By Nilesh Khandelwal, Principal, Global Telecommunications, Information Technology, Media & Electronics (TIME) practice, Arthur D. Little
As the capabilities of blockchain expand, NFTs, or non-fungible tokens, have emerged as not only a revolutionary and innovative technology but one that is widely popular and ‘catchy’ to the public. NFTs are immutable, verified representations of a unique object that has value. Non-fungible assets, ones that are not interchangeable such as your degree or the Mona Lisa, have existed for some time. What makes NFTs different is the certificate of authenticity for these digital assets that can be maintained without a central intermediary or authority. This is only possible because these assets live on the blockchain, which is a decentralized network of data. These attributes, along with the accessibility of the NFT market where users simply need to set up a compatible wallet, have contributed greatly to the growth of NFTs.
Although the first NFTs were created in 2014, they didn’t pick up much traction. It wasn’t until people realized they wanted to trade assets and collectibles other than Bitcoin that the popularity of NFTs began to explode and the market growth in early 2021 was unlike anything seen before. Weekly NFT sales went from around 11,000 units in January 2020 to over 600,000 in 2021. This growth is tied to several factors, such as insane runs in cryptocurrencies like Bitcoin and Ethereum, the emergence and success of popular marketplaces such as NBA TopShot and CryptoKitties, as well as the growing digital collectibles market, which advanced further due to the COVID-19 Pandemic.
Another major reason for the recent attention and growth in NFTs is the emergence of marketplaces that can be labeled as ‘hype generators’. These marketplaces and auctions function with significant attention drawn to a select few users bidding very highly for certain collectibles. NFT art auctions are most commonly hosted by traditional auction house giants such as Sotheby’s and Christie’s. These auctions often generate both extremely high NFT transactions, with one particular moment that resulted in a media frenzy over a ‘world record’ sale. This was seen in March 2021 when digital artist Beeple sold his piece “Everydays” in a Christies auction for $69.5 million, making it the most expensive digital piece ever sold. Almost equally as intriguing, 91% of “Everydays” bidders had never participated in a Christie’s auction previously.
NBA TopShot is an online marketplace where users can buy, sell, and trade virtual sports cards of highlights or “moments”. Developed by DapperLabs, TopShot quickly became one of the most popular NFT marketplaces, largely for its immediate scalability and access to the already existing market of basketball fans. TopShot is organized on a ‘pack drop’ based system, where collections of common, rare, and legend tier moments are released together, and then users can buy, sell, and trade them individually. TopShot’s immediate popularity resulted in over $639 million in sales to date since the platform’s launch in October 2020 and ranks as the fourth-highest volume of any marketplace and the second-highest number of total users (DappRadar). Despite being a shining model for initial success in the NFT realm, NBA TopShot’s trading volume has decreased greatly since its peak earlier this year, as it has in essentially every marketplace.
The truth is, NFTs and the market for NFTs are not sustainable and cannot rely long-term on extreme hype. Christie’s sale of an NFT artwork for millions of dollars is extremely useful in spawning media buzz, but the pool of potential buyers is extremely limited. At what point will these million-dollar purchases dissipate from mainstream media? NBA TopShot was more successful in targeting a larger market, but still, significantly more attention was brought by the Lebron James dunk sold for $208,000 in February than the trials of the common user trying to turn a profit or build their collection. The question remains whether the top percentage of sales will power TopShot to survive and thrive beyond the so-called ‘collectible craze’.
WWE provides a very promising model for the mass market, combining ‘TopShot like’ collectibles with other physical and digital selections such as events, celebrities, and merchandise into a variety of tiers and offerings. Pairing a limited Undertaker Token with a perk-filled trip to Wrestlemania 38 in Dallas and a personalized video from the Undertaker himself provides WWE an aspect of survivability and uniqueness through these experiences, one which NBA TopShot lacks.
