NFTs are the supernova of DeFi – does this spell disaster?

By September 7, 2021NFT
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NFT trading volumes are at an all time high. Over the past week trading volume of Bored Ape Yacht Club, the fifth most popular NFT collection in history, passed $131 million with growth of 69%. Total sales of CryptoPunks, one of the first NFTs created, are now more than $1 billion. The NFT’s trading volume exceeded $301.7 million over the past week, making it the highest among all NFTs over the same period.

A niche marked by speculation

Few digital asset niches attract as many speculators as NFTs, who believe increasing public interest in digital media, sports, and art collectibles will keep pushing prices up. NFTs are quite literally the supernova of the DeFi ecosystem. They are the most popular product on the Ethereum network. OpenSea, the world’s biggest peer-to-peer NFT marketplace, reached a trading volume of $1.58 billion over the past week, up 72.88%. Daily trading volume on the marketplace, which accounts for one-fifth of all transactions on the blockchain, peaked at $302.6 million on August 29.

The potential of NFTs – and the risks

Those wondering whether to invest in NFTs must consider the vast potential of this asset class. By encoding media, sports, and art works to an NFT, the artwork becomes a unique copy for the purposes of ownership and authenticity, at least in theory. Caroline Bowler, CEO of Australian cryptocurrency exchange BTC Markets, says:

“It opens up a new frontier and knocks down another wall in the use case of Blockchain technology in what we consider the real world. Previously there was an absence of that proof of ownership, and NFTs create a format in which artists and others can prove that this is their work and that they own it. We all have digital content like your Facebook page or a tweet that we have a perception of ownership of, but one of the key facets of ownership is the ability to sell it.”

Getting past the hype

NFTs are hyped by celebrities and tens of millions are being spent on them, but it’s far from a proven market. Is this a bubble? Is spending so much on items that don’t physically exist warranted – some of which are far from impressive? Can someone “own” an image you can copy in seconds in the digital world?

Still, NFTs do have something in common with traditional art – subjective value. Their prices and transaction volumes may be growing exponentially, but it’s up to investors to figure out whether any piece they buy will have value moving forward.

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