NFT Use Cases and The VCs Investing In It

Published October 8, 2022

NFTs are tokens that we can use to represent ownership of unique items. They let us tokenize things like art, collectibles, even real estate. They can only have one official owner at a time and they’re secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence. – ethereum.org

NFT 101

To make it easier to understand what an NFT (non-fungible token) is it’s better to first explain each element. If something is non- fungible it means that the item can’t be replicated and has qualities that are unique and specific to it. Crypto tokens are a type of cryptocurrency that represents an asset. 

Even though NFTs are digital tokens and held in a crypto wallet they can’t be used to purchase anything but are rather digital collectibles/ an asset which has the ability to gain in value over time. Examples of this are digital art pieces, memes, gifs, music albums, videos, virtual real estate, and even a tweet! Once you purchase an NFT your ownership is guaranteed through a file with a digital signature. In its simplest terms, an NFT is just digital paperwork saying you’re the owner of some digital content- but it could very well be the future. 

Where Is the Value of an NFT Derived From?

Uniqueness is the foundation and where the value of NFTs is derived from. Now buying decisions for collectibles are not only driven by the desire to claim ownership of a special one-of-a-kind object but is another way for people to partake in investing within crypto. Unlike individual bitcoin which all represent the same value, an NFT is a one-of-a-kind token (each having a different value) and is a way to assign ownership to its data that has been logged on a blockchain. NFTs are part of the Ethereum blockchain which allows for the storing of this information and differentiates them from an ETH coin. 

Blockchain technology proves ownership and the scarcity of the item, which is what gives it value, so it’s a major perk that this can now be verified (e.g. this artwork truly is 1 out of a series of 100 created). The market value is created for any kind of collectible knowing that you have ownership over a piece of history and knowing it was created by greatness- replicas don’t have that appeal. 

Now work produced by creators allows the possibility of ownership to also be divided between people, creating a shared wealth incentive tied to its success. This could be the first recording of an artist’s soundtrack or artwork that could gain value as the artist’s fame rises and a community is formed around them. Through this network effect, not only does the artist benefit but so does its community of fans. 

Proven NFT Use Case Examples

Pier Kicks predicts we are on our way to the “Metaverse” — a “self-sovereign financial system, an open creator economy, and a universal digital representation and ownership layer via NFTs (non-fungible tokens).”

NFTs made their debut focusing mainly on art, music, and trading cards because it was the most widely adopted collectible investment items with an existing community of fans to tap into- giving them instant value. This was the start though and the beauty of NFTs is that this traditional concept can now be expanded upon in so many ways.

Now fast-forward 2 years later and according to our favorite crypto newsletter, The Milk Road, it looks like the NFT use cases that are here to stay are:

  • Rewards for Super Fans- it’s a ‘true fan’ technology because it gives them:
    • A status symbol – there is actual proof that fans made the discovery early.
    • A membership card – a way for NFT holders to get access to exclusive perks.
    • A way for fans to “invest in your success”- if a fan buys someone’s NFT early it can be an investment and a way to fund the project/ artist/ person.
  • Digital Collectables
    • Art- before NFTs art wasn’t able to be digitally collected, which is why this was probably the first and best use case so far.
    • Branded collectibles- we’re now seeing the high fashion world take part in the craze as well and eventually in the metaverse people will be able to show off these digital assets on their avatars.
  • Membership as an Asset
    • “NFTs turn ‘memberships’ into tradeable assets. NFTs let you ‘invest’ in a social group, rather than just paying fees for access.” Making things like a SoHo House membership digitally transferrable.
  • Video Game Assets
    • “In the future, games will issue items as NFTs. Those are things you OWN. You can sell them. You can bring them into new games. You can rent them out to other players.”

Games have been one of the best opportunities to implement NFTs so far since, within these virtual worlds, currencies have already existed and NFTs now allow items within the game to be tokenized, traded and exchanged peer-to-peer or through a marketplace. Now that players will have real ownership over their digital assets it will make the experience more rewarding as they now also have the potential to earn money and grow their in-game assets. Evaluations have already soared in the first quarter of this year for gaming-focused blockchain projects such as Sandbox and Axie Infinity.

Along the same lines as games, virtual worlds have been another big use case for NFTs. Decentraland, The Sandbox, and Cryptovoxels are just some of the decentralized virtual reality platforms where users can create, own and monetize in-game NFT items along with virtual land. 

Some investors are also betting that the future of social media is connected to tokens that allow for creator monetization. The first to lead the way in this concept of a social currency platform was Bitcloud, which allows users to buy and sell tokens based on people’s reputations. It is a “creator coin” which allows people to invest in someone that they believe has current or potential value. The concept can be seen as a stock market for people. Even though there has been some controversy in the crypto community over the platform, it hasn’t stopped investors from pumping tens of millions into it. The list of backers includes Sequoia Capital, Andreessen Horowitz, Coinbase Ventures, Winklevoss Capital, Chamath Palihapitiya’s Social Capital, and Reddit co-founder Alexis Ohanian. Other companies focusing on creator coins are Roll and Rally which also seek to enable creators to monetize their following and also allow those fans to bet on them. 

NFTs In the Future 

Other areas where we can expect to see the development and implementation of NFTs are for real-world assets (such as property) and all kinds of official documentation. Tokenizing real-world assets is still in its early days but once certain securities, insurance, and infrastructures are built out the use cases could be endless. Once in place, it’s not hard to imagine any kind of documentation you need proof for would be found in your crypto wallet- merging the old world with the new.

Considering the use cases already discussed and the potential which is still untapped, I think it’s safe to say NFTs are here to stay. They could be seen as a new file format- like email, mp3, or pdf. It’s a revolutionary way to let people own digital things.

For any companies looking to drop NFTs to your customers or fans – check out thirdweb.

Top VCs Actively Investing in NFT Projects

Animoca Brands

About: Animoca Brands Corporation is the spinoff of part of the app portfolio of Animoca (Appionics Holdings Ltd.) and the consolidation of a number of partnerships and acquisitions.

Investment Stages: Seed, Series A, Series B

Recent Investments:

  • MPCH Labs
  • Thirdwave
  • Revolving Games

Check out Animoca Brands Visible Connect Profile, to learn more!

Shima Capital

About: Shima Capital is an investment fund that focuses on supporting cutting-edge blockchain startups.

Investment Stages: PreSeed and Seed

Recent Investments:

  • Magna
  • Thirdwave
  • Sender

Check out Shima Capital’s Visible Connect Profile, to learn more!

NGC Ventures

About: Shima Capital is an investment fund that focuses on supporting cutting-edge blockchain startups.

Investment Stages: PreSeed and Seed

Recent Investments:

  • Magna
  • Thirdwave
  • Sender

Check out NGC Ventures Visible Connect Profile, to learn more!

HG Ventures

About: HG Ventures is a investment arm invests in early stage and growth stage companies developing advanced materials

Investment Stages: Series A, Series B, Seed

Recent Investments:

  • Circulor
  • 6k
  • Transcend Software

Check out HG Ventures Visible Connect Profile, to learn more!

Paradigm

About: Paradigm primarily invests in crypto-assets and businesses from the earliest stages of idea formation through to maturity.

Investment Stages: eed, Series A, Series B, Series C, Growth

Recent Investments:

  • Uniswap Labs
  • Nxyz
  • Exponential

Check out Paradigm’s Visible Connect Profile, to learn more!

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