Unlocking the Value in In-Game Collectibles
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Despite several setbacks, 2021 has been an epic year for the cryptocurrency sector, and there's no other segment that can claim to have had a better year than NFTs. Although it's now several years since Ethereum launched the ERC-721 non-fungible token standard, it's taken as long for their true potential to become apparent. Most of the headlines over 2021 have been related to the dizzying sums changing hands for digital artworks, with even finance giant Visa taking a slice of the action for a cool $150,000.

But as far as up-and-coming use cases go, in-game NFTs is currently where it's at. According to Dapp Radar, in-game NFT sales broke the $1 billion barrier in August, accounting for 20% of the total volume. Trading game Splinterlands increased its user base by over 400% compared to July, attracting over 130,000 unique wallets, while flagship crypto game Axie Infinity became the most valuable NFT collection in history, passing $1.7 billion in total sales.

Levelling Up Collectibles

Many people may be content with the fact of owning an NFT, seeing it as its own reward. After all, if you own a physical piece of art, or a traditional in-game asset, there isn't much else you can do with it beyond its first purpose. But as digital, blockchain-based assets, NFTs are different. In the context of DeFi, with the myriad opportunities for earning income through staking, lending and yield farming, NFTs can become even more valuable, profit-generating instruments.

One of the earliest iterations of this concept was Aavegotchi. A portmanteau of Aave and Tamagotchi, the small, plastic pets with a pixellated screen, Aavegotchi allows users to nurture their own digital NFT-based collectibles and receive rewards in the native GHST token. It effectively introduced the idea of "staking" NFTs to earn rewards, in the same way that users stake their ADA tokens or DOT tokens to secure the Cardano and Polkadot networks. However, with Aavegotchis the rewards are proportional to the rarity of your NFT, along with its loyalty score, based on how often the user interacts with it.

Now, the idea of earning passive income on your NFTs is becoming more mainstream, thanks to the entry of players such as Drops and NFTfi.

Turn Your NFT Gaming Hobby Into Profit

Drops launched on the Ethereum blockchain in July, allowing users to access permissionless loans using NFTs as collateral. In this way, any owner of an NFT can use it to obtain instant liquidity, earn yield, and reduce the opportunity cost of investing in this burgeoning asset class.

Drops also has a valuable proposition for issuers of NFTs. Let's imagine a digital artist releases a collection and is under some pressure to sell to fund their next work. By using the Drops protocol to release some of the value in the collection, they reduce the pressure to sell and can wait for a suitable buyer to come along at the right price. In this way, NFT issuers can avoid having to dump their tokens at a lower value because of simple issues such as bad timing.

Drops works using the concept of pools, familiar to those in the DeFi space. The project has partnered with Enjin, one of the biggest players in the gaming NFT space, which also developed the highly flexible ERC-1155 NFT standard. Since launching in July, the protocol has accrued nearly $6 million in total value locked.

NFTfi offers a comparable service. In March, the CEO of NFTfi told Bloomberg how users had been using NFT-collateralized loans for everything from covering margin calls to paying their rent during the difficult financial period resulting from the pandemic.

So, thanks to these platforms, gaming can become a lucrative hobby. Rather than gamers leaving the NFT assets to sit idle on their account, they can be earning yield whenever they're not in use. Even non-gamers can benefit simply by engaging with NFT collectibles. These platforms demonstrate how NFTs are leveling up the idea of investing in collectibles from being a mere vanity item to being a sustainable source of revenue.

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