- Video – Glass Protocol
- Music – Catalog, Sound
- Photography – Sloika
- Generative Art – Async Art, Art Blocks, Archipelago
DEXs like Sushi Swap and Uniswap, used for swapping fungible tokens, are starting to get involved in NFT trading. Sushi Swap plans on launching an NFT exchange called Shoyu, and Uniswap recently acquired Genie NFT and plans on integrating the NFT aggregator into its web app. Also, projects are experimenting with new ways of swapping NFTs without an orderbook. Once such project is sudoAMM.
Last thing, minting NFTs cost a network fee, which is high on Ethereum right now. Currently, it costs $70-$300 to mint an NFT on Ethereum’s mainnet. For this reason we are starting to see the emergence of Layer 2 NFTs and marketplaces. Minting and transferring NFTs is significantly cheaper on L2s. This is also why OpenSea is beginning to support other chains like Polygon, Solana, and Katlyn. Here are some other L2 NFT marketplaces:
PFP NFTs as Identity & Community Membership
If one-of-a-kind cryptomedia enables digital art, then collections enable digital community. PFP (“profile picture”) collections are the most popular, and are composed of similarly-themed cartoon avatars. All the avatars together represent an internet collective, yet each avatar is unique in appearance from all others in the collection.
Users signal their membership to the overall collective by owning an avatar, often setting the avatar as their social media profile picture (hence “PFP”). So the avatar is their individual identity within an internet collective. Some of the most popular PFP collections are shown above.
By far, CryptoPunks and Bored Ape Yacht Club (BAYC) are the two most popular collections. This can be seen by filtering OpenSea for top NFTs based on trading volume and floor price. Floor price is a common metric in this space – it’s the lowest price to purchase an avatar in the collection. Yes, the avatars are priced differently from one another – this has to do with their rarity in the collection, which we’ll come to in a bit.
CryptoPunks was the first ever PFP collection. It was created by a company called Larva Labs, and features pixelated avatars with stylistic inspiration coming from London’s 1980’s cypherpunk scene. The collection is made up of 10,000 individual Punks, each made unique by different combinations of attributes.
CryptoPunks can be one of 5 types: male, female, ape, zombie, and alien. Other attributes include things like hair and accessories like hats, sunglasses, and pipes. Each attribute has a certain rarity within the collection. In other words, what percentage of Punks exhibit that attribute? For example, there are only 9 of 10,000 Alien Punks in existence. This is the most rare attribute, making Alien Punks highly coveted and some of the most expensive to buy.
CryptoPunks were free to mint when they first launched in 2017. Users just had to pay an Ethereum network fee to mint the NFT from the CryptoPunk smart contract. Since then, CryptoPunks have been available for resale on secondary marketplaces like OpenSea.
OpenSea provides users with filtering options so they can narrow their search to Punks with specific attributes. Also, OpenSea displays the attribute present in each Punk and shows the rarity of the attribute. For example, 3% of all Punks are smoking a pipe.
At their height, Punk #5822 – an alien wearing a bandana – sold for almost $24M. Currently the floor price is 77 ETH, so it costs around $80k to purchase one of the cheapest Punks on the market. You may start to see how owning a Punk grants you membership to an elite group.
Now let’s talk about another highly successful PFP collection, this time created by Yuga Labs: Bored Ape Yacht Club (BAYC). It’s highly similar in concept to CryptoPunks. A collection of 10,000 Ape avatars, each exhibiting a unique combination of attributes.
Yuga Labs has been active in building out the BAYC community. Holding an Ape NFT gives you access to exclusive Telegram and Discord servers with other Ape holders, as well as exclusive merchandise stores and IRL events (e.g. Ape Fest). This is called “token-gated access” where users connect their wallet to an application to prove ownership of an NFT and gain access to exclusive content/services. It exemplifies the “programmability” of cryptomeida, and NFTs in general.
