NFTs
Tokenization of Art, Gaming, and the Future of NFTs
Disclosure: The opinions and views expressed here belong solely to the author and do not represent the views and opinions of the crypto.news editorial.
This is the third part of a three-part interview series with William Quigleycryptocurrency and blockchain investor and co-founder of WAX and Tether, led by Ozelli Jungle exclusively for crypto.news. Part One is about Prison sentences for Sam Bankman-Fried and Changpeng Zhao. The second part is about cryptocurrency and banking services. Part Three is about the future of NFTs.
1) In the first part of our interview, you mentioned that you co-founded Worldwide Asset eXchange (WAX), the first decentralized marketplace for trading video game virtual items. Tell us about WAX.io, the number one web3 gaming platform.
WAX was built specifically to meet the demands of blockchain players and NFT collectors. We initially built WAX on the Ethereum blockchain; however, exorbitant gas fees and platform slowness led us to develop the WAX blockchain and wallet.
The WAX blockchain has the largest NFT ecosystem, with over 250 million NFT assets and over 30,000 dApps in NFT projects. The WAX platform handles over 23 million transactions per day for over 30,000 dApps and 15 million users. The Wax blockchain is ultra-fast, secure and carbon neutral.
As the world’s leading blockchain for NFTs, dApps and digital games, based on the number of daily active users, WAX was designed from the ground up to be environmentally friendly. Our carbon neutral status isn’t just a statement – it’s Climate Care certified, demonstrating our dedication to maintaining a minimal environmental footprint.
This Earth Day, we launch the Earthen WAX Walker NFT drop. For every Earthen Walker NFT claimed, WAX will plant a tree. This initiative combines our passion for innovative digital collectibles with tangible actions to benefit our planet, offering a unique digital art collection that will allow us to contribute to global reforestation efforts.
two) A 2023 Crypto Analysis Firm DappGambl Report found that 95% of NFTs are worth practically nothing. The report found that following the immense excitement about NFTs between 2021 and 2022, around 79% of all NFT collections remained unsold. Popular Bored Yacht Ape NFT values are down around 90% from market highs. With the NFT markets crashing at the end of 2021, I wrote that NFTs are here to stay. What are your thoughts on the future of NFTs?
According to Zion Market Research, the size of the NFT market was valued by 36.12 billion dollars in 2023 and is expected to reach 217.07 billion dollars by the end of 2032, showing a compound annual growth rate of around 22.05% from 2024 to 2032.
Non-fungible token industry outlook | Source: Zion Market Research
The global NFT market capitalization today is $68.68 billion, a change of +1.12% in the last 24 hours. I expect most of this growth to occur 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, exhibiting, and auctioning and investors buying, selling, and trading art NFTs. Nicole Sales Giles, Vice President and Director of Digital Art Sales for Post-War and Contemporary Art at Christie’s, said: “At Christie’s, we view Digital Art as simply another contemporary art collection category. The web3 artistic community is collaboratively building something very special. I believe that in the future, the art world will look back on the current camaraderie of artists, builders, curators, and collectors as the moment “when it all began.” What are your thoughts and opinions on the future of artistic NFTs?
The art market knocked down 4% last year to $65 billion a year worldwide, with a few art sales making up most of that number. Art NFTs will likely be managed by global art companies such as Christie’s, Sotheby’s and Phillips.
At WAX, we focus on collectible NFTs and gaming NFTs with high owner trading volume. We hope our collectible NFT Land WAX Walker drop generates intense interest from collectors so we can plant lots of trees.
4) Earnings from collectible NFTs are being taxed at a rate of 28%, which is higher than current capital gains rates. What do you think of the higher tax rate applied to collectible NFTs? And will the higher tax rate deter collectible NFT investing?
The global collectibles market – valued at more than US$360 billion in 2020 – is expected grow at a significant rate of around 4% during the forecast period 2022-2028. Therefore, the 28% higher tax rate shows that the IRS (IRS) foresees huge growth in the area of collectible NFT sales and would like to tax it at a higher tax rate than the current capital gains rate.