Separate from marketplaces like those mentioned above, encouraging opportunities to alter and improve current functions with NFTs have risen across many industries. Concepts for NFT ticketing and proof of attendance in sports have already attracted interest from teams and organizations, with some even beginning to roll out. Ukrainian soccer giant, Dynamo Kyiv, announced that the club will sell 25% of its ticket sales through NFTs. A move that will not only allow their fans to cherish these assets digitally for as long as they live but also raise the club’s credibility as a technological leader in European football.
Many other NFT platforms’ growth plans include innovating already existing patterns and practices. GameOn lets fans connect, make predictions, track live scores, and be rewarded during every moment of their favorite sports, TV shows, and live events. It exemplifies how wide-ranging gamification can extend in the future of superfan engagement and the adoption of NFT collection. Sweet.io, another growing company, offers retailers flexible distribution and minting options for branded NFTs across multiple marketplaces, making digital assets easier to acquire without much crypto knowledge or expertise.
Stretching from proof of attendance and fan engagement to media consumption, the opportunities for similar NFT uses are encouraging. The real potential and future of NFTs lives in this realm, beyond the hype of blockbuster transactions dealing strictly over collectibles. WWE and Dynamo Kyiv present just two examples of the many emerging NFT implementations that provide a positive uniqueness to offerings that attach themselves to already existing fanbases and markets. The impact from the combination of these traits will allow these platforms and services to outlast those built only on the principle of collection. The potential NFTs have here to transform and disrupt functions and industries goes far beyond the effect of the initial boom in the NFT hype.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
On Tuesday, Bitcoin (BTC) tumbled over 15% as El Salvador — a tiny, impoverished Central American country — became the first country to make Bitcoin into legal tender. It appears investors were spooked by the clumsy roll-out, as the government-sponsored digital wallet “Chivo” failed to appear in smartphone app stores. When it was finally available, the volume of traffic overwhelmed it, producing technical glitches.
Hangups aside, the real question for Bitcoin investors is whether El Salvador’s 6.4 million people embrace the decentralized currency. So far, the answer to that question is a resounding “no.” Over 1,000 people marched in San Salvador on Tuesday in protest of the new form of currency. A recent poll conducted by the local Universidad Centroamericana José Simeón Cañas found that over two-thirds of Salvadorans are opposed to Bitcoin’s adoption as legal tender; 80% say they have zero confidence in the cryptocurrency.
Many Bitcoin investors in the United States and developed world will dismiss El Salvador’s Bitcoin experiment, pointing to the fact that El Salvador’s population is smaller than New York City’s, and that Bitcoin’s role as a global store-of-value is secure regardless of whether one particular venture succeeds or fails. But those arguments fail to consider some important factors specific to El Salvador.
For one, El Salvador’s population may be small, but its income levels and standards of living are on par with much of the developing world: countries with underfunded treasuries that struggle to manage fiscal policy, debts and inflationary conditions — in other words, countries whose populations would theoretically benefit from a transparent, decentralized, deflationary digital currency like Bitcoin. These countries are watching El Salvador’s experiment closely; if things go wrong, other nations from the Global South are likely to shun Bitcoin.
El Salvador’s venture is also testing whether Bitcoin is capable of replacing the U.S. dollar as a reserve currency of choice: El Salvador adopted the U.S. dollar in 2001. Bitcoiners have long claimed that their cryptocurrency of choice competes directly with the dollar, but this is the first time that Bitcoin is actually competing against the dollar in any substantive way. If El Salvadorans continue to shun the digital currency in favor of the dollar — or, if they eventually embrace Bitcoin but see no improvement to their standard of living — then Bitcoin will suffer a reputational blow.
In fact, El Salvador’s Bitcoin experiment might backfire in a profound way for El Savladorans. Bitcoin remains a highly volatile asset; its price often swings over 10% in a single day. Any dramatic plunge in Bitcoin’s price will wreak havoc on Salvadorans who may be heavily exposed to the currency — and who do not have enough money to be saving or investing. News reporting of El Salvadorans going broke as Bitcoin plummets will hardly inspire confidence among new investors.
