When most people think of non-fungible tokens, they immediately look to digital artwork and sometimes music or videos. In this kind of instance, NFTs represent the original of something digital. Artwork can be replicated over and over, especially in the digital world. However, when someone owns the NFT of a particular piece of digital artwork, it means they own the original before it was copied a bunch of times.
Unfortunately, this explanation has stuck with many investors, which means they aren’t seeing the real opportunities presented by NFTs. They are about much more than a piece of digital artwork or music or even some kind of other asset purchased in a metaverse like the Sandbox.
The evolution of NFTs is already pushing beyond this boundary. In fact, you could interact with NFTs at some point because of their ever-increasing utility. According to 35-year asset management veteran Matteo Dante Perruccio of Wave Financial, an SEC-regulated digital asset manager, NFTs are evolving in three stages.
Launching Wave Financial’s NFT fund
Perruccio believes Wave Financial’s NFT fund was the first in the world, although there is now a handful of others. He pointed out that the NFT space is complicated in terms of adding value. The universe of people who have the knowledge required to invest in NFTs in a non-speculative nature is very small.
One of Wave’s co-founders, serial entrepreneur and crypto enthusiast Les Borsai, came from the music industry, so he had a unique perspective on the digital asset ecosystem. Perruccio says that he was one of the early adopters of NFTs, and he saw their initial value due to his affinity for art and music.
Wave Financial was able to build a team for its NFT fund from his connections. Also among Wave’s team are Circle Hackathon winner Aric Chan and John Caldwell, described by Perruccio as “one of the world’s most experienced people in NFTs and NFT trading”. He adds that their ability to put together a team of NFT experts for their fund was “pretty serendipitous.”
“We’ve always had this thing of merging the traditional risk management ethos with digital asset management,” Perruccio says in an interview. “We never thought about getting into it haphazardly. We bring this community-based artisanal investment opportunity to traditional and non-traditional investors in the fund structure that’s more familiar to traditional investors.”
NFT evolution similar to the evolution of the internet
Perruccio compares the evolution of NFTs to that of the internet, in that it’s evolving rapidly with new use cases appearing. He noted that we’re all using the internet and transacting over it now, whether we like it or not. In the early days of Internet 1.0, many people said they weren’t going to use it to transact and interact, but it turned out to be here to stay.
He also explained that you have to understand where the evolution of this asset class is going before you can invest intelligently in the space. Otherwise, you’re just speculating. While NFTs have many different uses, the press is currently focused on the use case for music and art. Matteo notes that NFTs got a lot of press around allowing for the ownership of digital data like songs and art.
However, Perruccio adds that NFTs are a lot more than digital ownership of art and music. He highlighted financial uses like for mortgages, use cases in insurance, and derivatives. NFTs offer a transactional record of ownership. NFTs also have use cases in e-gaming and the metaverse, which he described as the “play-to-earn world as opposed to the old pay-to-play model.”
“People don’t pay to play the game,” Perruccio explains. “Some play and earn tokens that are NFTs that allow them to purchase in the ecosystem and reward themselves and acquire things in the metaverse.”
Three stages of evolution in NFTs
Perruccio classifies these use cases into three steps of evolution for NFTs.
“To give people a broad understanding of what the universe comprises of, the 1.0 is what I refer to as the collectible. Artists and all that,” he explained. “The 2.0 is the metaverse. How do NFTs interact with the explosion of the metaverse as it evolves? And lastly, the 3.0, which is DeFi, is using NFTs as a financial instrument i.e., collateral.”
The third stage of evolution is cutting-edge. Owners can use NFTs as collateral or stake them to create yield. He also said investors can put their NFTs into a liquidity pool, and then people will trade them back and forth. All three stages of evolution show that the opportunities in NFTs go far beyond what a lot of people think and visualize about them.
“Really, what it’s all about, it’s the unique ability NFTs provide to create a blockchain-based record of nonfungible assets,” he explained. “The next stage is how these can be explored and used in the fast-growing metaverse, and that’s a conversation for weeks and months.”
Matteo notes also mentions something he saw on TV about the metaverse and using AI technology and avatars on Netflix to make the actors speak different languages. He adds that there are numerous possibilities for using NFTs, especially when factoring in the financial applications through decentralized finance.
Why invest in NFTs
Matteo states that when he first considered investing in NFTs, he was using the “old person’s argument.”
“I thought, ‘Who cares if I own this digital piece of art? What am I going to do with it?’ But … a lot of people own art and want to show it to other people and enjoy the accolades of showing it off,” he explains “A thousand people in a year might see your Picasso, and everybody knows it’s a Picasso. Now there’s a new generation and community of investors. They know how valuable their NFT is.”
He said NFT owners who understand the value of their investment know how to use it. For example, they can use it as their avatar on their digital identity. People who know about NFTs can see an avatar and will know it’s worth $250,000 to $500,000.
Understanding the utility of the metaverse and NFTs
To help others understand the utility of NFTs as avatars, Perruccio highlights an interesting way South Korea is using the metaverse and allowing people to use their NFT-based avatars. The nation is creating a metaverse version of Seoul in which South Koreans can do all kinds of business and transactions with the government without having to physically go into the city.
Using the avatar they acquired as an NFT, they can go to the metaverse version of Seoul with their records and pay their taxes or speeding tickets. They can file for divorce, go to the courthouse, and do almost anything else they need to do in the city without physically going there.
The metaverse version of Seoul saves the South Korean government money on overhead costs and saves people time by keeping them from physically having to go to the courthouse. Perruccio says that this use of the metaverse and avatars helped him understand the various utilities of these technologies.
How Wave Financial invests in NFTs
Wave Financial invests 70% of its NFT portfolios in collectibles like digital art and avatars with a focus on utility. It invests the other 30% of its NFT fund in infrastructure like blockchains, protocols, platforms and other metaverse and NFT projects that advance the metaverse and NFT ecosystem.
The fund invests in NFTs that play various roles in a variety of ecosystems being built in the metaverse. Wave’s NFT fund also focuses on DeFi and other financial use cases.
Michelle Jones contributed to this report.