NFTs saw a new wave of adoption in 2021, driven in large part by the art community. In March 2021, an NFT collection by the digital artist Beeple made history by selling for $69 million at Christie’s Auction House.
While art and collectibles have helped increase the adoption of NFTs, they aren’t the most exciting potential use cases for non-fungible tokens. As we are still in the very early stages of NFT and even blockchain technology, the true potential is still being discovered.
NFTs can be used to represent physical objects, digital assets, intellectual property, interactive experiences, and any other kind of asset or documentation. Non-fungible tokens are being used to ensure the authenticity of physical products, represent deeds in real estate transactions, and even store an individual’s medical records.
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As NFTs evolve, it’s important to consider their past growth to understand where they could head next and how your company can best utilize them. The first use cases were simple static images. NFTs have since moved to multimedia assets and are now creating more utility and opportunities for holders. Expect NFTs to continue to evolve to become more interactive and create new ways for holders to yield benefits or tokens.
As your company looks at the different ways to leverage NFTs, here are a few potential applications NFTs have and the ways they could benefit your business and your customers.
Utility NFTs (also known as uNFTs or NFT 2.0) provide the holder with access to perks and opportunities, exclusive products or drops, and other utilities and value attached to the NFT. They are a great way to offer secondary fan engagement and create intrinsic value for NFTs beyond its collectibility.
In fact, utility NFTs often have little collectible value because you can mint an endless amount of them. However, you can also combine this strategy with a limited drop to make the utility provided by the NFT more exclusive.
Autograph is one example of an NFT which provides a marketplace for digital collectibles that also provide utility access to exclusive content and experiences. Each NFT on Autograph is produced by a sports or entertainment icon and provides the holder access to exclusive content, events, or communities.
Provide access to experiences, events, gated content, or fan communities.
They can be used for things like fantasy sports, gambling, or blockchain gaming to provide in-game ownership over digital assets which support the game. For example, owning an NFT of a specific player would allow the holder to add that player to their fantasy lineup.
Generally, unlock access to specific fan communities or provide utility to engage with that community. An engagement NFT might provide access to a Discord server or give the holder a special GIF or profile picture to use as part of the community.
The ways your brand could create utility and secondary user engagement with NFTs are endless. Look for ways you can provide your customers and fans with limited experiences, early access to products, or membership to exclusive events or communities.
With art and collectibles, the NFT can really only be held. It offers little other engagement or practicality for the holder, which does little to improve your brand experience or increase your fan engagement.
Another practical use case for NFTs comes from the decentralized finance (DeFi) world. DeFi yield farming is when crypto owners stake their tokens to liquidity providers and receive interest or yields on their investments.
With NFT staking, holders can lock their NFTs in a digital wallet in order to yield tokens, rewards, or other benefits. The ability for NFT owners to monetize their NFT collections and earn passive income creates a new investment opportunity beyond just buy and hold.
NFTs as staking assets have taken off in the blockchain gaming space already. Games like Axie Infinity allow players to buy NFTs as digital, in-game assets. The “Axies” are similar to Pokemon or other monster-battling games. Axie owners can stake their NFT to earn $AXS, the game’s unique ERC 20 governance token, which can be used as currency in their NFT marketplace. The Axie Infinity NFT marketplace has traded $3.6 billion to date and the most expensive Axie NFT sold on the marketplace for $820,000.
Providing the option for NFT staking in this way allows for the community to engage with each other’s NFTs without the owner having to sell or lose ownership of their collection. This provides a secondary market to increase the value of your NFTs without simply relying on buying and selling. Staking NFTs to yield tokens that you create also increases the value and utility of your token.
Another carryover from DeFi are liquidity pools. Fungible liquidity pools are a collection of cryptocurrency assets or tokens locked in a smart contract which creates asset liquidity for the users to use in exchanges, loans, and other transactions.
Non-fungible liquidity pools are similar in that they are a collection of assets locked in a smart contract. However, because it is a collection of NFTs, each is unique and the specific NFTs a user holds establishes their position in the liquidity pool. This also allows users to sell their NFT and liquidate their position in the pool quickly.
The most well-known example is Uniswap, the automated market maker. They issue ERC-721 tokens known as LP-NFT which details the holders share of the liquidity pool. Unlike fungible liquidity pools, the NFT can include other information unique to the holders position, including the NFT deposited and their fee parameters. This allows NFT liquidity pools to offer more options to holders than traditional, fungible liquidity pools.
Whether or not your business fits the model for NFTs as collectibles, there are still countless ways this technology can benefit your business. As NFTs are still in the early stages of adoption, you have the opportunity to differentiate yourself in your industry and create unique experiences for your customers. Consider the above practical business use cases for NFTs as you look into how NFTs can fit into your strategy.