While interesting non-fungible tokens may be new technology, one of their superpowers in the crypto space is that they are not considered securities for regulatory purposes. This frees markets like OpenC from the burden of becoming a registered broker-dealer, among other barriers. This missing barrier is definitely the backbone of the current NFT frenzy.
But there is a strong attraction in financialization, especially in crypto. I have already written about NFTs that are transforming themselves into design-level securities by incorporating things like dividends and governance rights.
At the same time, their basic code, which is no different from the structure of cryptocurrency tokens, makes it easier to integrate NFTs into more complex financial products. The most expensive NFTs are already being "fractionalized" or are being split into cheaper parts to sell to investors, a process overseen by the Securities and Exchange Commission.
They can theoretically be used as collateral for [decentralized finance](decentralized finance) loans or other instruments, but there is a technical problem. Like a regular loan, you have to know the solid price to use as a loan guarantee for NFT, but right now the NFT market is very volatile. More fundamentally, how do you value something truly unique, digital or otherwise?
"If you have the same asset market, it's very difficult to create transparency and discovery in this type of price," says Philipp Piper, co-founder of Swaram Markets, a German regulated D-Fi protocol that focuses on cryptocurrencies as well as tokenized equity. ۔ "
This problem is more solvable for large seriesNFTs, such as CryptoPunks (I wrote earlier about other market benefits of series NFTs). Out of a series of thousands, Piper suggests that a few hooligans (or lions or monkeys) could be used as a price oracle for the rest of the assets.
"You can make an NFT basket from an ETH pair in a liquidity pool," explains Piper. "Then you have an aggregate basket that has market value, and you're opening up the whole issue of price discovery."
Of course, cryptocurrencies are a good example of a challenge to this idea - sometimes a series has a widespread between low and high prices. Pinx has recently sold at prices ranging from less than K 100Ks to several million.
Piper says this means that some balancing, perhaps algorithmic, may be necessary for the NFT Oracle Pool. "Maybe something will change and the price of one of these hooligans will be 10x. Then you have to take it out to get 10x value. Then it would be unfair to put the price of another 999 at this average.
This is not much different from the way index funds and other traditional financial products are managed, and Swaram says he is working on the issue.