NFT derivatives – the new frontier? Interview with Smart Token Labs

Talk to someone who is not familiar with NFTs, and one of the first things they will suggest is that they are not really doing anything. Even among enthusiasts, the focus is increasingly on utility, as NFTs across the market have seen prices and volumes fall recently.

NFTs are art, yes, but that’s just the beginning. The most successful projects stand out because they build community where the NFTs are essentially membership cards to gain access to these exclusive clubs. Think of Bored Ape Yacht Clubs, where an Ape gives you exclusive access to merchandise, meetings and even boat parties in Miami.

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Smart Token Labs strives to create a way to generate more benefit from NFTs. Their method is quite inventive – to create verifiable NFT derivatives in the chain for NFT holders who retain the IP rights to the original project. They even gave us an exclusive look at their new derivatives website, which you can check out here.

It is a fairly smart mechanism and opens up opportunities for partnerships with other brands, increased royalty refunds and a wide range of other revenue and utilities for NFT owners. Of course, we had a few questions, so we talked to Victor Zhang, co-founder and CEO of Smart Token Labs.

Invezz (IZ): Can you give an example of some of the NFT derivatives that could be created?

Victor Zhang (VZ): NFTs are a way of digitally registering the ownership of certain non-fungible rights. NFT derivatives are a way of making derivatives of non-fungible rights.

An example of NFT derivatives that can be created are Profile Picture NFTs (NFTs that represent the ownership of IPs). IP owners (NFT holders) may issue derivative NFTs to represent the license to use this IP in certain ways. Nifty Tailor allows BAYC holders to use their BAYC to create derived NFTs (monkeys with different outfits) based on their monkey.) They can create derived NFTs to represent the right to use the IP address on a t-shirt, use a coffee shop, etc. to represent the right to make an “official” re-creation.

Another example is DeFi NFTs (NFTs that represent ownership of an asset). Owners of financial assets (NFT holders) may issue derivative NFCs to represent a portion of the present or future value of the financial asset. Uniswap V3 Position NFTs represent ownership of the rights to change and redeem the position. They may issue a derivative NFT to represent ownership of the right to repurchase, another to represent ownership of the right to change, another to repay the right to half, or another to represent certain adjustments to obtain better liquidity. and control.

There are also examples that extend to more related NFTs (NFTs that represent the ownership of rights in the real world). For example, a car ownership token that uses an NFT to represent the ownership of a physical car. The car owner (NFT holder) may issue the derived NFTs to represent ownership of and use the physical car for a specified period, and may issue derived NFTs to represent the ownership of the right to receive rental income.

IZ: These derivatives are only possible for collections that retain the IP rights to the original project. What do you think about projects that do not give full IP rights to buyers?

US: For IP-related NFTs, if a token holder wants to issue IP-related derivatives, he must either own the IP or have the license. But they can still produce derivatives based on the rights they own, such as the collective rights. Collection rights may issue derivatives to represent the ownership of NFT as a profile picture and to sell the derivatives to others. In addition to collecting rights, it also represents ownership of the right to redeem a t-shirt, after which the NFT holder may issue derivatives to represent this right and sell it separately. Projects can issue derivatives instead of NFT holders. As long as buyers fully understand what they are buying, it’s all good. The buyer must understand what kind of property he is buying; the ownership of which rights.

IZ: Many projects – including the latest highly hyped project, Moonbirds – are looking for strike initiatives (“nesting” in the case of Moonbirds) to generate revenue for owners. What do you think of this initiative?

US: The important thing is where the revenue comes from. If only the money from token buyers is redistributed to NFT holders, this is perfectly fine in a positive cycle where more people buy the token and the price increases in value, leading to more buyers. But in a negative cycle it will not work. An easier way to think about it is that NFTs have another right, which is to earn an income from another source. In addition, you can use fungible tokens as derivatives of NFTs as tokens to represent the strike income.

IZ: Are you interested in initiatives other than staking (and of course launching derivatives) that generate revenue for NFT holders?

US: It is about using the ownership of the rights that the NFTs represent. If it’s an IP, then the question is how to use the IP to generate revenue. If it is a financial asset, then the question is how it can be used to generate income. If it’s a car, then the question is how the car can be used to generate revenue.

IZ: Do you think on-chain derivatives can extend the average holding period for blue-chip NFTs? Do you anticipate other consequences?

US: Yes, especially if the derivatives require the holder to lock / wrap the original NFT to avoid double use of the rights. An example of this would be if I release a derivative to represent the exclusive rights to use my BAYC on a t-shirt. Once this right is issued, it must be removed from the original NFT and the original NFT must be locked or wrapped. In addition, two new NFTs will be introduced – one for the exclusive rights to the t-shirt and one for the balance rights. NFT derivatives are like DeFi nesting dolls.

IZ: There will probably only be enough liquidity and demand to launch NFT derivatives for the major projects. Do you think this will increase the concentration of wealth at the top of the NFT market?

US: No, the current NFT market is largely an IP type of NFT that only delivers success to the largest or most notable projects. It’s not a problem, it’s just the way it works. Later there will be all sorts of other NFTs so that is not a problem at all.

IZ: What are your thoughts on the concentration of wealth within NFTs as a whole and the cryptocurrency industry in general?

US: Current use cases are small compared to what crypto technology can really enable. There is nothing to worry about.

IZ: Do Smart Token Labs have any competitors regarding the launch of NFT derivatives?

US: We have not seen competitors specifically build a new internet standard for tokenization.

IZ: Are you expecting a launch only for the blue-chip Ethereum projects, or are you also looking at Solana?

US: We are currently focused on EVM-based networks, so there are no plans for Solana at this time.

IZ: How do you see OpenSea’s integration with Solana into the NFT market? Do you think this will have any impact on Ethereum’s dominance in the NFT area, and do you foresee a multi-chain future for NFTs, or will it always be ETH that rules?

US: In the medium term, I see a multi-chain future for NFTs, just like DeFi. In the long run, I believe the future of multi-chain NFTs will depend on sharing security with the Ethereum mainnet and interoperability with each other. (Ethereum mainnet + rollups, side chains, shards, etc.). Without shared security, the cross chain is “useless”.

IZ: How do you think NFTs will fare in a long-term bear market, and do you think NFT derivatives will have any impact on this?

VZ It will surpass DeFi tokens as they are more than just economy. The stock price may fall, but Marvel’s IP should not be compromised.

IZ: You are working on some other exciting projects, such as symbolizing car ownership. What does the future hold for Smart Token Labs as a whole, and how important are NFTs?

US: We have two open source projects, TokenScript and AlphaWallet. TokenScript wants to become a new Internet standard and the standard for a token-oriented framework. In this Web3 future, tokens will be as ubiquitous as web pages, and tokens will become primary objects of ownership, identity, and interaction. AlphaWallet is the largest open source EVM mobile wallet and the only non-repository that is 100% open source.

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