The use of NFTs as a gate-keeping mechanism and proof of NFT ownership IRL
Weekly report with highlights from NFT universe, 19th-25th March 22
NFTmemo by Mattbullish - synthesis of NFT news & investments, interesting projects, an overview of NFT activity on Ethereum and Solana blockchains, and weekly analysis: The use of NFTs as a gate-keeping mechanism and proof of NFT ownership IRL.
What happened - selected topics
Compared to the previous week Yuga Labs did not dominate the NFT news space anymore (apart from seed investment announcement & Apecoin DAO staking discussion) replaced by several feature announcements, crypto art news, and NFTCon.
Gamestop, launched a beta version of its NFT marketplace targeting gamers built atop Loopring L2;
Universe.xyz, new NFT marketplace on Ethereum, launched a beta version
ApeCoin DAO put forward several AIPs (Ape Improvement Proposals), two of which concerning staking process and staking pool allocations stirred quite wide Twitter discussions;
Gem, NFT aggregator, introduced Safety Mode to protect users from losing money due to failed transactions;
LooksRare, NFT marketplace, introduced functionality for users to mint own NFTs by integrating Manifold and announced an auto-compounding option;
XCOPY, a famous Crypto Art artist sold 7394 NFTs each priced 0.1 ETH as an open collection confirming the position of Crypto art in the current NFT space;
US government charged two men with fraud and money laundering over the cryptocurrency "rug pull" scheme, a positive impulse given the high number of scams and frauds in NFT projects.
Investments
Next to multiple investments into blockchain gaming only notable raises were by Yuga Labs and Altava.
Yuga Labs, a studio behind BAYC with 2021 financials - rev $138M & net profit: $127M (92% margin), raises $450M, seed round, $4B valuation, among investors also some BAYC holders via Party Round (link);
Altava, a platform bringing fashion into the metaverse, raises $9.1M, seed round (link).
Project watchlist candidates
Probably Something, a community-led project with a focus on creating software for NFT creators/collectors. The direction of product development established by the community gate-kept by allow list for NFT genesis passes that are to be minted on Monday 28th March.
Coinvise, a powerful toolset for creators to build & operate tokenized communities.
Ethereum & Solana blockchain NFT activity
Looking at activity on Ethereum, OpenSea volume this week reflects a significant recovery from a cooldown in previous weeks i.e $559.87M vs. previous week $462.01M, currently ~21% increase (LooksRare volume ignored due to wash trading).
Weekly NFTs trading volume on Ethereum blockchain by marketplace [USD, 3m]
Looking at NFT activity on Solana blockchain TBD. DappRadar reports 7d USD volume $147.92M on the biggest NFT marketplace Magic Eden, a ~29% increase compared to the previous week of $101.32M. It is safe to say that there is a significant improvement in NFT activity on a macro level.
The use of NFTs as a gate-keeping mechanism and proof of NFT ownership IRL
The NFT market historically quickly evolved from PFP-only projects to introducing further utility to its holders. It is nowadays common that project teams want to create as much added value as possible for their communities as this has a direct effect on floor price. This soon gave a rise to using NFTs as a gatekeeping mechanism to either completely closed (alpha) communities or locked inner sections on discords. As the NFT communities need to also build their brand externally in order to raise awareness and create a sense of exclusivity/utility, it is only natural that the gate-keeping spilled over also into real life (IRL). In consequence, it is more and more common for NFT projects to throw events exclusive to their holders. We could have seen examples of this at Art Basel last year or more recently at SXSW.
The problem
Whether in a case of a real-life event that is exclusive to members of an NFT community, a conference ticket in a form of NFT (that is more and more common), or some digital content or experience online, the holder needs to prove the ownership of an NFT. To allow for validation of ownership the holders needs to connect their wallet, which can however be problematic in terms of security as even despite multiple tutorials on how to secure your NFTs I can imagine that a large number of holders do not possess the knowledge to set up multiple hardware wallets with passphrases and in case of mass adoption this will surely remain so. For those who do, they keep the high-value NFT assets in a hardware wallet that they would hardly have on them in case of IRL event or it is simply painful to be confirming Ledger combination every time you want to verify online.
