NFTs finally made the headlines of mainstream media in 2021. I thought this would come much earlier (see prediction 5 for 2019) — but finally we are there. Everybody talks about them. Some invest. Yet, most people still don’t understand the significance of this innovation.
Currently, many interesting things evolve in parallel. That’s why I thought it was about time to re-start writing about my recent adventures and insights. Let’s dig a bit deeper into “NFT land”.
Where we come from
NFTs are technically very simple. The ERC721 NFT standard defines 12 simple functions. One could imagine that you can’t do too much interesting stuff with them. And that’s exactly what happened in the first years. NFTs where quite simple and mostly defined by their media content and several properties that usually define their “rarity”. Most artists mainly focused on these basic aspects. Yet — we know from other technologies (like e.g. the Linux operating system) that the most simple building blocks usually have the biggest leverage — when combined in a creative manner.
The simpler — the better!
The latest advancements in “NFT land” are looking very promising in that regard. NFTs are gradually evolving with interesting characteristics that most experts didn’t see coming. NFTs brought a lot of non-crypto people into this world — creativity is now thriving in an unprecedented way since many artists entered the space, joined forces with the crypto-native folks and brought new ideas and perspectives into the cryptoverse.
DeFi & NFTs
The combination of DeFi and NFTs is extremely interesting terrain. Early on, many crypto-enthusiasts invested some of their freshly harvested wealth into early NFTs like cryptokitties. This happened again after “DeFi summer” 2020. Each crypto bull cycle seems to trigger a push for NFTs.
We currently see several NFT-DeFi cross-over uses cases like e.g. using valuable NFTs as collateral in new lending platforms like NFTfi. It works like this: Many NFT owners don’t intend to sell their NFTs — they rather speculate on rising prices and prefer to use their NFTs as collateral and borrow crypto to extend their collections. Lenders in these markets on the other hand get interesting incentives (sometimes 40% APY or more). And their intention is not necessarily making money. They rather speculate for the borrower’s default so they can get ownership of that precious NFT that was used as collateral. Sounds crazy? You bet it is and might want to listen to this interesting podcast from The Defiant with NFTfi’s founder Stephen Young to get more background.
We can now also fractionalize our NFTs (into other fungible ERC20 tokens) with platforms like Niftex or Fractional. You might ask: Why would we do that? Well — we might be a collectors community that joins forces to buy an expensive Cryptopunk and want to spread fractions of our NFT to the most active community users. Sounds interesting? You might want to have a look at PleasrDAO or PartyDAO to learn about their motivation. Or we might just want to create a dedicated market for these NFT shares on Uniswap. By the way — this can also be done with collections of NFTs like R64X is proving on Niftex.
Collective ownership for NFTs is available. Still — this is somewhat static: The NFT is the NFT — with its original attributes.
There are very interesting projects that create “phygital” NFT experiences: Combining physical goods with digital NFTs to create augmented reality experiences — e.g via NFC tags in physical art which get linked back to the NFT’s attributes like its id. Networks like Lukso even build dedicated (Ethereum-compatible) blockchains against these use cases — partnering with brands like Nike and Channel.
The metaverse & virtual fashion
Which brings us to the metaverse, where brands start to sell their fashion as virtual clothes and accessories — again via NFTs. Take a dive into platforms like Decentraland, Cryptovoxels, The Sandbox or SomniumSpace to get a feeling where this is heading. All kinds of digital art gets fused with gaming and financial incentives — with a decentralized, permissionless ethos.
This is all very exciting. Yet, most of these NFTs still are designed “self-contained”. Usually one address owns an NFT with all its attributes and components— which seems a bit limiting.
Recently, projects found interesting new ways to create dynamics and evolutionary aspects for NFTs.
I’d like to introduce two of them:
You can now “charge” your NFT with other tokens like e.g. social or governance tokens — in fact any ERC20 token works. The NFT becomes kind of a wallet in itself and gradually grows in value when its content appreciates in value. Charged Particles enables such a feature. And the team went one step further and partnered with DeFi champion Aave. When we put stablecoins like $DAI into our NFT, these $DAI get automatically wrapped into $aDAI — Aave’s interest-bearing version of $DAI. We now have kind of a savings account inside our NFT which we might use instead of a traditional savings account for our kids.
Finally, we can charge NFTs with other NFTs. And yes — this concept is completely composable. We can do this several times and create “russian doll NFTs” — which Charged Particle’s community recently did in their “Pass the Particle”. The team even thinks about yield farming options inside of NFTs.
