Asset Backed NFTs, The Best Investment Choice?

Physical asset NFTs decentralize markets, enhance transparency and eliminate counterfeit goods.

Businesses can use NFTs to increase their brand awareness and customer base.

Asset backed NFTs enable investors to invest in both the digital tokens and the associated physical assets.

Keywords: NFT physical asset, NFT real world asset, physical asset NFT, NFT backed by physical assets, blockchain, luxury goods, phygital NFTs

Introduction

The non-fungible technology has changed how people interact with each other as well as how certain businesses function. Still, the technology has much more to offer to the business and social interaction spheres. This post discusses the new type of non-fungible token called asset backed NFT.

What are asset backed NFTs?

Before we define asset backed NFTs let’s explain what non-fungible tokens are. Non-fungible tokens are unique digital assets that exist on the blockchain. They are one-of-a kind virtual assets since they cannot be interchanged with each other. In general, NFTs are certificates of ownership of digital or physical assets such as pieces of art, property deeds, fashion goods and tickets.

Already, we know that non-fungible tokens are created using the blockchain technology. This blockchain technology is unique in that people cannot change, alter or delete the data that exist on it. Therefore such information is permanent and anyone can access it. The records are distributed among millions of nodes or computers from across the globe.

Asset Backed NFT- Momint

Asset backed NFTs, also called physical asset NFTs or phygital NFTs, are a special type of non-fungible tokens which are backed by physical assets such as houses, precious minerals or real-estate. Such an NFT acts as a digital deed of the physical asset which it represents such as a piece of art. A person who owns it claims ownership of the real asset which backs it.

In other words, NFT real world assets consist of two components, their digital versions and the physical ones. For instance, if you purchase a physical asset you create a digital record in the form of NFT. The physical asset is connected to a unique identifier like near-field communication (NFC) tag or QR code.

The reason why NFTs tied to physical assets are popular is that they act as a bridge between the virtual world and physical world. More interestingly, the physical asset NFTs make the exchange of the products that back them fast and efficient since there is no involvement of intermediaries. The transaction is purely peer-to-peer in nature.

Why back NFTs using physical assets?

One of the main functions of the blockchain is to solve the problem of double spending of assets. It achieves this through accurate and timely recording of transactions, which are verified by various nodes. It is important to note that the blockchains use different consensus algorithms to prevent double spending.

Therefore, backing NFTs by assets helps to improve the efficiency of the supply chain where there is transfer of goods from one point to the other. The NFT acts as a perfect record of transactions involving the accompanying physical assets. Therefore, it is very easy to share such transaction records to many different companies which are part of the supply chain.

How can NFTs be used for luxury assets?

Since there is success in monetizing digital assets using NFT tied to real world assets, luxury brands can use the same technology with their goods. Through digitizing their luxury goods, these companies can eradicate the role of intermediaries in the market which reduces their operational costs and increases profit levels.

The companies that digitize their products can easily appeal to a new market segment, especially the younger generation that rely on technology to interact with the rest of the world. For exAmple, the customers can purchase real-world assets through investing in physical asset NFTs.

Digitizing their luxury products helps them to counteract the problem of counterfeiting. This is because both the customers and the companies are able to track the movement of luxury products. This stops the customers from buying counterfeit products. At the same time, the transparency which the blockchain enhances ensures there is no confusion which counterfeit products create on the market.

The truth is that any company can now tokenize their real-world luxury goods. This has the potential to increase the liquidity of the luxury asset market through fractional fundraising. In other words, it is easy to have co-ownership of luxury products through investing in fractional physical NFTs. Thus, people who previously could not invest in luxury goods can do so through NFT physical assets, thereby increasing their market sizes.

Tokenization of physical asset NFTs

Tokenization involves the process of creating a digital token which represents real world assets. As said, the virtual asset exists on the blockchain and is traded on the market for digital assets such as cryptocurrency exchanges. Therefore, the physical asset will have a “digital twin.” Interestingly, it becomes easier to give reference to the real world asset using digital identifiers such as barcodes.

Wines can backed by NFTs- Reddit

We have many exAmples of tokenized assets such as wines, clothing items, watches and shoes. Companies that produce and distribute luxury products can tokenize them to make it very easy to track and authenticate them. In fact, it becomes very easy for the customers to verify the products.

The good thing about tokenizing the products is that the customers can redeem them at any time or they can treat them as investment assets which they can trade. Again, the tokenization of luxury goods brings in a new dimension to the financial sector. Their holders can use them as collateral on some platforms to get DeFi loans.

