Some Bad Bored Apes Won't Undermine the NFT Market

One of the discouraging things about working in cryptocurrencies is that almost all the outside focus is on price changes and the resulting fortunes won and lost. Since the most insubstantial assets have the greatest price volatility, this can lead casual observers to think crypto is all froth and nonsense.

The latest example is the excitement over the price decline of Bored Ape Yacht Club and similar “blue chip” collectible non-fungible tokens (NFTs). Blame for the decline was directed toward the poor market reception of Azuki Elementals NFTs, brought out by Chiru Labs, creators of some of the most popular and valued collectible NFTs. What hasn’t gotten a lot of attention is that there is a reasonably stable market for better-quality NFTs that seems to have staying power.

A non-fungible asset is unique — like a specific house — while a fungible asset exists in a large identical supply — like oil. In a direct comparison, you can buy a non-fungible ticket for a specific seat at a sporting event, or a fungible general admission bleacher seat that is identical to all other tickets for the same bleacher section. Most of the serious NFT projects in crypto today are tokenizing non-fungible assets. In other words, the asset itself is already non-fungible, so any token evidencing ownership is automatically non-fungible. This is similar to what StubHub and similar sites have done to baseball and other event tickets. Each ticket is non-fungible, but an app lets you easily buy and sell them.

If you think about it, not many things are truly non-fungible. Futures markets require thousands of pages of detailed specifications to make something like wheat or nickel into something that can be traded as if it were fungible. Even among seemingly identical boxes in a supermarket, shoppers may reject a package that looks a bit scuffed, or search for the one with the latest expiration date. Also, careful shoppers spend a lot of time choosing which fruits and vegetables are best.

You may or may not believe there is great economic value in tokenizing non-fungible assets and moving transactions to cryptographically protected ledgers (not necessarily distributed public ledgers as with a blockchain), but it’s clearly a serious effort by some very smart developers backed by large amounts of capital. You don’t read much about it because (a) it’s boring, (b) it has no “killer app” successes to date, and © the need for it is undercut by more traditional approaches to trade non-fungible assets like StubHub and Airbnb. I’m a cryptophile so I’m betting — both emotionally and monetarily — that it will succeed and change the world for the better, but that’s not my topic for today.

The NFT craze that began in 2021 was about creating NFTs for things that were not assets, or barely assets, that were fungible, or barely non-fungible. The “non” was in the token, not the underlying thing, and the token was real, but the thing might not be. Wall Street would call these synthetic non-fungible securities representing fungible non-assets (SNFSRFNAs, except we’d cheat to get something pronounceable like SNARF ‘EM UPS).