Ownership of these PFPs, or any cryptomedia for that matter, says something about the individual. And all this ownership information exists on the public blockchain. The right query will output every wallet address that currently owns, or has previously owned, an Ape, for example. This is an open-source contact list that could be used for marketing or product onboarding. Once we can send email-like messages to wallet addresses, we will see the advent of NFT-targeted advertising.
Yuga Labs sends Ape holders additional items and characters, expanding the scope fo the project. For example, Ape holders have received a companion dog NFT (i.e. Bored Ape Yacht Kennel), and a serum that creates a mutant ape NFT from their original Ape NFT. Receiving tokens like this is called an “airdrop”, and is used by other Web3 projects to rewards their users. Also, Yuga Labs has airdropped BAYC and MAYC holders ApeCoin, a cryptocurrency intended for use in BAYC’s Otherside metaverse.
I’m writing about BAYC at a special time. Yuga Labs recently acquired CryptoPunks IP from Larva Labs, and distributed these IP rights to the Punk holders. This had already been done for the Yuga Labs’ other PFP projects. The holders of any of these projects own commercial licensing rights for their individual avatars.
Holders can do things like create media or sell swag related to their avatars. For example, two Bored Ape holders created a music video featuring their apes as DJs in an animated video, which, by the way, could be purchased as limited edition NFTs on Glass Protocol.
Yuga Labs has plans to create a metaverse game around these assets, called Otherside. Ape holders can claim land to own in the Metaverse and their avatars will become in-game characters. ApeCoin will be used in-game, and land plots were also sold in a public sale to onboard others into the BAYC ecosystem.
Let’s take a step back and talk about intellectual property (IP). IP embeds itself in global culture when it becomes popular enough. Think of the universal familiarity of the following cartoons. When you see Buzz Lightyear, you think “Disney”. When you see Batman or Superman, you think “DC Comics”. When you see Iron Man, you think “Marvel”. This IP is worth billions because movies and other products can be spun off of it, and attract fans into perpetuity. Soon, when you see an Ape, you may think “BAYC”.
The unique thing this time is that Web3 gives individuals the ability to directly own this IP. Holding an Ape gives someone partial ownership of the BAYC “brand” as a whole. Not only do they get to leverage the recognizability of the BAYC brand when commercializing their individual avatars, but it’s likely that BAYC revenues (from movies, metaverses, and video games) will get streamed to Ape holders. This is groundbreaking stuff.
Most collections will not reach mainstream, ultra-famous status, but decentralized brand ownership can be used by communities of any size. This gets into the idea of micro-economies, which Web3 uniquely enables with its mechanisms for decentralized governance and alignment of member incentives.
So far we’ve talked about one-of-a-kind, or limited edition cryptomedia, and decentralized brands centered around cryptomedia IP. Now, let’s talk about a niche of cryptomedia: generative art.
Generative Art Cryptomedia
The cryptomedia discussed so far is first produced by an artist, and then minted into an NFT. Thus, the media exists before the NFT is minted, and the NFT simply points to that media. Generative art is different in that the artist builds a computer script that generates art. The generative script itself exists as an NFT on the blockchain.
Like PFPs, generative art typically exists as a collection. The script outputs similarly-themed cryptomedia; however, no two pieces are the same in a collection. The script passes in random numbers that modify its output, and ensure unique cryptomedia. This means there is an element of surprise every time a piece is generated – the minter is not exactly sure what he will get.
Generative art has been called “art on-demand” because anyone can call the script to generate a new piece. In other words, an autonomous script can produce an infinite number of similarly-themed pieces. You may wonder why anyone would ever be willing to pay for something like this. Value capture is made possible by limiting the number of NFTs a script is able to mint.
Chromie Squiggles is a good example of a successful generative art collection. The collection consists of 9175 animated, unique squiggles that were all generated by the same on-chain script. Back when it was released in November 2020 it cost 0.035 ETH (~$18) for users to mint. Now, the script has reached its limit of mints (i.e. 9175), so the only way to obtain a squiggle is by purchasing it on the secondary market.
