Navigating the Confusing NFT Landscape
In my last Forbes article, we reviewed the ways in which the meteoric rise of NFTs over the past few years has changed not only who can own art, but the definition of art itself. Ahead of my second Forbes article, where we are going to review how certain market participants are erroneously offering NFTs with securities features without proper compliance — and accordingly getting both issuers and investors in trouble — I would like to review with you further the confusing NFT landscape: opportunities and risks.
NFTs can provide a plethora of benefits to both fans and creators. “In the last ten years, we’ve seen the creator economy explode in front of our eyes. Web3 is now poised to fuel that even further like gasoline on a fire, and Web3 byproducts like NFTs will proliferate. It’s an exciting time, and it will drive yet another reset for media where fan connections are strong, and creativity and art drive commerce,” said Alex Luke, former Apple Music, Amazon Music executive, now Chief Strategist at FanVestor.
In January, Canadian rock band Our Lady Peace offered the first five hundred copies of their latest album, Spiritual Machines II, for sale, only as an NFT. “We just had 500 fans lean into the future of web 3.0 with us…” said the band’s leader and co-founder, Raine Maida, of the sale. “We have firmly embraced this critical intersection between music and tech and are leveraging the power of the Blockchain to … change the way we distribute music.”
Our Lady Peace is just one example of musicians, who are riding the NFT wave to revolutionize the way they generate revenue from their work and deliver greater value to their fans. And it’s not just financial — one trend, according to Fortune, is for up-and-coming bands to give away NFTs to their fans so they can journey to success with them. One month prior to the album release “Our Lady Peace” had done just that: free NFTs with unique combinations of tracks and artwork — some created by Maida on his iPhone ‒to invite-only fans at a live event at Syracuse, New York. Those fans now own piece of art that can be sold or traded later.
Indeed, what started as a disrupting force in the visual art world is now rapidly moving across entertainment verticals with enormous popularity and bringing with it endless new possibilities for creators to be justly compensated for their work. Ajay Nwosu (ex-professional soccer player in England and Kansas City, CEO of Teqball USA, LA Sports Council’s Board Member) points out — “NFT’s have taken over sports collectables, digital art, memes, and much more with the potential to revolutionize the whole sports industry. The delta in the adoption of NFTs over the last 24 months has been profound, and it’s clear that the NFT culture is here to stay and thrive as seen by the sports industry’s recent boom and fast expanding market share in this space. The direction of travel here will certainly be dictated by the demand, scarcity, and utility in each use case and whilst considering fractionalization in the ownership model. The intrinsic value of each NFT will also definitely be dependent on the popularity of the athlete, the structure of the smart contracts, whilst also factoring in the key moments in sports, which can be single or multiple editions of major events (a game winning touchdown, a winning goal, a home run etc.). Moreover, the NFT fractionalization and ownership of such events present a larger scale yet untapped potential and opportunity to become a secondary derivative asset whilst contributing substantially to additional revenue for athletes, sports leagues and teams and also enhancing existing relationships with fans. Based on this dynamic, it’s evident that the sports with the largest fan-bases and revenue (soccer, 3.5 billion fans, Cricket 2.5 billion fans, Basketball 2.2 billion fans) will most likely over index on sports related NFT activity in 2022 and beyond.”
When something becomes popular quickly, the pendulum will begin to swing the other way, and after a flurry of media hype throughout the pandemic, many of the same voices that championed the rise of NFTs, are now decrying the space as everything from a bubble about to burst to an unsavory environment where investors are scammed as a matter of course. This new wave of sweeping generalizations is both engendering confusion for lay people, and those who make the rules.
Clearly, the NFT ecosystem is experiencing growing pains, a byproduct of both the speed with which it gained traction and the continued impact it is having on the financial and creative worlds. Think back to the early 2000s, when the internet was considered a “Wild West” of sorts. Over time, there have been measures put in place, both by governments and private concerns, to protect consumers’ privacy and their wallets. The internet is again evolving in a new direction, with Web 3.0 allowing consumers to make money from the personal data that they share; providing them with more secure online interactions and relying more heavily on artificial intelligence to vet their data (e.g., identifying inappropriate information intended to sway their purchasing decisions). Reasonable minds will continue to disagree as to the level of regulation that is appropriate. No one is suggesting throwing the digital baby out with the bathwater, but Web 3.0 and NFTs have the potential to democratize the way entertainers and athletes make money and provide unprecedented opportunities for fans to become part of their communities.
“NFT’s are giving us a peek into the future. Content creators are being empowered as we are moving to the next wave of digital evolution and digital commerce. This world is still taking shape but even in these early stages, creators and fans have connected in very powerful ways. I am looking forward to this necessary changing of the guard,” said Russell Redeaux (CBO at FanVestor and Co-Founder at Stampede Management).
I recently met with FanVestor’s key advisors, Sara Hanks and Andrew Stephenson of CrowdCheck, Inc. and Brandon L. Klerk of Halyard Compliance, and reviewed how certain market participants are erroneously offering NFTs with securities features without proper compliance — and accordingly getting both issuers and investors in trouble with the SEC. My second Forbes article will focus on the learnings and recommendations for the industry.