The market for non-fungible tokens -- digital assets like art, video clips, or music that ownership identified in the blockchain -- came to life in 2021, despite some ups and downs. Three months ago, monthly sales volume of NFTs was checking in at $59.2 million. Today, that number has reached $2.6 billion, according to trading site NonFungible.
As dollars and cryptocurrencies such as Ethereum flow into NFTs, companies are trying to figure out how to capitalize. Sports leagues and players are dropping (or creating) NFTs and artists and performers are getting in on the action. So, how can investors play in the market without betting on single NFTs themselves? DraftKings (DKNG 0.80%), Cloudflare (NET -0.51%), and eBay (EBAY -2.01%) are great places to start.
DraftKings has launched an NFT marketplace, primarily for athlete-related NFTs. The company has become a top name in sports gambling, so transitioning to NFTs could be a natural fit.
Sports cards have long been a way to buy sports-related collectibles and DraftKings seems to be viewing NFTs in the same way. Current NFT drops look a lot like sports cards with a little more exclusivity and greater ease of trading. And if young collectors are getting into buying NFTs rather than cards, this could be a great move for DraftKings because it's selling NFTs from athletes like Tom Brady, Wayne Gretzky, and more.
DraftKings' system will run on Ethereum Layer 2, which is a scaling solution to handle the increased transition load on the Ethereum network, and by the end of the year the company expects its NFTs to be transferrable to external digital wallets. If sports NFTs take off, DraftKings could be a winner in the market.
Cloudflare, a cloud services provider that secures and enhances the performance of the internet, is an infrastructure play in NFTs. The company's Cloudflare Stream allows video creators to tie content to NFTs, saying it allows "creators to embed their NFT claim to ownership into their video on Cloudflare Stream." The idea is to limit access to a video to those who hold an NFT.
What I like about Cloudflare is that it's looking for ways to make NFTs a useful digital asset. There are myriad potential uses for NFTs beyond just selling JPEGs, so if companies start writing contracts with NFTs or tie physical asset ownership to NFTs this could be a big market. Videos could be a foot in the door to more assets and NFT structures.
Cloudflare is a great way to invest in NFTs' growing infrastructure needs. Given the company's history of innovation on the edge of the cloud, this could be a big winner long-term.
One of the original internet marketplaces, eBay, is also taking its crack at NFTs. The company allows the sale of some NFTs on its traditional online platform but that may just be the start if it opens up to cryptocurrencies and other digital assets.
EBay is taking a bit of a different approach to NFTs from some of its rivals. The company is still focused on dollar sales right now, rather than relyng on a cryptocurrency, which is used in most NFT transactions on OpenSea. Accepting standard currency could make an eBay NFT more accessible to the masses than a cryptocurrency-focused NFT platform.
A legacy company like eBay may not be an ideal place for disruptive NFT sales off the bat, but as we see the cryptocurrency market go through wild volatility there may be a a need for some kind of stabilizing force. EBay could be a natural buyer, and a highly liquid one, especially if the crypto and NFT market goes through a big panic.
NFTs are here to stay
I don't think the ride for investors will be easy, but NFTs probably are here to stay. Digital goods have been growing in popularity for years and I think that will only continue as the use of digital platforms for communication and productivity increases. Not every company will win in a world of NFTs, but DraftKings, Cloudflare, and eBay have a good shot at building a niche in the NFT market.