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Ever since Bitcoin’s Big Bang in 2009, the crypto-space has seen a great expansion which doesn’t seem to be losing its momentum. In this article, we will be exploring some of the ever-expanding possibilities that can be achieved with NFTs.
Have you ever been priced out of an NFT you would liked to have owned?
Most people can’t afford to buy expensive works such as a Bored Ape, but the possibilities offered by fractionalisation can make future artwork much more accessible to all. Not only will fractionalisation of artwork broaden ownership, but will also allow collectors to diversify their portfolios.
A fractional NFT is a whole NFT that has been divided into smaller pieces, allowing more people to own a piece of the same NFT to put it simply. The NFT is fractionalized using a smart contract that generates a set number of tokens linked to the original NFT. These fractional tokens grant each holder a percentage of ownership and these fractions can be traded or exchanged on secondary markets.
The ERC-721 & ERC-1155 standards can generate unique non-fungible tokens, the ERC-20 standard is used to mint altcoins and other fungible tokens. Fungible tokens are interchangeable, meaning that each unit has the same utility and intrinsic value. As such, you can deploy a smart contract to generate multiple ERC-20 tokens linked to an indivisible ERC-721 NFT. Anyone who holds any of the ERC-20 tokens generated will own a percentage of the linked NFT.
It’s also possible to reverse the fractionalization process and return a fractional NFT back into a whole NFT. By encoding a clause into the smart contract that fractionalizes the NFT, a buyout option can be included that allows a collector to acquire all or a percentage of the fractions, which will unlock the original NFT. This is a method that will be applied to the Right Arm of Supaku where acquiring 10% of the fractions will allow you to claim the 1/1 Phygital artwork.
It’s also possible to merge multiple fractions acquired by a collector on the secondary market. The merging of fractions will result in a larger proportion of the overall artwork. These types of features begin to lead us into dynamic functionality of NFT’s.
The vast majority of current NFT’s are static in nature, but it’s also possible for them to evolve. This is made possible by encoding automatic changes within the NFT smart contract which can alter the metadata of the NFT. The metadata resembles an NFTs DNA, carrying genetic instructions for the development, functioning and evolution of the NFT. These instructions could be proactive in the sense that they are predetermined to evolve after a certain period of time, or reactive to an external event.
Dynamic elements can also be triggered by the environment, such as visiting a particular location in a virtual reality world, where doing so would mint or alter an NFT. Another dynamic application would be to trigger alterations based on your geolocation, such as visiting a gallery or landmark. Encapsulating these dynamic functions into an augmented reality game would certainly add an element of fun.
Dynamic NFTs offer an infinite amount of possibilities for creators to run wild with ideas for applications and ecosystems.
NFTs DeFi and Collateral
In traditional markets, the acquisition of fine art is not just a buy & hold strategy. There is an acceptance of art assets as loan collateral, which makes such purchases much more desirable. The costs associated with a bank loan can be much lower than the tax expenses associated with the sale of art. The unlocked capital can be used to grow your capital further while retaining exposure to increasing values of fine art.
NFTs can also represent the monetisation of digital products and services via tokenisation, while also fulfilling the function of proof of ownership. This creates the potential for unlocking value for digital art, whose value would typically lay dormant until it is placed for sale on the market. If lenders can evaluate the value of an NFT by considering factors such as provenance, floor price, historical data and projections, then collectors of digital art will also have the opportunity to unlock capital from their collection. With the added benefits of decentralisation and cheaper fees, it is an area of exploration that could quite easily become a mainstream element of DeFi.
Converting NFTs into fungible tokens
Fungible ERC-20 tokens benefit from the fact that they can be used more widely in areas such as decentralised finance. In their standard 721 form, NFTs do not have the ability to be utilised as freely as ERC-20 tokens. However, by converting NFTs into ERC-20 tokens, collectors can unlock value from their NFTs and utilise that value in liquidity provision, yield farming or used as collateral for decentralised loans.
By depositing ERC-721s into a vault, a corresponding amount of ERC-20 tokens can be minted whose value represents an equal claim on assets deposited into the vault. Value is determined by the floor price of a collection from which the deposited NFT came from. These ERC-20 tokens can then be used more diversely within DeFi protocols, enabling liquid markets for trading and making price NFT discovery much more scalable. Holders of these ERC-20 tokens can redeem them for an NFT within the vault, whose value matches that of the tokens being redeemed.
Spells uses the new EIP-5050 metaverse standard for decentralised game building, where the game world is the blockchain itself and anyone can build on top of it. It allows for NFT interactions and transmitting data between NFTs to alter states or force actions. It’s a relatively new proposal and you can see a good summary of it here: https://threadreaderapp.com/thread/1521305249717178368.html
Entropes is experimenting with the proposal by utilising it’s features to create turn-based generative art.
With the various methods in which NFTs can be created, disected and utilised, there should be no surprise in seeing these processes being utilised for the creation (or destruction) of conceptual artworks.
Pak is an anonymous artist who has been creating digital art and pushing boundaries with technological experimentation for over twenty years. Let’s take a look at some of the concepts employed in some of Pak’s collections.
Burn Art: Creation through destruction. Burning an ERC-721 in exchange for ERC-20 tokens. Future collections by the creator may only be purchasable with the token received from burning previous artworks. This leaves the collector deliberating whether to burn a valuable artwork in exchange for the possibility of acquiring a more valuable work in the future. The burning of previous works also creates scarcity within the prior collections. Read more here: Burn Art
Merge: Combining NFTs and transforming the appearance. Each NFT is considered ‘Mass’ and acquiring more mass dynamically alters the appearance of the artwork. Images are not hosted and are generated on-chain. With unlimited editions being available for purchase at initial release, it may seem like value might be questionable. But with a limited sale period and the Merging of tokens in recipients wallets, scarcity increases as the mass of merged tokens grow. https://www.niftygateway.com/collections/pakmerge
World’s Smallest NFT? When you attach ‘The World’s’ into a description, it always garners attention. Be it the world’s fastest or most beautiful, it’s going to pique interest. So who’s interested in The World’s Smallest NFT? A single black pixel, 1x1 and only 35 bytes which fetched 3.1 ETH at auction. Whilst it’s not conveying any meaningful message through it’s appearance, the concept does provoke thought into what it means to be first.
Is less more….? Apparently so. An artwork named ‘0x0’ created by shl0ms fetched 4 ETH at auction. It’s an empty file, 0x0 in size and no bytes. If some of you aren’t triggered by the above, then it’s not conceptual art. Many people were displeased with the art — or lack of — to which was followed up with more artworks. You can read more here: https://theindy.org/article/2388
The potential for both NFTs and ERC20 tokens have many untapped usecases. We hope our series on NFTs has given you a better understanding on the rapidly evolving space. With the launch of no code minting enabling non-technical users to mint, we’d love to see what you can create on FLRDrops.