Earlier this week, it was announced that Binance, the world’s largest cryptocurrency exchange by trading volumes plans to launch a non-fungible token (NFT) marketplace in June. According to Binance, the new marketplace will “bring together artists, creators and crypto enthusiasts from around the world.” They have also stated that the new global marketplace will “become the premier destination for NFTs and digital collectables across mediums, from visual arts and gaming to music and sports.”
NFTs: a brief guide
Non-fungible tokens or NFTs have been making headlines in recent months. In brief, NFTs are a type of digital asset designed to represent ownership of rare virtual items. They are a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique and therefore not interchangeable.
The very term fungible means were replaceable by another identical item. Non-fungible, therefore, means that the item in question is unique, incapable of replacement and the only one in the world.
Much like physical paintings are incapable of exact replication, NFTs provide creatives with the opportunity to create stand-alone and unique pieces in the digital world. This is of particular importance in the digital sphere where mass downloading has driven down the value of creatives’ pieces.
On top of this, NFTs are creating a shift in current business models according to Lior Messika, founder of Eden Block, a venture capital firm specialising in blockchain and crypto. This is because NFTs also allow artists to sell directly to consumers and feature built-in functions that pay creators when their work is sold on. The latter function means that art pieces can operate as collectables, both tangible and speculative, which can be bought, sold and traded for money.
According to NonFungible.com, sales of these tokens soared to more than $2 billion in the first quarter and back in March, an NFT by the artist Beeple sold at Christie’s for over $60 million, making it the most expensive NFT ever sold at auction.
How will Binance’s NFT marketplace work?
The platform will be divided into two main parts: Premium Events and Trading Market. The former will select works and high-end exhibitions, for which Binance will charge a 10% fee with creators receiving 90% of the proceeds. The latter, which allows for regular users to create their assets, will charge a 1% processing fee, with creators continuously receiving 1% royalties.
The marketplace will be powered by the company’s blockchain infrastructure, Binance Smart Chain (BSC) but users will also be able to deposit tokenized artworks from other chains like Ethereum.
One question that has arisen out of this launch is who the target market is. One panellist from CoinDesk’s “The Hash” drew upon parallels between Binance and Ethereum and posited that users are cognitive of cryptocurrency exchanges and would therefore be unlikely to move away from Ethereum in favour of a new market like Binance’s.
However, one advantage that Binance may have over its competitors is the lower fee structure as stated above. By way of example, SuperRare, an NFT marketplace with a similar premium gallery offering, takes a 15% commission on primary sales. The other side of the coin, however, is that the lower fees may mean that Binance becomes a platform for lower grade artwork compared to its competitors.
Another reason that Binance’s NFT marketplace launch may be successful is that Binance already has an established customer base. According to Forbes, in March 2021, Binance Smart Chain (BSC), is currently the most used blockchain in terms of unique active wallets, averaging 105,000 in March. Additionally, BSC averages almost 8x the number of daily transactions on Ethereum (8.2 million vs. Ethereum’s 1.4 million on April 26). What this means is that Binance can offer a suite of services to customers they already have and customers looking to expand into NFTs.
Some believe that the NFT craze has come to pass already and that the timing of Binance’s launch is out of step with NFT market value. However, others argue that it is only a matter of time before industries outside of collectables, art and music catch on to the NFT craze.
While this means that the NFT bubble will not burst but rebound in another form, this could spell trouble for Binance who has stated that it will be a destination for the creative industries already associated with NFTs. Only June will tell.
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