In the past year, interest in non-fungible tokens (NFT) has exploded thanks to celebrities, investors, and top athletes like Mark Cuban, Stephen Curry and Jimmy Fallon. Footprint Analytics estimates that by the end of 2021, the incremental trading volume of NFTs will increase by 200x to $21.5 billion from $120 million the year prior.
The NFT market has been recognized by numerous companies, organizations, and brands as a potential possibility to increase their remuneration. The discussion that follows will look at how NFT businesses and initiatives generate revenue.
What Are NFTs?
NFTs are a particular class of cryptographic token that stands in for a singular asset. Within a blockchain, they serve as irrefutable proof of ownership and legitimacy. They cannot be meddled with, changed, or modified as a result.
NFTs were initially introduced on the Ethereum blockchain, but they are currently supported by a number of other blockchains, like the Binance Smart Chain and Solana. As indicated by the name “non-fungible,” NFTs are not exchangeable or tradable at par with one another. Because each NFT is one of a kind and unique, the digital world is made more scarce.
These tokens can stand in for actual things like identities, property rights, real estate and works of art. NFTs are able to eliminate intermediaries, open up new markets, and streamline transactions because they are built on the blockchain.
How Do NFT Companies Make Money?
NFT firms like Yuga Labs, the Web3 company behind the well-known Bored Ape Yacht Club (BAYC) NFT collection, represent the legal entities behind a certain NFT project. The goals and objectives of each project may vary, but they all have a lot of the same revenue sources. The following are the primary revenue sources for NFT companies:
1. New NFT issuance: In the NFT market, the artwork is a frequent underlying asset. Depending on the reputation of the team, the caliber of the work, and the rarity of the collection, consumers will spend a significant amount of money to purchase new digital art.
The sale of fresh digital art has brought in sizable sums of money for Yuga Labs. The sale of its illustrious BAYC brought in about $2 million for the corporation, and the sale of its Mutant Ape Yacht Club brought in an additional $96 million.
Additionally, NFT corporations can make a sizable profit by issuing various varieties of NFTs, such as virtual land parcels. The Otherside, a brand-new metaverse endeavor by Yuga Labs, is a prime illustration of this.
Consumers with Know Your Customer (KYC) verification might buy virtual land in this metaverse for 305 APE; the official cryptocurrency of the Yuga Lab ecosystem is called ApeCoin (APE). At the cost of about $6500 each, the company sold tokens linked to 55,000 different pieces of land, bringing in about $300 million.
2. Royalties from secondary sales: Each time a given NFT is sold on the market, royalties from NFT collections provide the original owner or business with a portion of the sale price.
This stipulation is essentially incorporated into the underlying NFT’s smart contract. Yuga Labs receives 2.5% to 5% of the secondary selling value in the case of BAYC. The Proof Platform, on the other hand, imposes a 5% royalty on each secondary sale of their Moonbird NFT collection.
Yuga Labs has already earned more than $60 million from secondary sales with a trading volume of well over $3 billion during the course of its existence.
3. Additional secondary transactions: NFT firms frequently get a portion of their income from additional secondary transactions. Examples include royalties from the selling of music and other items from the initial NFT collection. The squad may occasionally be given NFTs from the collection, which they might sell for a profit later.
What Do NFT Companies Spend Money On?
In general, NFT businesses invest their funds mostly in marketing, acquiring rival NFT communities, creating smart contracts for new NFT initiatives or utility tokens, and improving their social media followings.
Larger businesses also devote a sizeable percentage of their budgets to creating the metaverse or ecosystem for their NFT collections. More particularly, they invest money to support the creation of NFT-focused video games, online-only gatherings, and other digital and physical experiences.
How Are NFT Companies Funded?
NFT and metaverse startups are supported in their initial stage by a number of cryptocurrency venture capital (VC) firms and staking providers. The majority of these backers provide resources, including funding, networks, legal counsel, early liquidity, content, guides, and tools.
Yuga Labs just completed a $450 million seed investment round, giving the company a $4 billion post-money valuation. The crypto fund managed by venture capital company Andreessen Horowitz (a16z) spearheaded the investment round. Along with game developer Animoca Brands and its subsidiary, The Sandbox, tech behemoths Samsung and Google, as well as cryptocurrency players FTX and MoonPay, also invested in the round.
Future Growth Of NFT Companies
More brands are aiming to employ NFTs to increase their reach as the blending of the real and digital worlds progresses. A prediction for the NFT market cap by investment bank Jefferies Financial Group Inc. increased from $35 billion to over $80 billion for 2025.
Additionally, as secondary sales volumes in NFT marketplaces continue to climb, existing NFT companies’ revenues will probably follow suit, encouraging new competitors to enter the market and enhancing the level of competition in the NFT area.
With these success numbers, what’s still stopping you from hopping into NFTs? Here’s why you should join NFTs!