Second, NFTs eliminate delayed clearing and settlement functions. The processing delay can currently be counted in days. NFTs turn these days into seconds.
Third, the management of collateral requires transparency, which can be seriously jeopardized in the existing financial system. With NFTs, market participants cannot camouflage selfish behavior.
Examples of NFTs
Let’s go back to paper. The author obtains data from Binance on projects that embed NFT technology as a central element of the business model, i.e. the whitepaper mentions them. As of August 31, 2021, you will find a total of 20 NFT-based projects that list 22 different tokens (see Table 1). You categorize these into six groups NFT blockchains, NFT games, NFT music, NFT media, NFT DeFi, and NFT others.
The largest group is made up of NFT gaming projects, followed by DeFi. Most of these projects issue tokens designed to facilitate the governance of the network, and two projects issue two different tokens xie Infinity (AXS, SLP) and Theta (THETA, TFUEL). In addition, around half intend to gradually merge into decentralized autonomous organizations (DAOs). The authors analyze the returns for all but ERN, MBOX, and GHST.
The remaining 17 projects with 19 different tokens are listed on the stock exchange for an average of 314 days, with WAX being the newest and ENJ being the most established. Seven of these are NFT unicorns (market cap is more than $ 1 billion), and without those, the average market cap is $ 354 million.
Astronomical returns
The average return on the first day across the projects is 130%, with ALICE generating an incredible 24,640%. These are well above the average IPO return on the first day of 35%. In addition, the average daily return since day one has been 0.3% (see chart 1). In total returns, AXS is up 53.535% over 300 days someone made money there.
If all investments were liquidated on August 31, 2021, the average investment multiplier (a risk capital measure) would be six. The greatest multiple is TFUEL, which rises to over 73. But lose some tokens. Five of the 19 tokens posted negative total returns after the first day (seven produce negative daily returns). The biggest loser was SUPER with a return of -71% over 160 days.
Risk-adjusted performance
The author chooses two standard dimensions the Sharpe Ratio (SR) and the market adjusted rate of return. The average SR is 0.32, although ERN, MANA, AUDIO, THETA, and SAND all had SRs of at least 1. In terms of market-adjusted returns, MANA and SAND offered 340% and 255% higher returns than Bitcoin, which itself valued 450% over the same period. Only TFUEL, SLP, THETA and BAKE performed below average compared to Bitcoin.
Next, the paper estimates NFT’s alpha and beta from the Capital Asset Pricing Model (CAPM). The vast majority of NFTs have positive alphas, and AXS, AUDIO, MANA, and THETA are among the best performing NFTs on both an absolute and risk-adjusted basis. Alpha is positive across the entire sample and is statistically highly significant at the 1% level. The author therefore comes to the conclusion that “NFTs achieve significantly higher returns than the average cryptocurrency on the crypto market”.
12 of the 19 NFTs have betas that are significantly larger than one, the average being 1.1. The highest beta is two (TLM) and the lowest is 0.8 (FLOW). They also find that almost all of the best performing NFTs on both an absolute and risk-adjusted basis have beta that stays below one.
Do NFTs offer added value for blockchains?
According to the author,
“The NFT boom of 2021 convincingly shows that blockchains are, on the one hand, capable of solving real problems;
Existing blockchains are venturing into NFT technology to expand their user base, and the value is clear. In August 2021, NFT sales on the OpenSea marketplace reached nearly $ 4 billion, compared to just $ 8 million in January 2021 an increase of 50,000%.
The author then estimates how much value NFTs have added when integrating with existing blockchains. They note that some NFT events related to the Solana blockchain are associated with an average unexpected price increase of 22% for SOL, representing a $ 3 billion increase in market cap. Similarly, Efinity added around $ 1.5 billion in value to Polkadot, and Unifty added over $ 1 billion in value to Avalanche.
Bottom line
The NFT world is in full swing. Even the editors of Collins Dictionary know it. But with the likes of Snoop Dogg selling unique memories, you wonder how much the speed of their rise is related to the hype. As far as I know, the digital ID that proves ownership is only as valuable as the next one is willing to pay for it. Since NFTs usually come with no physical objects, it is difficult to estimate their intrinsic value. And so, an increased level of speculation will surely affect token prices and cash in NFT startups.
Basically, the technology seems exciting or gamers, especially. Hours of play should no longer be frowned upon by disapproving parents if players can sell their progress (e.g. skins, cards, etc.). In the art world, artists can sell their art directly and program royalties to preserve it in future sales. The paper also uses the example of derivatives that they should be replaced by NFT counterparts would be a market of $ 580 trillion. I’ve got yahoo! Finance has listed 10 upcoming NFTs to look out for.
Disclaimer of liability
The comment contained in the preceding article does not constitute an offer, solicitation or recommendation to make or liquidate an investment or to carry out any other transaction. It should not be used as the basis for any investment decision or any other decision. Any investment decision should be based on appropriate professional advice specifically tailored to your needs.
