Crypto exchange Kraken unveiled its plan to begin offering non-fungible tokens, promising to fix two major pain points that contribute to low adoption rates.
While society’s fascination with NFTs—a form of digital collectibles, whose titular ownership deed can be tracked on the blockchain—may have reached dizzying heights last year, their actual appeal has arguably been limited.
“Many [applications] are not so familiar for individuals, so I think the education around this space, much the same as cryptocurrency broadly, is really important,” chief operating officer Dave Ripley said in comments posted to his company’s official YouTube channel on Friday.
Kraken sees an opportunity to gain a foothold in a market currently dominated by OpenSea and Rarible by expanding the total addressable user base once its NFT platform is up and running by the latter half of this year.
Thus far buyers of such digital collectibles have mainly been crypto evangelists eager for the chance to add a utility feature to their coin holdings that otherwise lack intrinsic value and trade purely on speculation.
For example, those who did not own a digital wallet and cryptocurrency could not buy NFTs, since they are listed not in dollars but in coins such as Ether, Solana, or Tezos. This automatically puts a damper on broader uptake, leading some advocates to call for fiat-based transactions as well in order to lower the threshold.
“If you have U.S. Dollars in your Venmo or bank account, how to get from there to purchase an NFT is actually quite difficult, and that’s one of the big barriers that we’ll be bringing down with our platform,” Ripley said.
Secondly, high transaction costs native to the Ethereum blockchain, known as “gas fees,” could at times exceed the value of the underlying NFT itself, further depressing demand.
In order to gain an advantage in the highly competitive space, Kraken wants to address both issues, now that it is enlisting users to sign up for its NFT platform waiting list.
According to an announcement this week, buyers and sellers had the flexibility to conduct trades in fiat currencies like dollars and euros, as well as dozens of different crypto coins supported by the exchange.
Kraken is also pitching the idea that its users will not pay any blockchain network fees for any trading activity conducted via its platform.
“This helps you build your dream collection with near-instant transfer speeds and the peace of mind that spikes in network activity will not impact the cost of your purchases and trades,” it said.
But there’s a big catch: As soon as an asset is taken off Kraken, that is no longer the case.
“Gas fees will be incurred when transferring NFTs and other crypto assets on and off the Kraken platform,” it says in small print at the bottom of Kraken’s sales pitch.
Downturn or just a temporary lull?
While the NFT craze began with a digital art auction worth $69 million to a Singapore-based crypto-entrepreneur called MetaKovan, there have been signs suggesting interest may be tailing off.
Apart from a few projects heavily endorsed by celebrities managed by Guy Oseary, a partner at Bored Apes creator Yuga Labs, or Creative Artists Agency, most NFTs are worth very little given the supply of easily generated digital artwork greatly exceeds collectors’ overall demand.
Reports of sellers artificially driving up the price through “wash trading” have also dogged a market whose value may be controlled by a small number of whales, according to research published in the science journal Nature.
It may then not have come as a surprise that an NFT of the first tweet ever sent, purchased for the equivalent of $2.9 million in Ether by a blockchain entrepreneur, saw so little demand he canceled the sale after facing a near-total loss of his investment.
The NFT market got a much needed jolt in the arm after Yuga Labs, flush with cash from an investment by Andreessen Horowitz, sold virtual deeds to digital land in their upcoming metaverse.
Kraken’s Ripley said he wasn’t remotely deterred by recent headlines of a slowdown in NFT demand, arguing that is endemic to a new technology little understood by consumers.
“The use cases for NFTs we think are actually even more significant than some of the original cryptocurrencies themselves, so we see the potential market size here as rivaling that of…Bitcoin and Ethereum,” he said.