Now the floor price for a squiggle is around $8000; however, some squiggles are more rare than others. A rare hyper-pipe squiggle (Chromie Squiggle #3784) was purchased for $2.44M at its high. Other highly popular generative cryptomedia collections include Cherniak’s Ringers, Autoglyphs, ge1doot’s Ignition, Zeblock’s Unigrids, and Tyler Hobbs’ Fidenza. EulerBeats is an example of generative audio-visual art.
Art Blocks curates generative art collections, and hosts drops on the platform. Like other curated NFT marketplaces (e.g. Nifty Gateways) collections are announced ahead of time, and there is a countdown to when users can mint an NFT within a collection.
Dynamic Cryptomedia & Programmable Art
While on the topic of innovative new art forms, let’s talk about “programmable art”. This is cryptomedia that is dynamic in appearance and can change over time. Changes can occur either autonomously based on factors like time of day, weather, and market prices, or from deliberate changes made by the owner of the programmable art.
For example, a cryptomedia piece called Block 21 changes twice per day to reflect day and night. It consists of two states – day and night – and there is a “master” that displays the cryptomedia’s current state. The master cycles through the various states, and this is how the cryptomedia “changes” over time. Another example is EthBoy that displays differently based on the price movement of ETH cryptocurrency.
Also, programmable art is sometimes made up of layers. The layers, when added together, make up the master. Whenever a change is made to one of the layers, the master updates with that change. The catch is that each layer, and the master, is an individually-ownable NFT. Layer owners get to decide if, when, and how to update their layer, thus affecting the master. Async Art is a marketplace for purchasing these layers.
First Supper was one of the first successful pieces like this. It’s a master NFT that is composed of 22 layers that are each themselves NFTs. These layers can be updated by state changes, scaling, rotation, and opacity to name a few.
Async Art gives users the ability to preview a cryptomedia’s various states. For example, this Elise art changes each hour of the day so users can click through and see each of the 24 states.
Async Art also offers free apps for digital art display on AppleTV or Netgear’s Meural that supports these dynamic NFTs.
Music can also be made into programmable art. Songs are composed of stems like vocal, bass, and treble. Async Art turns these stems into individually-ownable NFTs. Stem owners get to decide to toggle their stem on or off, or switch the stem to a different variation. This, of course, alters the master track. For example, the “Ride or Die” master track shown above is composed of 4 stems: Piano, Drums, Vocal, and Synths. And the Synths stem has 3 variants, which the owner (currently PLS&TY) can switch at any time.
OG:Crystals is another cryptomedia project that evolves over time. It consists of 10,301 3D-crystals that start out as a seed, and evolve into a new crystal everytime the crystal is transferred to another Web3 wallet. A generative script adds new structure to the existing crystal. Three months after the initial drop, the crystals were frozen, and could never be changed again.
Kanaria is another interactive cryptomedia project. It’s a unique PFP collection because all the avatars start as eggs that eventually hatch into birds. Leading up to the hatch, users can send emojis, via Web3 wallets, to eggs (i.e. Kanaria NFT) in order to influence the characteristics of the resulting birds.
The number, and types, of emojis an egg receives influences the probability of the resulting bird exhibiting certain attributes, and levels of rarity. For example, emojis can affect the bird’s physical appearance like color, body, eyes, and background. Also, birds are hatched with accessories.
The unique thing here is that the accessories themselves are NFTs, and the bird (parent NFT) can technically own the accessory (child NFT). This is called “nesting”. Accessories can be transferred to other birds, and when equipped, alter that bird’s appearance and utility.
Kanaria uses a new NFT standard called RMRK (pronounced “remark”) that enables this new functionality. The Kanaria project can be thought of as a proof-of-concept for RMRK. It all goes much deeper than what has been described here, so take a look at how RMRK expands the NFT design space with new use-cases, particularly in gaming.
