To NFT or not to NFT Part Two – Buying and Selling
- NFTs can be owned in full, as parts or indirectly via funds.
- Most marketplaces use Ethereum, but gas fees can be substantial.
- Non fungible tokens might be much more than pretty pictures.
- Choose the right option depending on what your budget and time allow.
The Art and Science of Buying NFTs
This article builds on part one, which focuses on researching and building an investment thesis. Part one can be found here.
Assuming you have focused on a particular brand of NFT to purchase and have set reasonable entry and exit criteria, this piece of research can show you different ways of owning NFTs as well as marketplaces and their pros and cons.
There are three principal methods of ownership: - Direct ownership through auctions or sales in marketplaces - Fractional ownership through special marketplaces or joint bids - Indirect ownership through NFT funds and De-Fi
Marketplaces for Non Fungible Tokens
Buying artwork for a fixed price or at an auction on an NFT marketplace is the route to full and direct ownership. The biggest marketplace, by far, is opensea. With more than $3bn worth of trading volume per month, it has become the most important site for ‘flipping jpegs’.
Another great place for NFT art is Rarible. Both OpenSea and Rarible allow everyone to mint NFTs on their platform. As a result, artists swamped these platforms with their works - good, bad, and dirty alike.
Foundation chose a curated approach, and artists need invites to take part. The site promotes individual artists on their homepage and is more like a gallery.
All the marketplaces mentioned above use the Ethereum blockchain. ETH is the ‘luxury chain’ of NFTs. Most blue-chip projects mint there, and the gas fees, that are due as an integral part of any transaction, can be staggering. Cheap NFTs have sometimes sold for less than the transaction’s gas cost - an absurd situation.
A screenshot from blockchain game Axie Infinity shows withdrawal of Ethereum from Axie’s smart contracts can cost as much as $694. Even during off-peak times, prices are routinely more than $60. High gas fees were the main reason OpenSea spun up a Polygon version recently.
But other chains have pretty NFTs too. Hicetnunc is the cool, edgy place for art and runs on the Tezos (XTZ) blockchain, while Singular uses Kusama (KSM). Hicetnunc and Singular offer transaction fees in the sub-cent to cent range. A small disadvantage here is that Kusama and Tezos use different wallets than their Ethereum counterparts.
Especially on OpenSea, many NFTs are past their mint and available for resale via auctions. These work just like shopping on EBay. An auction runs for a set period and in the end, the highest bid wins.
Audius is the place to go for music lovers. A marketplace for audio-only NFTs, the platform recently struck a deal with video-discovery giant TikTok. Audius artists can share their music on the social network with a single click. Audius' own token $AUDIO surged to more than $1bn market cap as a result of the news.
Enjin marketplace is the go-to for in-game items and game-related NFTs. Enjin also runs on its own blockchain.
While this list is far from complete, this research would be lacking without mentioning NBA Topshot's peer-to-peer marketplace for basketball collectibles. The market experienced meteoric growth upon its debut and has since fostered more than $633m in total transaction volume.
Fractions and Joint Buying
In case you want to participate in a ‘blue-chip’ NFT project like CryptoPunks or BoredApeYachtClub but are afraid to pay more than $100k for a JPG, there is the possibility of buying partial ownership.
This article has detailed information about buying small parts of NFTs called fractions or shards on specialised marketplaces like Fractional or Unicly. Purchase Fractions for less than $100 and you get to own a small piece of a historic digital artwork.
If you are willing to invest a bit more, there is PartyBid. Here, a party of bidders bids on an auction for an NFT together. Some parties have even gathered enough to buy a CryptoPunks in that way. The NFT is then owned by a smart contract that governs shares and requires all parties to sign off on any transactions involving the collateral. All is done strictly programmatically without needing any central authorities.
PartyBid just launched on 4 August 2021, so there is little experience in how parties function further down the road. It is safe to say that choosing your co-bidders carefully is key here.
If researching NFTs seems like too much work and you want someone else to handle these chores, a few NFT funds are taking shape.
NFTX allows tracking the index of a project. For instance, this could be an index of all CryptoPunks or all Meebits.
Justin Sun, founder of Tron, and big-time NFT fan, announced a fund called Just NFT Fund in March 2021. Sun owns Beeple’s highly published piece 'Ocean Front' and made it the flagship piece for the fund. Of course, the Just NFT Fund uses the Tron blockchain.
Investment firm Wave Financial is issuing an NFT fund for its investors. Wave will do all the scouting, buying and selling while investors will simply bring in dollars to participate.
NFT trader ‘Vincent Van Dough’ just launched a NFT fund called ‘Starry Night Capital’ and aims to raise $100m.
De-Fi and NFTs
Crypto would not be what it is today without the De-Fi. Unic.ly was the first platform to allow NFT holders to fractionalize their treasures and sell, lend, combine, and provide liquidity with the result. TVL on the platform is $53m and has plateaued in the last months.
Other marketplaces of shards seem to have more success and we will probably see lending markets for fractions of NFTs on blue-chip De-Fi soon.
Tokenization of Everything
RMRK founder Bruno Skvorc expressed an interesting perspective on NFTs recently:
Thread. To outsiders and non-NFTers, this #NFT mania might feel toppy. Football players and actors shilling #NFTs has to be a sign of the end times, right?— Bruno Skvorc (@bitfalls) August 6, 2021
But when you consider that an NFT is "any data", the world becomes much more interesting. pic.twitter.com/V6Nxq5YdVC
In its purest abstraction, an NFT simply links a unique dataset to an owner. This dataset can be a JPG or video as with most art NFTs today, but it could be anything. A utility bill that allows the recording of successful payment. A title to a few hours of car-sharing. Literally, any data can be linked to an owner.
There has been a lot of talk about the ‘tokenization of everything’, and not a few purpose-made blockchains. But it’s much more likely that any future tokenization will use the established standards and best practices that NFTs on major blockchains offer.
Since a lot of this tokenization has legal ramifications, we will have to wait for the appropriate legislation before any of that can actually happen. The current moment seems to be a good time to familiarize yourself with the intricacies of the technology by buying and selling, or lending, heart-warming images or beautiful art.
Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.