Tokenization of art, gaming, and the future of NFTs

Disclosure: The views and opinions expressed here are solely those of the author and do not necessarily represent the views and opinions of crypto.news editorial.

This is Part Three of a three-part interview series with William Quigley, cryptocurrency and blockchain investor and co-founder of WAX and Tether, conducted exclusively for crypto.news by Selva Ozelli. Part One covers the prison sentences of Sam Bankman-Fried and Changpeng Zhao. Part Two is about cryptocurrency and banking. Part Three is about the future of NFTs.

1) In Part One of our interview, you mentioned that you are the co-founder of Worldwide Asset eXchange (WAX), the first decentralized marketplace for trading virtual video game items. Tell us about WAX.io, the number one web3 gaming platform.

WAX was specifically designed to meet the demands of blockchain players and NFT collectors. We initially built WAX on the Ethereum blockchain; However, the exorbitant gas fees and slowness of the platform led us to develop the WAX ​​blockchain and wallet.

WAX blockchain has the largest NFT ecosystem with over 250 million NFT assets and over 30,000 dApps in NFT projects. The WAX ​​platform processes more than 23 million transactions per day for more than 30,000 dApps and 15 million users. Wax blockchain is ultra-fast, secure and carbon neutral.

WAX, the world’s leading blockchain for NFTs, dApps and digital games by daily active users, was designed from the ground up to be environmentally friendly. Our carbon neutral status is not just a claim; It is certified by Climate Care and demonstrates our commitment to keeping our environmental footprint to a minimum.

This Earth Day we launched the Earthen WAX Walker NFT drop. For everything the Earthen Walker NFT demands, WAX will plant a tree. This initiative combines our passion for innovative digital collections with concrete actions that will benefit our planet, offering a special digital art collection that will allow us to contribute to reforestation efforts around the world.

2) A 2023 report by crypto analysis firm dappGambl found that 95% of NFTs are worth almost nothing. The report found that following intense interest in NFTs between 2021 and 2022, approximately 79% of all NFT collectibles remained unsold. Popular Bored Yacht Ape NFT values ​​are down nearly 90% from market highs. As NFT markets crashed at the end of 2021, I wrote that NFTs are here to stay. What are your views on the future of NFTs?

According to Zion Market Research, the NFT market size is valued at $36.12 billion in 2023 and is expected to reach $217.07 billion by the end of 2032; This suggests a compound annual growth rate of around 22.05% from 2024 to 2032.

Non-fungible token industry potential | Source: Zion Market Research

Today, global NFT market cap is $68.68 Billion, up +1.12% over the last 24 hours. I expect most of this growth to be in utility NFTs, collectible NFTs, and web3 gaming NFTs.

3) In 2021, art NFTs appeared to be the biggest disruptor in art, with artists minting, displaying and auctioning and investors buying, selling and trading art NFTs. “At Christie’s, we view Digital Art as another collecting category of contemporary art,” said Nicole Sales Giles, vice president and director of digital art sales for Post-War and Contemporary Art at Christie’s. The Web3 art community is collaboratively building something very special. I believe that in the future the art world will look back on today’s friendship of artists, builders, curators and collectors as ‘the time when it all began’. What are your thoughts and opinions on the future of art NFTs?

The art market fell 4% globally last year to $65 billion annually, with sales of a few works of art accounting for most of that figure. Art NFTs will likely be run by global art companies such as Christie’s, Sotheby’s, and Phillips.

At WAX, we focus on collectible NFTs and gaming NFTs with high transaction volume by their owners. We hope that our collectible Earthen WAX Walker NFT will attract great interest from collectors so that we can plant many trees.

4) Gains from collectible NFTs are taxed at 28%, which is higher than current capital gains rates. What are your thoughts on the higher tax rate on collectible NFTs? Will the high tax rate hinder NFT collectible investment?

The global collectibles market, valued at over $360 billion in 2020, is expected to grow at a significant rate of around 4% during the 2022-2028 forecast period. Therefore, the higher tax rate of 28% suggests that the Internal Revenue Service (IRS) is anticipating a lot of growth in the collectible NFT sales space and wants to tax it at a higher tax rate than the current capital gains rate.