This conundrum also poses the question of whether Bitcoin can properly function as a unit of exchange. Investors in the U.S. treat Bitcoin as a speculative asset or store of value; people aren’t typically using crypto to buy groceries or pay for rent. Of course, some Bitcoiners will say this is precisely the point: Bitcoin was never designed to serve as a unit of exchange, and El Salvador’s experiment shouldn’t have any bearing on Bitcoin’s long-term price trajectory. But that argument assumes that people already recognize Bitcoin as a dependable store of value, without needing to see other use cases — it’s a risky bet.
Like any stock, Bitcoin needs new investors to continue growing. That’s why the cryptocurrency has a lot riding on El Salvador: the Central American country is Bitcoin’s first real opportunity to prove itself as a financial vehicle that doesn’t only create wealth for some, but systematically uplifts an entire country. Only time will tell.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The Era Of Walled SaaS Gardens Is Dead
Not too long ago, software platforms could live in isolation. They were built as complete waterfall technologies that served specific broad sets of needs for their clientele. Rarely, did these platforms have a need to cross-pollinate or connect with parallel or competing technologies. Then as services fragmented, and became more niche, the ability to have a simple way to connect became more important. Enter the API era in software development.
APIs allow data to be shared between different applications. Without APIs, different technologies wouldn’t be able to talk to one another, leaving integrations between different platforms and applications more difficult, if not impossible.
One prominent use of APIs today is B2B SaaS integrations. A company that wants to offer additional features for its consumers can use a third-party’s API to merge its app or data with theirs. Some banks, for example, use third-party APIs to offer budget and debt tracking and promote these add-ons to attract and retain clients.
These types of APIs provide immense value to organizations by providing flexibility. Companies can add the third-party integrations that suit their current goals, and provide the data needed to view the complete financial picture for the consumer. This allows a company to adapt to trends in shorter time frames without the expense of developing the technology in-house.
Lack of APIs In WealthTech
Despite the immense value of APIs, many wealthtech firms have been slow to adopt them in their strategic roadmap. Re-writing an API can take some time, but it’s better than trying to promote the use of an old API and old code.
Further complicating matters is the plethora of fintech solutions already in existence, as this map by Michael Kitces demonstrates. And despite this saturation, we can still expect new ones to emerge in the future.
Additionally, we’ve seen a recent trend of consolidations in the fintech space, as outlined in IndustryWired’s “Top 10 Fintech Mergers and Acquisitions in 2021” and American Banker’s “11 Fintech M&A Deals That Defined 2020.”
These constant shifts in technology can cause issues with prioritization. Even when a firm has the desire to integrate, it must first wade through myriad offerings and then choose which ones best serve its goals and where it should build out its integrations first.
Why WealthTech Firms Need Sound API Strategies
With so many technologies out there and in use with advisors, client expectations and demands are changing. In order to attract new clients or retain your existing clientele, you need to have the right API strategy to connect where and when they want. The expectation is you will integrate with key elements of their tech stacks like their existing CRM, planning, and reporting tools.
If a tech platform wants to stay relevant, it must create and implement a flexible API strategy to allow its technology to show up in many different places.
Totum’s Integration Advantage
At Totum, we’ve seen RFPs and sales demos lost and won based on the availability and functions of integrations. That’s why our founders spent over five years working to integrate our risk analysis platform and APIs with leading broker-dealers, custodians, asset managers, as well as complimentary fintech partners.
Our open APIs provide the customized experience other fintech platforms and consumers crave. Our portfolio and questionnaire APIs calculate three risk scores based on a customer’s unique life situation. This is and can be displayed in any financial platform in the industry for an enhanced user experience.
Contact us today to schedule a demo.
