A new report published by Reflexivity Research highlights the rapid pace at which the financialization of non-fungible tokens (NFTs) is progressing. It urges more caution when dealing with the industry as it is still arguably young but very promising which makes it a target for scammers.
Insights and Caveats: The Growth of NFTs as financial products
Reflexivity Research’s report sheds light on the expansion of NFTs asfinancial instruments, offering valuable insights while refraining from providing investment advice. The report emphasizes the importance of considering specific considerations when exploring the financial potential of NFTs and highlights the pivotal role that market factors play in propelling the financialization of NFTs.
The burgeoningpopularity of NFTs as a lucrative avenue for artists to monetize their assets is accompanied by a notable surge in their complexity and intricacy, encompassing diverse interactions such as trading, lending, and borrowing. Nevertheless, the report also expresses apprehension regarding the potential reputational and environmental ramifications linked to the growing financialization of NFTs.
BLEND and Blur: Driving the financialization of NFTs
The report highlights the emergence ofBLEND, an NFT loan platform, as a significant factor in the financialization of NFTs. BLEND, an innovative platform that integrates the concepts of “borrowing” and “lending,” enables users to utilize their valuable blue-chip collections as collateral when seeking loans.
Furthermore, the report acknowledges the rapid ascent of Blur, an NFT marketplace that strives to deliver a top-tier user interface and seamless experience for spot trading, catering to institutional-grade standards.
Beyond expensive JPEGs: NFTs transforming traditional assets
Contrary to the prevailing notion of NFTs as mere extravagant JPEGs for profile pictures, the report illuminates their ability to introduce financial dynamics into traditionally non-financial or illiquid assets. This groundbreaking potential extends to realms such as artworks, real estate, private equity investments, and film and media rights. NFTs achieve this transformative feat by digitizing one-of-a-kind items and facilitating their seamless trade on a blockchain.
Anthony Georgiades, co-founder ofPastel Network, passionately underscores the revolutionary impact of NFTs within the art market. He emphasizes the urgent need for an innovative model of patronage that transcends the realm of NFT drops. This transformative approach aims to reshape various facets of the art world, encompassing artist selection, financial support, and the very process of art commissioning and creation. Georgiades further highlights the positive ripple effects of NFTs on well-established financial processes, including loan collateralization, insurance, and debt management.
Skepticism and challenges: Debating the role of NFTs
Despite the prevailing optimism surrounding NFTs as a vehicle for enhanced financial inclusivity, there are skeptics who cast doubt on their potential. Mark Lurie, CEO of Shipyard Software and a director of The Foundation forArt &Blockchain (FAB), expressed reservations concerning the transformative impact of NFTs within the art market. Lurie contended that achieving a genuine revolution would demand more than the mere adoption of NFT drops; it would necessitate fundamental changes in artist selection, financial backing, and the overarching process of art creation.
NFT Financialization: Opportunities, concerns, and the way forward
The Reflexivity Research report illustrates the swift progression of NFTs’ financialization, underscoring its continued advancement. While NFTs present novel prospects for artists to monetize their creations and possess the capacity to instigate transformative changes across multiple industries, apprehensions concerning environmental consequences and reputational concerns remain.
The escalating intricacy and interplay of NFTs serve as a testament to theirmounting importance within the financial domain. As the world wrestles with the implications brought forth by the financialization of NFTs, stakeholders face the task of navigating these developments while carefully considering the wider ramifications for both the art market and the financial sector.
NFTfi, a leading NFT lending platform, has announced the launch of Earn Season 1, the next phase of its loyalty program, NFTfi Rewards.
NFTfi launches Earn season 1: Fostering responsible NFT lending
The objective of the program is to encourage responsible lending in the expanding NFT market and cultivate a robust credit environment. During Earn Season 1, participants have the opportunity to accumulate exclusive reward points by engaging in borrower-friendly loans and displaying responsible lending behavior.