RMRK is a new standard for NFTs in the Substrate ecosystem. New functionality is being developed for Ethereum NFTs as well. Charged Particles supports nested NFTs, ReNFT and EIP4907 support NFT rentals, and, as stated several times before, Zora is building orderbooks directly into NFTs.
Web3 Monetization – Music NFT Case Study
Cryptomedia presents a new, and better way, for artists to monetize their works. NFTs make digital files “collectible”, thus acting as a value-capture mechanism for digital art. This has enabled some digital creatives to earn a living from their work for the first time. Many believe cryptomedia has the power to revolutionize the music industry in particular.
Music streaming is king these days, and large platforms like Spotify and Apple Music dominate. Artists are somewhat forced to list on these platforms in order to be discovered and grow their audiences; however, these platforms extract most of the value from the fan-artist relationship, and offer artists low commissions on their work. For example, Spotify pays only $.0037 per stream. This means that only the top artists with large audiences can make a living on streaming platforms.
This is starting to change with Web3. As Li Jin argues, now creators only need “100 true fans” to earn a living. It only takes each fan buying $1,000-worth of content per year for that creator to earn 6-figures. This has already begun to happen with music cryptomedia.
Now true fans can verifiably own limited edition, or 1-of-1, songs by their favorite artists. This opens a new revenue channel for artists, and is additive in that artists can still earn money on streaming platforms. Also, Web3 makes it easy for artists to set royalties on their music, and any other kind of cryptomedia. This is actually another revenue channel for artists. Setting royalties ensures that artists receive a cut of all secondary sales of their cryptomedia. The artist specifies their Web3 wallet address, and royalty payments are automatically routed to this address, into perpetuity.
Catalog is a popular marketplace for purchasing music NFTs, and as @Coopahtroopa has pointed out, top artists on Catalog have already begun to eclipse their streaming earnings. Artists mint their songs as NFTs, and list them either as a reserve auction or buy-it-now offer. This is the first time that artists have been able to make their MP3s scarce, and fans have been willing to spend thousands of dollars to own one of these audio collectibles.
Sound is another music NFT marketplace with a unique twist. Artists list their music as limited edition songs, so there are multiple owners. There is a listening party when a song drops on Sound, and the owners get to write a comment at whatever timestamp they chose.
Artists sometimes add in other benefits for owners of their song cryptomedia. For example, one of the song owners above will win two free tickets to Kacy Hill’s upcoming, live performances.
Arpeggi is another notable Web3 music project. They have uploaded music onto the blockchain for artists to sample and create their own on-chain music with.
Audius is a Web3 music streaming platform aiming to be less extractive than the current Web2 streaming platforms already discussed. Audius promises 90% of its revenues to the artists who upload their music to it. For example, Audius rewards artists with $AUDIO tokens if their song or album starts trending. The creators of trending playlists also get rewarded, so there is now financial incentive to curate music.
Cryptomedia redefines the relationship between artist and fan. Ownership of an artist’s cryptomedia aligns you with the success of that artist. As an artist’s popularity grows, his cyptomedia, purchased back when he was less known, will rise in value. This leads to a “buy-and-retweet” phenomenon where cryptomedia owners promote their artists, at least partially, because there is financial incentive to grow that artist’s success. a16z venture capitalist Jesse Walden terms this “Patronage+”.
This segues into another music NFT-related project called Royal Music. Artists sell a portion of their songs’ royalty rights. This is an extension of everything we’ve talked about before. Fans can now directly own a portion of the revenue that a specific song or album generates.
Crypto Crowdfunding & IP-NFTs
Mirror is a Web3 project revolutionizing the publishing space with “writing NFTs”. It’s perhaps best described as a blogging platform that allows creatives to mint their posts as cryptomedia (1 of 1 or limited edition) that can be sold in auctions or at a flat price. Additional functionality is built into Mirror, like “splits”. The publisher can specify other wallet addresses so that contributors automatically receive a cut of the cryptomedia’s sales.