Advantages of physical asset NFTs

The tokenization of physical assets has created new use cases of NFTs. In fact, the NFTs have helped to expand the markets for goods and digital assets. Let’s discuss a few of these advantages.

Emergence of safer investment

The reality is that Non-fungible tokens have opened greater investment opportunities. The reason is that asset backed NFTs are safer than the other digital assets that exist on the market. The reason is that investors have access to both the digital assets and the physical products. Also, such assets are less volatile than crypto tokens whose price can fluctuate by larger margins.

Fractionalization has created means of investing in NFTs

As a result of tokenization of physical assets such as real-estate, people can invest in physical assets without owning them. Since there is no need to physically move the goods all the time, the risks that the assets are spoiled or damaged is very minimal.

Also, many people have the chance to own real products which are tied to NFTs. This creates an opportunity for many investors to invest in physical goods. The investors who could not afford to own a whole product can now co-own it with several other people. However, this does not limit the investors who want to sell their fractions to do so.

ESG-friendly

Tokenization of physical assets also increases sustainability. Many producers are able to comply with the Environmental, social, and governance (ESG) standards since there is minimal movement of the products. For exAmple, this cuts on fuel usage required for transporting the products during the physical distribution process.

More specifically, the owners of the goods do not need to move them every time people buy them. They only transfer the asset backed NFTs to the buyers. Similarly, when the buyers want to sell the goods, there is no need to redeem them. As a result, people can transact goods many times without moving them around. This saves the costs associated with transportation, insurance and storage.

The physical asset NFT decentralizes the market

In the traditional market, buying and selling of physical goods is highly centralized. There are many intermediaries which increase the price of the goods. On the contrary, NFTs enable producers of certain goods to sell them directly to the users. This increases market efficiency and the reach of the goods.

Brands can reach many customers

The NFTs have brought new ways for brands to engage their customers across the globe. They have resulted in innovative marketing where companies can easily identify and communicate with their loyal clients. For exAmple, brands can give their loyal customers NFTs which enable them to have continuous engagement.

Brands can have NFTs- Cryptonews

Also the NFTs for popular brands reflect the values of the buyers which improve customer loyalty. As such, they enhance brand awareness as well as encouraging interaction with the buyers.

Elimination of counterfeit goods

The physical asset NFT helps to eliminate counterfeit products on the market. This is because they prove the authenticity of the goods. Therefore, both the companies and the customers can track the movement of the goods on the market.

The buyers can use product identifiers such as QR codes to identify genuine products. Likewise, businesses can LINK the products to the NFT through using serial numbers. They achieve this by writing the serial numbers on the NFTs.

Conclusion

In all, asset backed NFTs are the non-fungible tokens which are backed by real world assets. A person who buys such an NFT has a claim on the physical product that backs it. Businesses that use NFTs tied to real world assets reach many customers and maintain their loyalty.

FAQs about asset-backed NFTs

What are assets NFTs?

Asset NFTs, also called asset backed non-fungible tokens, are NFTs which are backed by real world assets such as houses. Therefore, a person who owns an asset backed NFT has a claim on the physical asset that backs it.

What are asset-backed NFTs?

Asset NFTs are one-of-a-kind cryptographic assets which are backed by physical assets. Basically, they act as representations of the physical assets that back them. Popular assets that back NFTs include pieces of art, real estate and luxury goods like sneakers and jewelry.

What are NFT tied to physical assets?

NFTs tied to physical assets are the non-fungible tokens that represent ownership of the underlying things. They provide proof of ownership of valuable physical assets. Instead of investors directly purchasing the underlying real world asset they buy such NFTs.

What are the three types of NFTs?

There are different types of NFTs which include blue chip NFTs, Profile picture NFTs and Proof of Attendance Protocol (POAPS). Blue chip NFTs are NFTs that maintain stable values over a long period and have solidity of design. Profile picture (PFP) NFTs are used as profile pictures on social media platforms such as Twitter. However, Proof of Attendance Protocol NFTs are non-fungible tokens that are distributed to people who attend a specific event as a proof of attendance.

Can an NFT be a physical asset?

NFTs can be digital representations of physical objects for sale such as pieces of land or real estate. Therefore, in a broader sense, NFTs can be physical assets as they are used as the digital markers of such objects. However, in a more specific sense, NFTs only exist on the blockchain and represent physical assets.