Larry Shumbres is the Co-Founder and CRO of Totum by TIFIN
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The largest American fast-food chain McDonald’s (MCD) is now accepting Bitcoin-as-payment through Lightning Network, a layer-two payment protocol that is designed to make Bitcoin (BTC) transactions more scalable, at all of its restaurants in El Salvador.
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By Slobodan Sudaric, partner in the Protocol Economics team at cLabs, working on Celo
Around the world, inflation and costly, slow transactions have been the norm in traditional financial systems for decades. That is, until the emergence of cryptocurrencies. When Bitcoin and its successors entered the scene, they created a new, faster, and cheaper alternative to traditional payment systems by removing the need for third-party intermediaries. Some cryptocurrencies’ fixed supply of tokens even offered an answer to the inflation that plagues fiat currencies.
As is the case with most inventions, however, where one problem was solved, another took its place. While cryptocurrencies were faster and cheaper to exchange than their fiat predecessors, their price action was also more volatile. How reliable is a currency if its value can triple or halve in a matter of hours?
Yet every problem has a solution, and so came stablecoins.
Stablecoins first emerged on the cryptocurrency scene in 2014, designed to protect users from the volatility of cryptocurrencies like Bitcoin and Ethereum by tracking the value of an underlying asset. Their stability allows them to function as a more reliable medium of exchange and a store of value.
Stablecoins are typically backed by a reserve of an asset or a basket of assets. For fiat-backed stablecoins, the stablecoin issuer typically holds a value of the fiat currency in cash or other high-liquidity assets equivalent to the number of coins issued to track it. Users can redeem one stablecoin for one unit of currency at any time, but they must trust that the issuer won’t mismanage or misreport its reserves. Popular fiat-backed stablecoins include Bitfinex’ Tether or Circle’s USD Coin that both track the value of the US dollar.
For crypto-backed stablecoins, on the other hand, the reserve holds its assets on a public blockchain, making it fully verifiable and removing the need for stablecoin holders to trust the issuer. Users redeem stablecoins by interacting with a smart contract that programmatically exchanges stablecoins for reserve assets at the user’s request. Examples include the US dollar-tracking Dai coin on the Ethereum blockchain or the cUSD and cEUR coins on the Celo blockchain.
Stablecoins initially struggled to gain traction due to a lack of transparency, long transaction times, high costs, and limited access relative to other cryptocurrencies. However, as developers overcame these obstacles, stablecoins began to experience wider adoption, exceeding a circulating total supply of 100 billion USD in 2021. This adoption was driven in particular by use cases in transactions and decentralized finance (DeFi).
As with other cryptocurrencies, transactions involving stablecoins benefit from the decentralized nature of blockchain technology, cutting out intermediaries like banks and payment providers. This provides for a fast and cheap alternative to traditional transaction channels.
Transactions using stablecoins can cost as little as a fraction of a penny, regardless of value, and are typically processed in a matter of seconds. In comparison, most traditional payment providers charge a flat fee plus an additional 1.5% to 3% for each transaction.
Another advantage of blockchain technology is it reduces counterparty risk by eliminating the intermediary. The sender and receiver transact directly with each other rather than through a third party, removing a potential point of failure, an additional step in the transaction, and with it an additional cost.
Stablecoins also offer users an affordable way to send money across borders. To put this in context, sending $200 in stablecoins can cost less than one cent, compared with a global average charge of $12 according to the World Bank, rising to more than $30 in some countries.
Thanks to projects such as Kotani Pay, users can send and receive money and apply for loans even from the most basic mobile devices owned by roughly 60% of the African market.
Stablecoins allow for targeted, fast, and cost-efficient distribution of humanitarian and environmental aid. In June 2020, a nonprofit called the Grameen Foundation launched a project to send emergency cash relief to female entrepreneurs in the Philippines. Delivering aid, however, was a challenge given the measures to combat the global Covid pandemic, so the foundation used Celo stablecoins to send nearly $160,000 worth of financial aid to more than 730 beneficiaries. The recipients spent the money through a custom microsite selling groceries and daily necessities.