Mirror also supports crowdfunding. Creatives make a Mirror post about their project, and embed a crowdfunding block in the post. This allows users to fund the project with ETH, and receive $PROJECT tokens in return. The project’s fungible token tracks the user’s contribution to the project, and the creative decides how these funders are rewarded in the end. Creatives can set funding tiers, so if a user contributes more than 1 ETH, for example, he belongs to Tier 2, which entitles him to a hardcover copy of a book once it has been published.
Creatives can quickly raise crypto for funding their project, and the $PROJECT token organizes a community around the project. For example, the $PROJECT token can give holders access to exclusive, project-related Discord channels, or be used to make project decisions by voting on Snapshot.
Owning an NFT does not necessarily mean you own the IP to that NFT. In fact, you do not own the IP unless it has been explicitly stated otherwise. You can own a painting, but that doesn’t mean that you own the IP so that you can sell reprints, for example. The artist still owns that IP.
IP-NFTs are already in use today. A DAO funded a biomedical research study by purchasing the study’s IP-NFT. This transfered full legal IP rights to the DAO, gave the DAO access control to the resulting scientific data, and entitled the DAO to any downstream patents resulting from the study. This crowdfunding approach could disrupt the current fundraising environment for scientific research.
Molecule is an IP-NFT marketplace for funding such biomedical studies. In general, clear differentiation between ownership NFTs and IP-NFTs will become more commonplace, especially on marketplaces that need to make clear exactly what rights an NFT confers to its owner.
Fractionalization & Financialization of NFTs
NFT fractionalization and financialization is another emerging trend right now. Let’s start with the first term.
NFTs, by design, are single tokens that only one person owns at a time; however, emerging tooling make it so that NFTs can be broken into fungible tokens that represent fractional ownership of the underlying NFT.
One problem NFTs suffer from is lack of liquidity, especially on higher-priced cryptomedia like BAYC Apes. There are few people who can afford to purchase an entire Ape, but fractionalizing that ape into 1B tokens makes it affordable for small investors to get exposure. These fungible tokens represent partial ownership of the NFT, so they increase in price when the underlying NFT increases in price.
NFTX is another protocol that pools multiple NFTs together for people to invest in like an index fund. Checkout the PUNK vault that contains 141 floor CryptoPunks.
PartyBid allows users to collectively bid on NFTs. Groups of users, or “parties” target a specific NFT, and pool their funds together to place bids on that NFT. If the NFT is won, the NFT is fractionalized, and distributed pro-rata to the party’s contributors. Fun fact – PartyBid uses Fractional as part of its backend to fractionalize the NFTs.
Now holders of the fractional NFT tokens can vote on the minimum price they are willing to resell the NFT for, if at all. This token voting gives users a direct say in what is done with the NFT that they partially own, which brings us to the topic of DAOs, or decentralized autonomous organizations. PleasrDAO and PartyDAO are popular examples of collector DAOs. These communities collectively invest and manage popular NFT assets.
Fractionalization allows for NFTs to be used throughout the DeFi ecosystem. For example, fractional NFT tokens can be swapped on decentralized exchanges. This leads to better price discovery and liquidity, especially for high-priced NFTs. Also, these fractional NFT tokens can be used in other DeFi protocols, like as collateral in Aave. Highly popular cryptomedia has been used as collateral in the traditional finance world as well. Autoglyph #488 was used as collateral for a $1.4M loan. PawnFi and NFTFi are platforms related to the NFT collateral space.
I, Travis Kassab, am not a financial advisor, tax professional, broker, or legal advisor. None of my podcasts, videos, or articles constitute financial advice. This content is purely for educational purposes, and is not intended to endorse any cryptocurrency or other investment vehicle. At the time of writing this, my cryptocurrency holdings include: BTC, ETH, CEL, SNX, BANK, SOL, DOT, KSM, USDC, GERO.