DeFi lego blocks meet NFT lego blocks.
One nice aspect is that not only the NFT owners themselves can “energize” their NFTs with their own assets — anyone can add cryptocurrency or NFTs. Imagine charities hosting certain campaigns and use such composable NFTs as flexible target for donations.
But if you step back, then there is more at play: These composable NFTs are no longer simple and static. They might get created with simple attributes, but then they get charged with value over time.
They suddenly “come to life” and can evolve.
You wonder how this works? Well, our NFT owns a dedicated smart contract which in turn owns everything we embed inside our NFT. So basically, we can do everything with our NFT’s content what can be done with smart contracts (locking, yield farming, etc.) — it’s just a question of time when more crazy features are implemented in a user friendly manner on https://charged.fi.
If you will, the team from Charged Particles has found an elegant way to enrich and evolve NFTs with dynamics from the inside. Very cool.
Since about two weeks we know that you can also do the opposite:
Extend NFTs with logic from the outside — with some truely revolutionary effects.
Say hello to Andre Cronje’s Rarity!
Rarity was launched just a week after Loot project which had a similar yet different “NFT first approach” to build a blockchain based game bottom-up.
Loot NFTs were limited and minted away very fast, trading at extreme prices on the secondary market on OpenSea. Andre seems to have had very similar ideas in his head and came up with a much more inclusive approach — and unlimited NFT supply.
It goes like this: Anyone could (and still can) join in and “summon” several “adventurers” in Rarity. All we have to do is mint an NFT of a certain adventurer type/class. This minting is for free. We just need to pay the gas fee — which is quite low since the game runs on Fantom — an Ethereum compatible Blockchain with low transaction cost — a very important requirement for games like this one (and similar characteristics to Polygon which you might know).
The clue: The game didn’t have a user interface at launch time. Users had to go to Fantom’s block explorer FTMScan and interact directly with Andre’s smart contract, which you can find here. That’s exactly what I did — because I was curious — like many others who minted 100k(!) adventurers in just a few hours after the game’s announcement!
If you do this the first time — it might feel a bit frightening. That’s why I took some screenshots and wrote some instructions for the very first steps on Twitter. I can only recommend to try that out.
You’ll learn more about blockchains, smart contracts and NFTs than by reading 20 articles.
But back to the conceptual level: What makes Rarity and its NFTs so special? Well, Rarity adventurer NFTs are dead simple. They just have a sequential id and 3 properties: its class, its level and its current xp (experience). You can raise your NFT’s xp once a day by “going on adventure” (calling the smart contract function “adventure” with your id).
Once you have reached a certain amount of xp, you can “level up” to the next level. That’s it.
But: How on earth should someone create a game on top of this minimal NFT?
And here comes the truly fascinating part! Andre released several additional smart contracts in the following days — extending the game idea and features incrementally. These features all come in their own smart contract and reference back to the adventurer NFT. Andre added smart contracts for attributes, skills and feats — and explained his “composable NFT architecture”.
The community got crazy. People started to create user interfaces for Rarity like Rarity Game, Rarity Visualizer or Rarity Extended. These UIs also help to automate the tedious daily calls for adventuring. Others bought into Andre’s concept and wrote their own smart contracts to extend the game — you suddenly could buy a name for your adventurer — but only if your NFT was on level 2 and in exchange for some of its gold — the freshly born in-game currency. Rarity’s decentralized game ecosystem is already broad — after just two weeks. If you want to go deeper, you might want to start here.
Andre’s plan to create an extensible game around extensible NFTs with the help of a thriving community simply worked out fantastically.
We now have a completely new approach how to engage with a community — and create evolutionary NFTs.
I hope I didn’t get too carried away with this. But I think we currently witness the invention of a completely new class of digital product ecosystems — built around token standards like ERC20 and ERC721 and smart contracts.
This is all just the beginning. It starts with gaming — but imagine what these building blocks and concepts will do for B2B scenarios — when businesses start to understand the potential of these concepts for “serious business”.
Potential use cases are endless, open, permissionless. These are the technical ingredients from web3 that small to medium companies need to create new decentralized and inclusive ecosystems which can compete with “big tech” as we know it from web2. I am totally keen to further explore this brave new world of token based economies.
Finally — say “Hi” to my “Wizard of Ozzy” — a true rarity!
Disclaimer: This article is not intended to be an investment advice of any sort. Do your own research and search for professional support if you intend to invest in one of the projects mentioned in this article.
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