Stephen Young, the Co-Founder and CEO of NFTfi, expresses the platform’s conviction that NFT lending holds significant influence over the trajectory of the NFT space. In order to establish an environment that promotes responsible practices and avoids predatory lending,NFTfi has launched this loyalty program. Young underscores the significance of incentivizing responsible lending behaviors within the NFT ecosystem.
Incentivizing responsible behavior
The calculation principles of Earn Points are designed to incentivize responsible conduct among lenders and borrowers. Points are exclusively earned through repaid loans, which encourages lenders to mitigate default risks by utilizing conservative loan-to-value ratios (LTVs) while discouraging borrowers from acquiring excessive debt. Additionally, higher points are awarded for larger and longer loans, granting borrowers greater flexibility in terms of loan sizes and durations. Loans with lower interest rates (APR) are also prioritized, motivating lenders to provide borrower-friendly rates and risk-appropriate LTVs.
Earning, securing, and winning: The journey of earn points in NFTfi
By fulfilling the obligation of repaying qualifying loans, participants accrue Earn Points. Initially, these points are classified as “unsecured points” and can be accessed in the NFTfi Rewards cockpit for review. Once the loan has been fully repaid, these points undergo a transformation, becoming “secured points.” Both unsecured and secured Earn Points are showcased on the NFTfi Leaderboard, which provides visibility to users. As Season 1 draws to a close, the 500 wallets that have accumulated the highest number of secured points will be granted a multiplier of 2.5x, boosting their final balance.
NFTfi: empowering NFT holders with decentralized lending
NFTfi.com is a highly successful decentralized lending platform that operates on the Ethereum blockchain, fostering peer-to-peer transactions. This platform empowers NFT holders to borrow ETH, USDC, and DAI cryptocurrency, leveraging their non-fungible tokens as collateral. The utilization of smart contracts ensures secure and transparent interactions directly between borrowers and lenders. NFTfi provides NFT holders with the means to unlock the value of their assets, accessing liquidity, while enabling lenders to earn interest on their funds. Since its establishment in May 2020, users have engaged in transactions exceeding $400 million on the NFTfi smart contracts.
According to a report by MarketsandMarkets, the global NFT lending market is undergoing rapid expansion and is projected to reach a valuation of $13.6 billion USD by 2027. NFT lending offers notable advantages, including the provision of liquidity to NFT holders who can employ their assets as collateral for loans. Moreover, it addresses crucial concerns such as the limited availability of traditional financing options for NFT holders and the necessity for a robust credit market within the realm of NFTs.
Proceed with caution: Assessing the risks in NFT lending
NFTfi is dedicated to recognizing and rewarding authentic users while actively discouraging wash loans through a range of measures. Loans characterized by APRs below 2% or durations shorter than 3 days, as well as associated wallets, are ineligible for earning points. It is important to emphasize that, although Earn Points are presently non-transferable and cannot be redeemed, they serve as an indication of the loyalty level exhibited by NFTfi users. Additionally, it should be noted that certain individuals, including US residents and those situated within the US, are not eligible to participate in the NFTfi Rewards loyalty program.
Nevertheless, users are strongly advised to exercise caution and diligently assess their risk tolerance and investment objectives before embarking on loans. It is crucial to recognize that investments in loans inherently carry risks, and the value of NFTs can be exceedingly volatile.
Bitcoin was created in the aftermath of the 2008 financial crisis and was meant to be a digital monetary system that is independent of centralized control. However, as the mining rewards are getting squeezed due to multiple halvings and most of the coins being mined new BTC ‘products’ like Ordinals NFTs and BRC-20. But what are the implications of the new ‘innovation’ on the network
Tick tock tick!
It’s May 7, Binance, the largest cryptocurrency exchange network, goes to Twitter to announce a halt of BTC withdrawals citing network congestion. Binance reinstates the withdrawals about 1.5 hours later.
A few hours later, Binance halts BTC withdrawals again, citing the same reason as before, network congestion. This is the first time that the largest crypto exchange halted withdrawals of the largest crypto asset. But why is this ‘impossible occurrence’ happening now?
Blameshifting began, with some even selling some FUD about the Binance exchange. However, the biggest share of this blame was against new technologies arising on Bitcoin. What new technologies?