Global collectibles market | Source: UnivDatos 5) The IRS recently released the 1099-DA form in draft form. “Under digital asset reporting regulations proposed in August 2023, an NFT is included as reportable when it is a ‘digital representation of recorded value,’” said Jonathan Cutler, a senior manager in Deloitte’s Washington National Tax team who advises on reporting information on digital assets. on a cryptographically secure distributed ledger (or any similar technology).’ In April, the draft form under which an NFT or other digital asset can be reported (Form 1099-DA) was released by the IRS. Importantly, the cover page notes that this early draft version is based solely on proposed regulations and may change based on significant public comments. and until digested by the Treasury, it is difficult to gather meaningful information from this draft form or otherwise about the ultimate scope of the definition of “digital asset” for reporting purposes.” Do you have comments on the draft 1099-DA form applying to NFTs?

If the draft 1099-DA is finalized in its current form, NFT markets will be required to issue 1099-DAs. After all, collectible NFTs are taxed at a higher rate.

6) A new NFT project is taking marijuana sales away from dark web markets and into NFT markets. Cannabis billionaire Maximillian White, often referred to as the ‘Elon Musk of Cannabis’, said: “The first of its kind collaboration with British rapper Fredo, just weeks after his release from a Dubai prison, is Dr. I signed a partnership agreement to launch Green. NFTs sold on my own NFT drgreennft.com marketplace will allow Ethereum-based NFT holders to legally sell recreational marijuana worldwide. The global cannabis market cap is expected to reach approximately $33 Billion by the end of 2024 and exceed $69 Billion by 2029, with a compound AGR of 15.4%.” Do you have any thoughts or comments on this first-of-its-kind cannabis NFT initiative?

No comment.

7) NFTs appear to be the next wave of SEC enforcement actions in the digital asset space. Last year, the SEC classified two NFT projects as securities. In August 2023, the SEC charged Impact Theory, LLC, a media and entertainment company headquartered in Los Angeles, with conducting an unregistered offering of cryptoasset securities in the form of NFTs. Impact Theory raised nearly $30 million from hundreds of investors through the offering, claiming to be the next Disney Company (your former employer). Two weeks later, in September 2023, the SEC charged and reached a settlement with Stoner Cats 2, LLC (SC2); It found that SC2’s NFT offering, called Stoner Cats, which raised $8 million, was a security and therefore SC2 was involved in that deal. An unregistered securities offering. What are your views on the SEC’s enforcement actions in the NFT space?

I was unaware of the SEC’s two NFT project deals, the next Disney Company, and Mila Kunis and Ashton Kutcher’s animated web series called Stoner Cats.

However, it seems to me that in these two cases, the NFT offering documents were poorly drafted by their attorneys. The top three things that could lead to an NFT being classified as a security are breaking the NFT into pieces, offering passive income, or participating in governance such as staking. Therefore, the SEC found that these NFTs were offered and sold to investors as investment contracts and, therefore, were securities. Accordingly, these NFT projects violated federal securities laws by offering and selling NFTs to the public through an unregistered offering that is not exempt from registration.

Considering the regulatory compliance of securities issuance, this classification should be avoided and the characteristics of an NFT’s offering documents should be carefully considered before launch.

8) The vast majority of current NFT projects in art, gaming, sports, metadata arrays, and even cannabis are built on the Ethereum blockchain. In April, the SEC issued a Wells notice to Ethereum-based Consensys, revealing that the agency could potentially take action against Consensys for violating federal securities laws through MetaMask Staking and other products. The SEC intends to regulate ETH as a security after Ethereum successfully changed its consensus mechanism by switching from proof-of-work to proof-of-stake in September 2022. This view is also shared by the New York State Attorney General’s Office (NYAG). ), before the SEC filed a lawsuit on March 9, 2023, accusing crypto trading platform KuCoin for “failing to register as a securities and commodities broker-dealer and presenting itself as a fraudulent exchange,” specifically claiming that ETH was traded on the exchange. opened. The platform is a security. BlackRock CEO Larry Fink stated that he is not concerned about the SEC classifying Ethereum’s ETH as a security. What are your thoughts on ETH potentially being classified as a security? How will this impact the NFT market?

No comment.