The world is gradually shifting towards a gig economy, especially in developing countries that generally have large, informal labor markets. Meanwhile, improved connectivity has created microwork opportunities, giving people a chance to either earn a full-time living or top up their salary with side jobs. However, microwork payments are typically small, making low-fee solutions that use stablecoins a suitable option for compensation.
Decentralized finance (DeFi)
Stablecoins give users access to a new generation of financial products, traditionally only available through banks, from their mobile phones. These products, which typically fall within the decentralized finance (DeFi) ecosystem, are particularly important in countries with underdeveloped financial infrastructures which makes it difficult to open a bank account or apply for credit or lending facilities.
By converting local currency into stablecoins, users can protect their income and savings from the risk of hyperinflation which rapidly erodes the value of fiat currencies.
Hyperinflation remains a concern for millions of people, with inflation rates in some countries exceeding hundreds or even thousands of percentage points in 2020. Take Zimbabwe, for example. Prices may be rising by an estimated 100% this year, and that’s an improvement on the 550% rise in 2020. Elsewhere, Argentina is facing more than a decade of double-digit inflation with rates currently between 40% and 50%.
In countries with low inflation, such as the EU and the US, stablecoins can help to avoid savings and income erosion. The European Central Bank’s deposit rates are negative at present, and commercial banks pass these costs to customers, either as negative rates or increased fees. However, Euros held as stablecoins aren’t exposed to these rates, or, for that matter, the foreign exchange risk of converting Euros into other fiat currencies.
On platforms like Aave or Moola Market, users can earn on stablecoins they lend out, or borrow stablecoins if they don’t want to sell their holdings. Rates for loans depend on demand for a coin – they rise when demand grows and fall when it shrinks. Borrowers can provide another crypto asset as collateral to continue holding onto that asset, but they face liquidation risk if the value of the collateral drops, leaving the outstanding portion of the loan uncollateralized.
In traditional markets, assets are traded via order books on centralized exchanges that determine clearing prices according to supply and demand. Decentralized exchanges (DEXs) such as SushiSwap or Ubeswap remove the need for an intermediary. Instead, users trade directly against liquidity pools, a collection of coins held in a smart contract on the blockchain. DEXs employ an algorithm to adjust the price of an asset based on flows in and out of the pools but they can only execute trades if the pool has sufficient liquidity. This is why they offer incentive payments to liquidity providers. There are risks though, especially when the coins provided to the pools are volatile in price. Volatility may lead to impermanent loss, where losses can be recouped if prices swing in the opposite direction.
The use-cases for stablecoins are many. Compared with traditional financial systems, they enable faster and cheaper transactions and can offer a hedge against inflation. They have inspired a suite of new financial tools made to help users give, earn, save, lend, and exchange their assets. Stablecoins have offered an entryway into financial systems for millions of previously unbanked people across the globe in just the first decade after their invention, placing them among the most important financial tools to watch in the coming decades.
It’s fair to say that the non-fungible token (NFT) market has turned more than a few heads in 2021. The sheer volumes poured through these markets to buy unique digital tokens with ownership verifiable via the blockchain have been unprecedented (even for the cryptocurrency market).
The market has pulled in $2.5 billion In the first half of this year alone, with NFT artist Beeple making history when Christie’s auction house sold his digital magnum opus for a staggering $69.3 million. However, far beyond their use as digital collectibles and one-of-a-kind art pieces, NFTs represent a wealth of potential throughout numerous vertical markets. And much like how the tech has upended the art sector, the latest vision for NFTs could prove to disrupt global trade and eliminate barriers to international commerce completely.
In 2019, the total value of exports globally was estimated at $19 trillion. Businesses in this market often incur enormous annual expenses paying for the complex and costly international financial infrastructure that supports this commerce.That includes two kinds of costly financial infrastructure supporting global exports:
One is internal company databases to track inventory, orders, fulfillment, and several steps in the lengthy supply chain management process that industries are humming across the planet every day. The other is external financial platforms that have been cobbled together piecemeal over decades before the widespread availability of connected computers. Much of the vast computer power these legacy systems deploy remains shoe-horned into managing the financial side of the enormous logistical problem of fulfilling international trade.