The Dawn of Bitcoin Ordinals
Ordinals NFTs are a unique class of non-fungible tokens based on the BTC blockchain. Since its launch in early 2023, Ordinals NFTs have received massive hype within social networks.
Ordinals leverage a protocol that numbers Satoshis with unique serial numbers helping trace them amid transactions. The creator of Ordinals discovered that it’s possible to inscribe some data, including images, videos, and others, on Satoshis.
Simply put, Ordinals are NFTs based on the Bitcoin network. Ordinals reside fully on the blockchain and do not require a sidechain or separate token.
BRC-20: A New Token Standard
When you see BRC-20, what rings in your mind? You probably recall a popular Ethereum standard, ERC-20. But no, it’s BRC-20. What is BRC-20?
BRC-20 includes DeFi-like tokens on the Bitcoin network. Essentially, BRC-20 stands for ‘Bitcoin Request for Comment’ and introduces a new class of tokens inscribed on Bitcoin’s Satoshis.
Domo, an anon on-chain data specialist, first pioneered this system. The user claimed that the general idea of BRC-20 was derived from a Twitter conversation.
Satoshi Dream: Creating the Future of Finance
It’s impossible to 100% visualize what Satoshi thought when creating BTC. However, the whitepaper paints a slightly blur picture of BTC as the future of finance.
Ils impriment les €uros comme si c'étaient des billets de Monopoly 💶
Imprimons TOUS une version FR du Whitepaper #Bitcoin et remplissons TOUTES les boîtes à livre de toutes les villes de France 📃🇫🇷 pic.twitter.com/nQ2x3073ag
— Kaeru 🐸 Meme Crypto (@MemeCryptoFR) May 10, 2023
The practical applications of Bitcoin in the past indicate that Satoshi wanted a decentralized, peer-to-peer, and transparent yet anonymous payment system. At the heart of Bitcoin’s creation was empowering true value exchanges.
Satoshi invented the Bitcoin network with the ultimate aim goal of ensuring there is complete financial freedom. With this system, the rich and poor would have equal chances of storing funds and making payments.
However, Satoshi’s dream also included providing an efficient operating network. So, the real question is, how will new technologies like BRC-20 and Ordinals NFTs affect Satoshi’s original dream?
New sub-Technologies Killing Satoshis Dream?
The new technologies have created a risky scenario on the Bitcoin network leading some to speculate that doom is facing BTC. The risky scenarios are as below;
Overcrowding Issues Face the Future of Money
Satoshi’s money for the future has been suffering slow settlements. Bitcoin’s decentralized nature indicates that Satoshi wanted users to enjoy unfathomable speed. However, owing to possibly a slight miscalculation, BTC could only deal with seven transactions every second. The lightning network was later introduced to improvise BTC’s transaction processing mechanism.
The emergence of new technologies has been a source of congestion in Bitcoin. How? Owing to the rise of these technologies, there has been a massive increase in transactional activities in Bitcoin. The surge has caused congestion within the network.
As mentioned earlier, between May 7 and 8, 2023, Binance halted BTC withdrawals twice. This is because of congestion.
We've temporarily closed $BTC withdrawals as the #Bitcoin network is experiencing a congestion issue.
Our team is currently working on a fix until the network is stabilized and will reopen $BTC withdrawals as soon as possible.
Data from Mempool indicated that the number of unconfirmed transactions stood at over 454 thousand. This number ranged between 400k and 500k pending transactions at a time.
Mempool’s data showing Bitcoin’s unconfirmed transactions
The congestion in Bitcoin is mainly attributed to the new technologies, i.e., BRC-20 and Ordinals. Bitcoin receives thousands of transactions every minute based on Mempool data. Bitcoin maximalists have similar sentiments about the current source of BTC congestion.
Bitcoin Fees Jump Higher Than The Daily Wage of Over 4 Billion People
The new techs on Bitcoin have caused a fee surge on the network. Of course, Bitcoin fees have been troubling for years, especially in times of bull markets. The highest Bitcoin fee was reported in 2021 at over $60 when the coin’s value was over $60k.