Tokenproof - the solution?
When looking at whether someone tackles this problem I have stumbled upon a thread by @FonzGm introducing Tokenproof. Tokenproof enables NFT holders to verify ownership of NFTs and other assets either online or IRL, while not exposing the assets to a security risk. It binds your Ethereum accounts with your phone creating a proof of ownership token with which you can confirm your NFT ownership with your NFTs being stored in cold storage. It is a fairly easy process and takes only a few minutes. The verifier then scans a generated QR code to validate your NFT ownership (IRL scenario).
Proof of concept
Tokenproof threw their own event at SXSW and dropped POAP to everyone that RSPVd and then validated it through their app for everyone who attended as a proof of concept. On 4th March Tokenproof introduced mobile apps in both App Store and Play store. The team is rolling out more events, where the app will/was used for gate-keeping including Las Vegas NFT event, NFT LA or by Metakey project at Blockchain Australia. The team expects a wide rollout at NFT.NYC later this year.
Based on the roadmap the NFT ownership verification IRL is already available now and the online verification of NFT ownership would be finished in April-May 22. Most likely in terms of usability, we could expect more demand for the latter. I can imagine an example, where NFT ownership would unlock safely via Tokenproof some benefit/access online, but only in cases where the NFT project in the role of verifier does not require KYC. If that is the case like recently with BAYC, there are plenty of other solutions like Blockpass that are better suited at also verifying your identity.
Monetization & funding
There is a case for monetization both on the user side and verifier (NFT project, conference, etc.) side. Currently, Tokenproof offers a 30-day free trial for NFT holders after which users opt for either yearly Standard Membership for 0.05 ETH or Founder´s Circle lifetime membership for 0.1 ETH that is to be sold as NFT next month. In early April 2022, Tokenproof wanted to initially mint the Founder´s Circle Memberships as a form of community-led fundraising but based on my conversation with @FonzGm they are also considering letting the community mint this for free and try to secure the funds in a traditional seed round. Whereas it is common for NFT projects to monetize access to tools/features via NFT sale, I can see how the short-term motivation of the community mainly caring about floor price could pressure the team and lead to an unhealthy environment.
Based on our discussion I also understand that monetization of the service towards verifier is something they are considering in the long term.
Behind this project is @FonzGm as a part of 10 people team with some working on a full-time and some part-time basis. The engineering team is composed of CTO and four developers.
Opportunities & competitive landscape
When looking at other projects that focus on providing secure proof of NFT ownership, I have not found any direct alternative. There are other projects that focus on enabling creators to monetize their content such as Unlock protocol or Lit protocol, but either has a bit different focus or do not provide instant frictionless solution on how to solve the problem i.e. secure verification of NFT ownership.
I believe we are very early in this space and even though Tokenproof redirected its existing product towards different use case, technically it is 1,5 months old. In my opinion, they can fully enjoy first-mover advantage. I also think that we are at the beginning of a cycle during which NFTs will become the new digital standard of ownership. Tokenproof removes a security obstacle to wider application.
Risks
As one of the main risks for Tokenproof, I consider that the possibility of some large platform that is already first screen for NFT holders (e.g. any platform that is central to NFT ecosystem such as a wallet, marketplace, or social network) would internally develop and integrate similar functionality. Convenience and simplicity goes a long way and if a user has a simpler alternative available via a platform/tool he is using already, looking for other solutions will not be needed (downloading an additional app that needs to be connected with a wallet etc.).
Wrap-up
I like Tokenproof in the sense that the product is directly trying to solve a current pain point of NFT holders and is in my opinion in a position to exploit first-mover advantage. The main success factors in my opinion will be if the dev team is able to deliver fast on the online verification of NFT ownership, be able to close partnerships with verifiers, and fully exploit first-mover advantage. It could get significant traction after a successful showcase at NFT.NYC or when used by larger NFT projects with high exposure. I am in touch with the founder and want to discuss ways on how we can help/participate.
🔗 Want to dig deeper?
Have opinion on the above? Are you interested in/building something in NFT and web3 space? Drop a comment or message me on Twitter or Telegram and lets chat.