The legacy international banking system also uses staggering amounts of paper and water. This is why many experts suggest that upgrading the industry’s tooling to a digital blockchain solution would drastically reduce both its capital drain and environmental impact.
In fact, a 2019 Bank of America study found that if all of the institution’s clients went from paperless to digital bank statements, it would save 37,000 metric tons of GHG emissions and 136 million gallons of blue water consumed. With a greenhouse gas emission rate of around 15 per capita in the United States, that would be the equivalent of making about 2,500 people living in the U.S. carbon neutral.
In addition to cutting costs and saving resources, NFT-powered trade finance solutions would save many supply chain management headaches. The walled corporate database for international trade paperwork has left businesses in an anachronistic situation for the 2020s, where it can take two days to ship a product to a specific location but five days for the paperwork to catch up.
It is possible to imagine a near-future when cryptocurrency startups use NFTs to offer new capability and efficiency with their products to succeed as new entrants to this market. And also conceivable to also envision the incumbent companies and organizations that facilitate payments and finance in international trade — and that enforce international rules and standards — disrupting their current fulfillment lines with the adoption of NFT-based blockchain solutions.
What particularly suits NFTs of all blockchain solutions to trade finance is the ease with which NFT blockchains can mint unique, serialized records and make those records programmable in a distributed peer-to-peer database with all the properties of the immutable blockchain.
The global export industry currently deals with inventory management at staggering volumes across the furthest distances and pilots countless items through myriad borders and regulatory tangles. However, by leveraging instantly programmable smart contracts with serial numbers referencing inventory and secured via the blockchain, trade finance firms can immediately navigate these obstacles at vanishingly low costs.
Moreover, functions for currency conversions (supported by current information gathering “oracles”), receivables policies by account, financial policies, and arbitration can all be automated into the token’s smart contract for the unit being shipped.
The provenance of units — their chronological record of ownership, location, and other information — is the non-fungible part of each token that makes it unique and ties it to each unit of inventory in the blockchain management system. For instance, the correct HS Code, or Harmonized Commodity Description and Coding Systems code for international classification of products can be programmed into each token for a supply chain management’s NFT chain. It was first introduced in 1989 and has since been adopted by most countries for international trade.
As the United Nations summarizes it, the HS Code “allows participating countries to classify traded goods on a common basis for customs purposes.” This is an increasingly important aspect of the hurdles of international trade for blockchain engineers to overcome with NFTs, especially as sovereign nations put the brakes on decades of globalism, and regulatory compliance and customs duties increasingly require newer, more agile solutions to keep the shipping lanes flowing.
Individual, customized side chains for accounts can live within a second layer on top of a proprietary corporate settlement network or on a public decentralized blockchain, and settle on a regular schedule and check-in with the main chain to lock in updates. As more smart contract platforms adopt these side-chain solutions to optimize network speed and lower cost, the intersection between programmable contracts and NFTs holds an opportunity for trade finance innovators. And will open up financial bridge infrastructure for more manageable capital inflow so that institutional investors can help pay for and profit from the wave of efficiency.
About The Author
Billy Sebell is the Head of Ecosystem Development for XinFin Fintech and Executive Director of the XDC Foundation. Since joining XinFin, his work has included integrating a tokenization platform for trade finance instruments with a UK FinTech, which will go live with transactions imminently, establishing a bridge to Corda’s ecosystem, and developing partnerships with multiple leading market makers, custodians, and global institutions. Apart from the above integrations and developments, Billy has also continued to spread awareness about the XDC Network’s potential within trade finance globally, highlighting its use cases and integrations with major financial institutions and fintech players.
For more information about the XDC Network, please visit www.xinfin.org