5) The IRS recently issued the 1099-DA form in draft form. Jonathan Cutler, a senior manager on Deloitte’s Washington national tax team who advises on digital asset information reporting, said: “In accordance with the August 2023 Digital Asset Reporting Proposal regulations, an NFT is included as reportable when it is a ‘digital representation of value recorded on a cryptographically secure distributed ledger (or any similar technology).’ In April, the draft form on which an NFT or other digital asset can be reported – Form 1099-DA – was published by the IRS. Importantly, the title page notes that this draft is based solely on the proposed regulations and is subject to change based on public comments, the volume of which appears to be significant. Until these comments are digested by the IRS and Treasury, it is difficult to gather meaningful information, whether from this draft form or another, about the ultimate scope of the definition of “digital asset” for reporting purposes.” Do you have any comments on the draft Form 1099-DA that applies to NFTs?
If the 1099-DA project is finalized in its current form, NFT marketplaces will need to issue 1099-DAs. After all, collectible NFTs are taxed at a higher rate.
6) A new NFT project takes cannabis sales out of dark web markets and into NFT markets. Cannabis billionaire Maximillian White, who is often called the ‘Elon Musk of cannabis’, said: “I signed a partnership agreement with British rapper Fredo just weeks after his release from Dubai prison to launch the first of its kind, Dr .NFTs sold on my own NFT marketplace drgreennft.com, which will allow holders of Ethereum-based NFTs to sell recreational cannabis legally around the world. The value of the global cannabis market is expected to reach approximately US$33 billion by the end of 2024 and reach over US$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 comments.
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 Los Angeles-based media and entertainment company, by conducting an unregistered offering of crypto asset securities in the form of NFTs. Impact Theory raised approximately $30 million from hundreds of investors through the offering, claiming to be the next Disney company – its former employer. Two weeks later, in September 2023, the SEC charged and reached settlement with Stoner Cats 2, LLC (SC2), finding that SC2’s $8 million NFT offering called Stoner Cats was a security and therefore SC2 had engaged in an unregistered offering of a security. What is your opinion on the SEC’s enforcement actions in the NFT area?
I was not aware of the SEC’s two settlements with NFT projects, the upcoming Disney Company and the animated web series called Stoner Cats by Mila Kunis and Ashton Kutcher.
However, it seems to me that in these two cases, the NFT offering documents were poorly drafted by their lawyers. The three main things that could give rise to the classification of NFT securities are fractionalizing an NFT, offering passive income, or participating in governance – such as staking. Thus, the SEC found that these NFTs were offered and sold to investors as investment contracts and were therefore securities. Accordingly, these NFT projects violated federal securities laws by offering and selling NFTs to the public in an unregistered offering that was otherwise not exempt from registration.
Given the regulatory compliance involved in issuing securities, this classification should be avoided, and the document offering characteristics of an NFT should be carefully considered before launch.
8) The vast majority of existing NFT projects in art, gaming, sports, metaverses and even cannabis are built on the Ethereum blockchain. In April, the SEC issued a Wells warning to Ethereum-based Consensys, revealing that the agency could take potential action against Consensys for violating federal securities laws through its MetaMask Staking and other products. The SEC seeks to regulate ETH as a security after Ethereum successfully changed its consensus mechanism, transitioning from proof-of-work to proof-of-stake in September 2022. This view is also shared by the US Attorney General’s Office. New York State (NYAG), which, before the SEC on March 9, 2023, filed a lawsuit charging crypto trading platform KuCoin for “failing to register as a securities and commodities broker and falsely representing itself as an exchange,” notably claiming that ETH traded on the platform is a security. BlackRock CEO Larry Fink has stated that he is not concerned about the SEC classifying Ethereum’s ETH as a security. What do you think of ETH’s potential classification as a security? How will this impact the NFT market?
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