It’s surprising that the recent fee upsurges are occurring amid a bear market— or is it really surprising? The recent flooding of transactions created a fee problem. Reports indicate that Bitcoin’s transaction fees surged to a 2-year high.
There have been reports of fee issues in countries like El Salvador, which use BTC as a legal tender. A crypto enthusiast posted a tweet noting how the Bitcoin fees affect the average user.
I’m in El Salvador 🇸🇻 right now. Just witnessed a cash withdrawal via #btc
This individual now had to pay $20 in fees for getting $100 out in a country where the avg. salary is $300-350
I want you to think about this when enabling gambling on fkn jpegs or meme coins.
In this tweet, Marce Romero mentioned that she witnessed a transaction where a user paid $20 in fee for a transaction of $100 BTC. The average monthly salary in El Salvador is $350. If someone has to pay $20 per $100 transaction, an average El Salvadoran uses 20% of their salary as a fee.
Another article on Ethereum fees indicates that the average daily wage for about 4.2 billion people globally is $21. If someone has to pay $20 per transaction on Bitcoin, they spend all their wages on transaction fees. Well, can anyone do that? Of course, No! So, where does this leave mainstream crypto adoption? It’s ultimately slowed.
Are Miners Extraordinarily Benefiting at the Users’ Expense?
As the fees surge, a small group of Bitcoin stakeholders becomes the biggest beneficiary. Who? Miners
Mining companies have been major beneficiaries of network congestion. The stocks of Bitcoin mining companies effectively surged in the days preceding and following the BTC fee surges. Hopes of higher fees drove all this. The mere fact that miners are now benefiting extremely at the expense of average users exposes the crisis in Bitcoin.
Note: The Bitcoin dream was to foster fairness and equality, not enrich some at the expense of others.
Harper from Luxor Technologies, a mining company, noted that the BRC-20 standard doubled their miner revenue. He also noted that the fee would eventually revert to their original averages. Based on Harper, investors should expect to see similar occurrences in the future when new mints and inscriptions use Bitcoin.
Another mining company spokesperson Nazar Kan of TeraWulf mentioned that BTC fees would slow down in the long term.
Executive Chairman of MicroStrategy, @saylor, on the impact of Ordinals on Bitcoin mining and the power of inscriptions.
“What happened with Ordinals and NFTs is we crossed this chasm from what was a bearish scenario to a bullish scenario. If I was a miner I would be ecstatic.” pic.twitter.com/UDIGN5C08I
The CEO of MicroStrategy, Michael Saylor, even publicly said, “If I was a miner I would be ecstatic.”
Another Bitcoin maximalist, Clark Moodie, highlighted that “high fees are good for Bitcoin.” However, many respondents claimed that high fees only benefit Bitcoin miners.
The positive: Developments create a Decentralized Economy
Despite having a dark side, the recent developments on Bitcoin have a lighter side too. The Bitcoin network can now be home to a new decentralized economy.
Now, Bitcoin is earning more use cases in NFT and DeFi. DeFi and NFT are what mainly constitute a decentralized economy in Ethereum. As we see the rise of DeFi-like tokens in Bitcoin, this is great for the future of this network.
Den Held, a Bitcoin enthusiast, recently tweeted that “Bitcoin DeFi is just getting started,” highlighting examples like Ordinals, DLCs and Lightning.
Bitcoin DeFi is just getting started:
– Ordinals (Bitcoin NFTs/other coins) – Lightning/Taro (other coins) – DLCs (Options on Bitcoin) – And many many more🔥
The growth of NFTs and DeFi tokens will dawn a world of opportunities within the Bitcoin network. Creators in the artistry industry can use Bitcoin’s technology and reputation to build trustworthy NFTs.
Another fascinating aspect of the new technologies in Bitcoin is the possibility of the emergence of layer two solutions. Several Bitcoin network enthusiasts lightly highlighted this.
Muneeb.btc, a Bitcoin network enthusiast, highlighted that recent events that triggered high fees could drive the creation of layer two solutions for the network.
