Non-fungible tokens loom large in the picture of digital art sales boom

While digital art is having a moment after Beeple’s shocking $69 million sale of a piece backed by non-fungible tokens last month, copycats hoping to cash in might want to focus on the tokens themselves instead of the collectibles.

Since Everydays: the First 5,000 Days set its sales record, the prices of dozens of NFTs that track ownership and sales prices of digital art have surged. This has boosted the market almost 10-fold to $20 billion, according to crypto data tracker CoinMarketCap.com. That dwarfs even Bitcoin’s meteoric rise in the past few months. The surge is happening even as observers question whether NFTs, which are also used to control the number of copies in existence through unique identifiers, is the inevitable evolution of the collectibles market or the latest leg in a growing speculative bubble. Several apps and websites are now even offering NFT-backed loans.

“NFTs are a useful idea that will survive, but the current trading mania and extensions such as lending are likely to fade soon,” said Aaron Brown, a crypto investor.

That is not a scenario that coin investors are betting on.

Theta Token, used to validate transactions on the namesake corresponding network, has quadrupled this year to reach a market value of $10bn.

The project, focused on peerto-peer video streaming, plans to let entertainment companies issue NFTs. These can be “a piece of all-time classic characters or moments from their favourite shows and movies or a part of an upcoming blockbuster”.

The value of Chiliz, used to buy fan tokens that can be used for voting in polls of sports clubs such as FC Barcelona, has risen 23-fold year-to-date to $3bn. It recently announced plans to launch NFTs with professional sports teams, so users can buy these items with Chiliz coins.

Then there are tokens that offer a path to owning NFTs. Whale, which is backed by a wallet containing thousands of NFTs, lets users “rent” them from the collection, and to purchase exclusive digital swag or even NFTs from the pool.

That coin has doubled since mid-February, a boon for its creator and biggest holder, who goes by WhaleShark.

“People are looking for exposure to NFTs and investing in platform, specific-use NFT tokens as well as asset-based tokens is a way to get into the space without having to hold specific NFTs,” WhaleShark said. The problem is, coins such as Whale are highly illiquid. Its 24-hour-trading volume is about $1 million, despite a $214m market value.

Lenders are also beginning to issue loans backed by NFTs, which essentially let owners use them as collateral.

Stani Kulechov, chief executive of liquidity software provider Aave, expects that market will reach $50bn by the end of the year. Project NFTfi, around since last summer, has shepherded about $1.8m in loans, with collateral such as virtual cats from CryptoKitties and parcels of land in the virtual world of Decentraland.

“NFT collateralised loans bring additional liquidity to the notoriously illiquid NFT markets,” said Stephen Young, chief executive of NFTfi. “Our users have done everything from covering margin calls to paying the rent, while going through some tough financial times.”

Still, he noted, default rates range from 10 to 30 per cent – but then, lenders are not complaining with demand surging.