How to profit from the surging NFT market — without buying an NFT

Written by Robin Prock

On the 10th of June, it happened again…

…a billionaire bought a CryptoPunk for $11.7 million. One of the 9 aliens — but the only one with a mask.

The hype around NFTs is unbroken: Although the crypto market is currently down, as if Rocky Balboa had knocked it out, people are buying, no, ripping themselves off for NFTs.

In the first half of 2021 the total NFTs sales volume reached $2.5 BILLION. In comparison: The sales volume was 13.7 million in the first half of 2020.

No wonder more and more are pulling their ticket, jumping on the steaming NFT bandwagon, and wanting to win with the new market too.

But is that always a good idea? — Unfortunately, not!

Because NFTs have problems that make an investment not always advisable.

Nevertheless, you have alternatives: Synthetic NFT Pool Tokens (NPTs), with which you (like an ETF) represent a whole basket of NFTs and profit from the price increase — All without holding an NFT.

That’s why you’ll learn in this article:

• What gruesome problems the NFT market has that ordinary investors tend to overlook,
• what synthetic assets are and their advantages,
• and how you can profit from the rising NFT market via NFT Pool Tokens using the MGH (MetaGameHub DAO) protocol as an example, with less risk and lower costs than acquiring NFTs on your own.

What problems do NFTs have?

If you look at Beeple, CryptoPunks, Bored Apes or CryptoKitties, you see only one thing: success, rising prices and the rush of the new — which runs through your body like a sip of Martini.

You want to get in on the action, win as well, and be one of the early adopters who make their fortune with NFTs. What you don’t see are the problems.

What are these problems of NFTs?

• The market is very illiquid: sometimes it takes weeks to find buyers and sellers. Moreover, new NFTs are mostly not sold, but auctioned.
• NFTs are very volatile: maybe you bought an image for 10 Ether — and you’re sure: that’s going up in value quickly. But no one comes forward, no one bids or buys. So you lower the price, lower it and lower it — until it hurts. Only now do you realise how volatile the NFT market really is.
• NFTs have no further use case: What do you do with NFTs once they sit in your wallet? They just hang around. You are only left with hope: HOPE that the price will go up; HOPE that someone else will buy at a higher price. What if your hope is dashed?
• No data-based valuation: NFT prices are opaque and based on little data. However, what dictates the price are feelings. This makes a proper valuation impossible.
• Diversification: Because some NFTs are expensive, you cannot diversify properly. The floor price (the cheapest price) for a CryptoPunk alone is a cheap Porsche. Only multi-millionaires can safely diversify their investment in NFTs. This is also true for virtual lands, where manual diversification can be extremely time-consuming and expensive.
• High transaction fees: Every time you buy an NFT on Ethereum, you pay high gas fees. In peak times, often over 100 dollars.

Ouch! — But it doesn’t have to stay that way.

Synthetic assets, like NFT Pool Tokens (NPTs), can solve all these problems. But what are synthetic assets like NPTs? Let’s take a closer look and start with the word “synthetic”:

What are synthetic assets?

Oil without oil, gold without gold, copper without copper — this is the best way to describe synthetic assets.

You trade the gold price, but there is no nugget of gold in your vault.

A good example is the Synthetix protocol (a lot of foreshadowing in this name).

It allows you to stake the SNX token and in return you get a synthetic asset (so-called Synths) — be it synthetic gold (sXAU), synthetic Tesla (sTSLA) or even synthetic BTC (sBTC).

Not bad, what is the advantage?

• The security of the blockchain: All transactions are public on the blockchain — you only have to trust the smart contract, no exchange, no commodity trader and no bank.
• Convenience: Ever bought a barrel of oil? When the oil price slid to -$37 in 2020, some traders couldn’t get rid of their oil futures. The result: a truck dumped oil barrels in their front yard. Synthetic oil will never be in your front yard — only in your wallet.
• Only one wallet: If you trade synthetic cryptocurrencies, everything runs on Ethereum. You don’t have to change your wallet when you buy sBTC, for example.
• Fast trading: Synthetic assets are extraordinarily liquid — Synthetix has its own exchanges where you can trade your Synths quickly.

Of course, I can’t hide the risks from you either:

• The Oracle could make a mistake and the price is wrong (a brilliant opportunity for arbitrageurs),
• High collateralisation: While traders in the real world trade derivatives on credit, you are over-collateralised on the blockchain. For a Synth you have to lock 750 percent of SNX. But this is needed. Otherwise, trustless transactions wouldn’t be possible.
• Price fluctuations: If the price falls, you have to replenish SNX — otherwise you will be liquidated like a careless Robin Hood trader.

No sea without waves — and no investments without risk.

Nevertheless, the advantages of synthetic assets outweigh the disadvantages; especially when it comes to NFTs…

…and here we are again: How can you ride the rising NFT market in a diversified and uncomplicated way via NPTs?

What are NPTs? — Using the example of MGH

If you buy an ETF, you are automatically invested in hundreds of shares.If their price rises, the ETF rises in value — and vice versa.

A synthetic NPT works in a similar way: As an ERC-20 token, it maps a whole pool full of NFTs and reflects their price like a mirror.

One protocol that will make this possible is MGH — MetaGameHub DAO. How does it work? Let’s make it an example with the investor Alice:

Alice is fascinated by the Metaverse — by The Sandbox and Decentraland and is impressed by the games, cities, mazes, theme parks… that are just built from a few lines of code like with cement.

But buying much LAND there herself … Alice doesn’t dare. One can say she is a risk averse investor.

She would rather profit from the development of all metaverse protocols via NPTs.

So how does she get NPTs? — In two ways:

1. She already has an NFT and puts it into the NFT pool — for this she can mint NPTs. How does this work? If Alice stakes a certain amount of MGH token, she can send her NFT to the MGH Price Oracle. The price oracle sets a fixed price; if Alice agrees to the price, her NFT goes into the NFT pool (but she retains full ownership of the NFT). Now she can mint NPTs.
2. She simply buys NPTs from the MGH/NPT Liquidity Pool.

What can Alice do with the NPTs now?

• She holds the NPTs in her wallet and gains if the value of the NFT pool increases in the long run.
• She sells her NPTs on a DEX for other cryptocurrencies.
• Or she puts her NPTs and MGH tokens into the liquidity pool. She then receives liquidity pool tokens (LP tokens), which she in turn can stake for earning MGH tokens.

If Alice now holds her NPTs on an NFT pool of the metaverse, she automatically wins when the metaverse grows, well-known brands cultivate digital LAND and more and more gamers play there…

…but not only that; equally, she has fixed most of the problems of NFT with her NPTs:

Because the NPTs are a.) very liquid, b.) diversified across many projects, c.) are not valued by emotions, d.) can in turn be staked, and e.) cost less in gas fees than buying NFTs individually each time.

Thus, a synthetic asset can revolutionise the NFT market and attract new people who were previously repelled by its problems.

Let us simply summarise what has been said:

Conclusion: Profiting from the rising NFT market with NPTs

Although the NFT market is rising, it has some blemishes. Because NFTs are:

• illiquid,
• very volatile,
• without further use,
• emotionally priced
• and poorly diversified.

These problems can be solved by NFT Pool Tokens (NPTs), or more general, synthetic assets.

Synthetic means: The NPT only reflects the price of the NFTs in the pool — you have no right to the NFTs in the pool.

So with NPTs, you profit when the NFTs in the pool increase in value over the long term.

If you want to learn more about NPTs, visit the MGH website: https://www.metagamehub.io/