NFTS: Like IPOs, but for Everything

NFTs were all the rage the pre­vi­ous few years. Com­pa­nies like Bored Ape Yacht Club and Cryp­to Punks sold their images for thou­sands. Even insti­tu­tions like Visa bought a Cryp­to Punk NFT. Graph­ic design­er, Beeple, sold an art­work for a whop­ping $69 mil­lion. Artists and meme mak­ers were final­ly able to prof­it off their work. 

Then the mar­ket crashed by $12 bil­lion in 2022. Peo­ple who had been say­ing all along that NFTs were use­less laughed. 

But is there still a good use for NFTs? Some peo­ple have sug­gest­ed they could mir­ror the cur­rent pur­pose of stocks. 

NFTs, or non-fun­gi­ble tokens, are unique dig­i­tal con­tent that uses blockchain to cer­ti­fy own­er­ship and orig­i­nal­i­ty. They can be trans­ferred by own­ers, mak­ing them pur­chasable and sellable.

NFTs have some sim­i­lar­i­ty to stocks. Their dig­i­tal nature means they can be high­ly liq­uid, bought and sold at the click of a but­ton. “Non-fun­gi­ble” means that the asset is unique.

Stocks can also be sold and trad­ed. The dif­fer­ence is that a stock rep­re­sents own­er­ship in a com­pa­ny. Each stock is called a share. You get vot­ing rights with shares, and if you own a lot of them, you can con­trol the company. 

Com­pa­nies sell shares to investors to raise funds. Buy­ers are usu­al­ly some com­bo of hedge funds, con­glom­er­ates and retail investors. 

How­ev­er, the aver­age non-wealthy investor can only buy shares in a com­pa­ny after it goes public—and most com­pa­nies don’t. It’s hard because they have to be approved by the Secu­ri­ties and Exchange Com­mis­sion, which is a long, expen­sive process.

Pri­vate com­pa­nies, on the oth­er hand, are gen­er­al­ly not open to aver­age investors—only accred­it­ed ones. In order to become accred­it­ed, an investor has to have income exceed­ing $200,000 a year or have a net worth exceed­ing $1 mil­lion. These rules pre­vent most nor­mal peo­ple from get­ting a piece of valu­able pri­vate companies.

More­over, even for accred­it­ed investors, the process of buy­ing shares can be dif­fi­cult. It often requires chang­ing cor­po­rate bylaws, which can be legal­ly burdensome.

NFTs could dis­rupt all this. It’s easy for any­one, even with few tech­ni­cal skills, to cre­ate an NFT. Then they can sell them on a mar­ket­place like OpenSea. 

NFTs would not only be a way for large pri­vate com­pa­nies to go “pub­lic” and issue shares in a way that cir­cum­nav­i­gates the typ­i­cal IPO process. But it would also be a way to do this for small com­pa­nies that don’t nor­mal­ly lure investors.

For exam­ple, some­one with a food cart is unlike­ly to get invest­ment from any­where and they have to bor­row mon­ey to start and grow the busi­ness. But if the own­er sold NFTs, then any­one could go online and buy shares. If the cart is suc­cess­ful, the val­ue of each NFT share will increase and could even pay dividends. 

This same “NFT as shares” mod­el could just as well be applied to a local cof­fee shop, restau­rant or organ­ic farm. It would cre­ate a rad­i­cal­ly new way to invest—how often do every­day res­i­dents of a city seed fund such things?—amounting to the “IPO­ing of everything”. 

One Youtu­ber who goes by Megan.CPA has drawn this con­nec­tion between issuance of NFTs and IPOs, and believes there is now immense legal gray area. 

“When [are NFTs a] crossover from crowd­sourc­ing, ven­ture cap­i­tal? I have a feel­ing that this is going to become a hot top­ic in the near-future. And reg­u­la­tions are going to start drop­ping down on these NFT col­lec­tion launch­es because the sums of mon­ey are so large.”

How­ev­er, absent those reg­u­la­tions, NFTs might be a more stream­lined way of crowd­fund­ing and share-dis­tri­b­u­tion than tra­di­tion­al meth­ods. Right now they’re most­ly used for dig­i­tal art, caus­ing peo­ple to dis­miss them as glo­ri­fied JPGs of apes. But peo­ple envi­sion using them and the accom­pa­ny­ing blockchain tech­nol­o­gy for many pur­pos­es, from more trans­par­ent elec­tions to smarter con­tracts. Add “IPOs for even the small­est of busi­ness­es” to that pos­si­ble list of uses. 

This arti­cle fea­tured addi­tion­al report­ing from Mar­ket Urban­ism Report con­tent staffer Rebec­ca Lau.