High gas fees on Ethereum started an entire industry around L2s, rollups, and other scaling R&D. High gas fees on Bitcoin can do the same for improving Bitcoin infrastructure and L2s.
When Ethereum faced such a crisis, several layer two solutions like Polygon, Arbitrum, and more were created. As the largest crypto network, Bitcoin’s developments will likely attract attention faster, creating layer two options.
Another Bitcoin enthusiast, the Wolf of all Streets, had similar sentiments about recent developments within Bitcoin. The user highlighted the vitality of L2s, especially when L1 blockchain fees become unbearable.
There are so many people advocating for an increase of the #Bitcoin block size limit to fit Ordinals inscription data and lower transaction fees.
These people probably just haven't been here long enough to know that an increase in block size was already attempted in 2017. The… pic.twitter.com/X7I1MMmouQ
Calls to increase Bitcoins blocksize have also been quite prevalent within the blockchain ecosystem owing to recent problems. Some community members believe boosting the blocksize will help cater to the ordinals’ inscription data. However, the technological adjustment has already been tested in BTC, leading to the rise of Bitcoin Cash.
Finally
This guide has looked into the new technologies on the Bitcoin blockchain, including BRC-20 and Ordinals NFTs. It is clear that while the tech has some negative impacts, it’s also great for ascertaining the future of BTC by adding new use cases and more developments.
The U.S. Chamber of Commerce has just filed a brief in Coinbase v. SEC case, calling out the SEC for acting “unlawfully” in the digital asset space.
Coinbase case to save crypto from unfriendly regulation?
The U.S. Chamber is a highly influential organization representing companies in all industries across the U.S. making it a force to reckon with in the preservation and fostering of innovative financial technology.
It has now intervened in the Coinbase vs SEC case where the crypto exchange decided to stand ground and face the regulator with confidence that it had met all operating requirements therefore shouldn’t be served notices regarding its already vetted products or charged.
“As it stands today, nobody knows for certain which digital assets, if any, are ‘securities’ under federal law.”
In the brief, the Chamber makes 3 arguments.
1. Regulatory uncertainty is killing innovation in the U.S.
2. The SEC is destabilizing the digital assets regulatory environment.
3. The SEC is violating Constitutional Due Process and Fair Notice rights.
The Chamber goes ahead to declare:
“The SEC’s actions are not just harmful policy; they are unlawful…”
Coinbase CEO Brian Armstrong has been condemning the SEC for poor regulation. Most people took it as a pr stunt or a losing battle as the SEC has been notoriously cracking down on crypto. Now, the new statement from the Chamber of Commerce will add more weight to the matter and stand strong in court.
However, only time will tell where the direction of the case will be headed but the involvement of the most influential innovation fostering authorities in the U.S will make it interesting. Keep watching fintech express for updates on this and other fintech-related stories .
Bittrex crypto exchange has revealed that they have filed for bankruptcy, and the Treasury’s Office of Foreign Assets Control is its largest creditor.
Bittrex to instigate more pain in the crypto space?
2022 was one of the hardest years for the crypto space as several companies went down, dragging the whole market with them. Some, like FTX and Terra ecosystems, brought fear to the crypto space due to huge instances of fraud being unearthed.
Other major organizations like Genesis, Celsius and BlockFi went down in the same year. Now, one more organization, Bittrex, has gone down. The exchange was under probe by the Securities and Exchanges Commission, which led to its charging in April because of running an unregistered securities exchange.
Bittrex went ahead to cease operations towards the end of April with plans to end its US-based platform’s presence in the market. However, it said that the bankruptcy proceedings in the US would not impact its international customers.
Its May 8 court filing shows that it was founded in 2014 and accrued 100K US-based creditors during its lifetime. It also stated that it has liabilities of between $500 million and $1 billion. Additionally, some US customers still have yet to withdraw their funds from the exchange.
Now that the bankruptcy proceedings have kickstarted via Yesterday’s filing, the US customers will have to wait longer before they can finally withdraw their funds. Keep watching FinTech Express for updates on finance and banking-related news.
