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NFT Utility: A Multifaceted Overview and Use Cases

For NFTs to increase value and to be deemed viable economic and financial assets, they have to go beyond collectability and aesthetics. One way to tackle this is through utility.

Nov 01, 2022
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Key Takeaways

  • An NFT’s utility pertains to its real-world application, function, and benefits. Utility can help increase an NFT’s value, which can turn the NFT into a viable economic and financial asset.
  • There are four main utility classifications: Socialisation, Art, Functionality, and Asset Tokenisation.
  • Several NFT projects within the Cronos ecosystem, like Cronos Cruisers and Loaded Lions, demonstrate utility. We also explore utility in emerging NFT use cases, such as rentable NFTs, collector DAOs, and dynamic NFTs among others.

An Overview of NFT Utility

What is Utility in NFTs?

  • Despite their growth, NFTs have often sparked debate over their inherent value and utility, resulting in challenges for NFT valuation. The value of digital art can be relative and purely subjective, making them highly volatile investments. On top of valuation, there is the question of utility: There is a certain disconnect in the market as to whether a highly valuable asset has actual quantifiable use and benefits. 
  • For NFTs to increase value and to be deemed viable economic and financial assets, they have to go beyond collectability and aesthetics. One way to tackle this is through utility.
  • An NFT’s utility pertains to its real-world application, function, and benefits. It’s the quantifiable value that demonstrates the usefulness of the asset. Utility can help increase an NFT’s value, which can turn the NFT into a viable economic and financial asset.

Classifications of NFT Utility

There are four main classifications of NFT utility: 

  • Socialisation: NFTs can appeal to people’s desire to form and be part of a community, where ownership can serve as membership.
  • Art: NFTs can satisfy the holder’s need for artistic expression and inspiration. 
  • Functionality: NFTs can carry underlying applications, opening endless opportunities for creators in this space.

  • Asset Tokenisation: NFTs can transform real-world assets into digitised assets to represent ownership.

Where Utility Meets Financialisation and Tokenisation

  • For NFTs, financialisation unlocks utility. In the context of decentralised finance, financialising NFTs involves turning them from idle assets into highly useful ones, enabling them to become more liquid and creating new markets as a result. The first step to furthering the financial use of NFTs was through asset tokenisation. 
  • Utility contributes to the provision of liquidity. In a traditionally illiquid market that trades non-fungible assets, financialisation ultimately helps them to reach asset class status. In economic verticals that make extensive use of NFTs, more activity in NFT finance enables increased activity in markets for NFTs themselves.

Use Cases in Cronos

Several NFT projects within the Cronos ecosystem demonstrate utility:

  • Loaded Lion & Cyber Cubs: Holders can receive exclusive access and benefits from both Cronos and Crypto.com ecosystems, such as drop rebates, early access to popular drops, airdrops, and giveaways. 
  • Cronos Cruisers: Holders can earn rewards from Minted, an NFT marketplace on Cronos.
  • VVS Miner Moles: Holders can boost their rewards on the VVS protocol, the leading DEX on Cronos.
Utility

Other Emerging Use Cases

  • Rentable NFTs: ERC-4907, or the new NFT Rental Standard, introduces the dual roles of ‘owners’ and ‘users’ at its application layer, streamlining the NFT rental through an automated ‘expires’ function, enforcing the time-limited ‘user’ role without any further on-chain operations. 
    • One example is the reNFT marketplace — a protocol layer that enables peer-to-peer renting of ERC721 tokens while also generating interest yield.
  • Otterspace: Optimism-powered Otterspace aims to use NFTs that are earned rather than bought to reward certain behaviour and recognise participation in a DAO. Once contributors have completed certain tasks or behaviours set by the DAO through the application, a contributor earns one non-transferable NFT badge (a soulbound token), which entitles them to a host of benefits.
  • Collector DAO: Collector DAOs are a type of DAO that collectively acquires and co-owns high-value NFTs. Collector DAOs work by enabling members to vote on which NFTs to buy, pool the funds, and fractionalise their NFT holdings among their members. 
    • As an example, Koop.xyz is a platform that allows contributors to either join or create their own community (called a ‘Koop’).  It functions similarly to collector DAOs by allowing people to submit proposals on what NFTs to buy and collectively purchase these NFTs. However, it moves away from token voting; Instead, voting is weighed based on the individual’s ETH contribution as well as their network reputation as an NFT investor.

  • Dynamic NFT: A dynamic NFT (dNFT), or ‘living NFT’, is an NFT that can change based on external conditions. With dynamic NFTs, a base NFT is created first, after which smart contracts are then enforced. Each smart contract can be triggered by on-chain or off-chain events, as well as time, price, or location-based events.
    • In the tokenisation of real-world assets, for example, an NFT representing a property could reflect its maintenance history, age, market value, and more. Tokenising these changing assets, therefore, requires NFTs that have the ability to update with changing metadata.

Read the full report: NFT Utility: A Multifaceted Overview and Use Cases

Authors

Crypto.com Research and Insights team


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