The NFT market is bizarre, brilliant, or both, depending on who you ask. One thing is for sure, the $10.7 billion in trading volume during Q3 is enough loot to make ignoring NFTs futile. NFTs are, like many things today, a polarizing subject. But now, NFT pessimists can put their money where their Tweet is and short that CryptoPunk they loathe so much.
It was not so long ago that NFT collectors could only buy, hold, and sell an NFT. Those were simpler times. Today, thanks partly to oracles, permissionless protocols, fractionalized NFTs, and the creativity of the commons, traders can short, go long, and use leverage via perpetual contracts.
Perpetuals are crypto-native derivative contracts similar to futures with no expiration date or settlement, allowing them to be held or traded for an indefinite amount of time. Essentially, this enables traders to get some skin in the game and lay financial claim to what they feel the true underlying value of a particular NFT is — all without owning it.
The Future is Here and It’s Fractionalized
Take the OG NFT, CryptoPunks, for example:
Think that #7610 CryptoPunk JPEG Visa purchased for $150,000 is worth less, or maybe even totally worthless? Great, you can now short it and potentially profit from your speculation while besting the adversary you have that ongoing Twitter beef with. Think that CryptoPunk #7523, also known as Covid Alien, sold by Sotheby’s auction house for $11.8 million, is worth more because it’s part of the highly sought-after alien variety of CryptoPunks? Fantastic, go long. Prove those nonbelievers who are NGMI wrong and take their money in the process.
Traders can even use leverage on lesser-known NFT projects, betting on its upward trend to realize the potential moonshot profits before (and, of course, IF) it reaches the moon.
Betting Beyond CryptoPunks
At its core, this development is significant because it creates a healthier NFT market where participants can place bets on both sides. Not only does this add value to fractionalizing NFTs via passive fee generation, but it also improves price discovery and the integrity of the underlying NFT market.
Because open and permissionless protocols enable exotic assets, traders will be able to go long and short with leverage on whatever NFT they want, voted in by governance contracts. This means that the potential is only limited by the creativity of the community. Additionally, this could prove to be a catalyst ushering in a new era for artists and NFT markets as a whole.
The intersection between Art and Finance is converging rapidly. Artists aren’t typically interested in things like, say, capital efficiency. They are interested in creating valuable NFT projects to continue doing the work they love. However, in the coming months, artists will have their a-ha moment when they realize the diverse revenue streams available to them.
In time, artists will be able to utilize turnkey tools to create a DAO for their NFT project, tap into a massively liquid market, fractionalize their NFTs, and lay a perpetual market on top of it, which they’ll make trade fees on.
In other words, anyone can go long or short on their project, with the artist receiving a cut from the trading activity. This reveals never-before-opened doors for NFT artists looking to fund their work and profession. The network effect of this is real. Traders are more willing to invest in NFTs the more liquid their trading market is, initiating a positive feedback loop that ultimately grows their community. The more layers there are, the more financial buoyancy and freedom the artist enjoys.
Cuy Sheffield, Visa’s Head of Crypto, nailed it when, commenting on Visa’s NFT program to support digital artists, he said: “New technologies emerging in the crypto ecosystem, like NFTs, have the potential to lower the barrier to entry for digital creators across the world to build their own small businesses.” More valid words have not been said, but artists don’t need Visa when they already have these tools at their fingertips.
As divisive as the debate might be, the ability to cast your vote with your wallet is a development that both sides can agree on is a game-changer. Who will prevail? Those who disdain NFTs and see them as a speculative crypto bubble ready to pop, akin to the ICO frenzy in 2017? Or those who believe these unique virtual assets revolutionize the emerging digital economy in more ways than we can imagine? Only the future will reveal who is on the right side of history.
Derek Alia is the CEO of Futureswap, a DeFi trading platform.