While prices for non-fungible tokens (NFTs) have fallen in line with the broader crypto market in recent weeks, there is still substantial excitement around these digital assets, especially if they involve high-profile artists. Until recently, though, investors have viewed these NFTs simply as speculative artwork, and that has caused tremendous volatility.

However, what we are seeing now is the emergence of utility-based NFTs that go beyond traditional NFTs, and that is shifting attention to the blockchains making this possible. That's good news for Polygon (MATIC 0.45%), which has become one of the most popular blockchains for minting new, utility-based NFTs. MATIC is now one of the Top 20 cryptos in the world, with a market capitalization of nearly $5 billion.

Fans at concert jumping and smiling.

Image source: Getty Images.

What utility-based NFTs are, and why they matter

In layman's terms, utility-based NFTs combine an underlying creative asset (such as a piece of art) with extra benefits, perks or opportunities. Thus, if you hold a certain NFT, you might gain entry to an exclusive VIP club simply by holding the asset. This is possible since your possession of the asset is instantly verifiable via the blockchain. But where things get really interesting is when you consider what the blockchain enables in terms of smart contracts, which are small, executable computer programs. For example, the NFT might include a smart contract that says every holder of the underlying creative asset also gets to share in future revenue opportunities.

Thanks to blockchain technology, it is now possible for artists to release new music albums as NFTs. Already, a growing list of prominent music artists have done this, including Snoop Dogg, Kings of Leon and DJ Steve Aoki. In mid-May, using Polygon, the EDM pop duo The Chainsmokers released a new music album as an NFT. If you buy the NFT, you get perks like early access to concert tickets, free merchandise, and entry to members-only events. And here's the best part – The Chainsmokers embedded a smart contract into the NFT giving fans a chance to earn a small percentage of overall streaming royalties from the new album. Every time a fan streams a song from the album on a service like Spotify (NYSE: SPOT), NFT buyers get a chance to participate in the upside of the album.

Leveraging the power of Ethereum

Of course, naysayers might point to the fact that Polygon is one of several blockchains being used by artists to sell new NFT albums. Snoop Dogg, for example, used Cardano (CRYPTO: ADA) when he released his latest NFT album, and others have used Solana (CRYPTO: SOL). In other words, Polygon has not cornered the market on utility-based NFTs.

However, what this line of reasoning ignores is the fact that Polygon is a powerful blockchain built on top of the Ethereum (CRYPTO: ETH) blockchain, which still dominates the market for traditional NFTs. This relationship is a huge built-in advantage. As a result, MATIC will likely be able to leverage the size and scale of the Ethereum ecosystem in order to bypass rivals. 

Polygon, recalculating the geometry of business

At the end of the day, what blockchains like MATIC enable is entirely new business models. For example, consider music. In the old days, once you paid $10 for a record album, it was pretty much a sunk cost. If your favorite artist sold millions of albums, you were literally one of millions in a crowd. You couldn't show up at a music venue in New York City and demand VIP entry. You couldn't use your album to get preferred seating at sold-out concerts. Your best option for making money from the album, quite simply, was trading it in at a used record store for a few bucks. Now compare that to what's possible now, once you combine blockchain technology with smart contracts. All of a sudden, an album is no longer just an album.

With more high-profile artists already planning NFT releases in 2022, we could be seeing an exciting new evolution of business models in nearly every artistic sphere. Once investors realize how Polygon is helping to make this happen, it is easy to see how this little-known crypto could benefit from any future rebound in the NFT market.