The Future of Sports Collectibles; Asset-Backed NFTs | RareMint
Introduction
The sports collectible market is an age-old hobby. After all, the entire basis of the market is finding historical objects and trying to keep them as they were, while they become increasingly rare and rise in value. This traditional mindset has characterized the world of sports collectibles for decades, even as sports themselves have entered the digital age. But things are about to change, as new digital capabilities are poised to alter the way the sports collectible industry does its business.
At the forefront of the coming change is the non-fungible token, or NFT. By combining the benefits of this new technology with the inherent value of rare historical objects, the new-look sports collectible world will be able to offer potential buyers and sellers much more value from their assets. Physical assets have many strengths as a means of storing and protecting value. But they pay for this with compromises in liquidity, physical security, and accessibility. In addition, sports collectibles are heavily reliant on authentication as a means of guaranteeing continued value. But that process is slow, inefficient, and not as reliable as it could be.
Meanwhile, purely digital assets, such as cryptocurrencies and NFTs have difficulties of their own. Despite their flexibility and benefits, they tend to be subject to volatility, speculation, and a cyclical return pattern. They also tend to be isolated in their own ecosystem, and not easily traded for off-platform value.
The time has come to start addressing some of the challenges in both the sports collectible market and the digital asset world with the technologies we now have available to us. So what are the benefits of attaching an NFT to a physical asset, like a piece of memorabilia? As it happens, the NFT and the piece of memorabilia both make each other better in a number of ways:
Value, Market Stability, and Risk Mitigation
Investors today are eager to find reliable alternative asset classes as a means of protecting themselves against inflation and some of the financial and political factors that affect their traditional holdings. Especially during unstable economic times, these alternate classes of assets can provide a haven from volatility and inflation, even if they have other issues in terms of practicality. Collectible items like wine, luxury goods, cars, jewelry, and memorabilia tend to have excellent stability of value that isn’t affected by many of the same external factors as traditional currencies. They can be challenged in terms of access and transferability, but when chosen wisely, they often perform very well in holding initial value and offering the potential to appreciate.
By contrast, digital assets like artistic NFTs and high-profile cryptocurrencies may have high value one moment and plummet the next. Their value basis is abstract enough that they are prone to the fluctuations of random speculation. In addition, traditional investors have a hard time wrapping their heads around the idea of investing in something that doesn’t exist in the tangible world. Further, the relationship between digital assets and tangible ones is often difficult to establish. They simply seem like disconnected worlds.
Despite these individual challenges, however, it’s possible to realize the best of both worlds in terms of value by combining the two types of assets. By creating a digital token that is immutably associated with a physical object, there is the potential to more firmly establish, maintain, and even increase the value of both items based on the worth of the physical asset.
Liquidity
Though it’s hard to argue with the value potential of high-worth collectible items, it can be very difficult to take advantage of this value due to the difficulties associated with trading them. Traditional transactions in this market typically carry high fees and minimums, and there is a notable lack of transparency on the part of selling parties, especially with respect to asset hoarding. Because of these liquidity factors, the market is also at times susceptible to market manipulation. The challenge of liquidity can be an obstacle to many potential sellers and buyers of sports collectibles entering the market. After all, the practical value of even the highest-worth assets goes down if connecting with buyers and transferring ownership is too much of a hassle.
But NFT technology can help bridge this gap for today’s buyers and sellers. By attaching an NFT immutably to an asset, sellers and buyers can use the NFT as a proxy for the item, and take advantage of the liquidity and multiple market options available in the digital world. In this system, buying the NFT confers ownership of the associated item to the buyer, enhancing the speed and ease of transfer so that any two interested parties can do business.
The digital aspect of these asset-backed NFTs also opens up a whole new aspect of liquidity for owners. By taking advantage of possible staking and lending opportunities attached to the NFT, the item becomes a true financial vehicle, offering access to the value of the asset even without trading it.
Asset Security and Safety
Though sports collectibles tend to be fairly resistant to outside market forces, and also tend to retain and appreciate in value in a fairly predictable way, they do have one major vulnerability. Because they are physical objects, they can be subject to damage from the conditions they are kept in, and from age. As with any physical object, the more it is used, touched, and exposed to the elements, the more risk it faces. In addition, there is always the outside chance of breakage or damage from a freak accident. For these reasons, keeping the asset in a safe, controlled environment is very important to protecting its value. This need has always been directly linked to some of the liquidity issues, as trading the asset typically required taking it out of storage and bringing it to the seller.
Enter NFTs. By pairing an otherwise fragile asset with a digital “twin”, transactions can be made using the twin, and sales can be made, all without touching the original item or taking it out of storage. In the best cases, the physical assets are kept in a protective environment such as a climate-controlled vault, and never need to leave it, even when ownership changes. Vaulted assets not only have the protection of the storage facility, but can also be insured and protected from other potential sources of damage. Meanwhile, the digital partner asset does all the “heavy lifting”.
Accessibility
The physical nature of the sports collectible market, along with the niche knowledge involved can sometimes make it feel inaccessible to outsiders as a place to create wealth. Unlike other financial instruments, collectibles typically aren’t as visible to the average person, nor as seemingly available. Putting these assets in visible marketplaces would not only expand the interest, but benefit everyone involved by increasing inventory as well as activity. The physical nature and high prices of many sports collectibles also means that many people can be priced out of the market, and fractional ownership isn’t really possible.
Though it has limitations, the digital economy promises a lot of benefits that the tangible sports collectible market does not. Digital and decentralized finance not only offers accessibility and ease of entry, it also has an unparalleled sense of community, and the benefit of being available at any time of the day or week. In addition, the wide variety of marketplaces opening online mean that there will be a plethora of places to make secondary and third party transactions. Digital finance also holds the promise for offering many new ways to access the market, especially with respect to high-ticket items. Bid pooling has become common, in which groups of friends or colleagues combine forces to purchase assets that none of them could afford separately. This allows them not only to own things normally out of their reach, but to share the enjoyment of acquiring them together. On a larger, more formal level, the decentralized digital economy also makes it possible for groups of people to form DAOs (Decentralized Autonomous Organizations) that can wield even more buying power for high-end assets. For individuals wanting to enter the market, but without the buying power of the heavy hitters, digital finance also allows for “slicing”, which creates fractions of an asset to be sold, and brings new levels of ownership to the market. The major challenge of digital markets right now has to do with their isolation. As of now, they aren’t well integrated into the traditional financial system, but they do show many signs of moving in that direction. Though we currently make the distinction between crypto-native and traditional investors, this line will be blurred more frequently in coming years. And NFTs are one bridge to start that process.
When we create asset-backed NFTs for sports collectibles, we make all of the benefits and formats of digital finance available to the sports collectible world, and vice versa. Instead of being locked away in people’s houses, sports collectibles can become part of the dynamic digital economy, and bring excitement, fun, and great stores of value to a huge global audience. Meanwhile, attaching digital assets to the physical ones also helps bring crypto-native investors some of the benefits associated with traditional finance, including stability, and the excitement of owning a rare object, of which there is only one. As this unique asset class evolves, the best players will also provide ways of merging the two financial systems, offering traditional payment methods that will bring even more participants and transaction volume to both categories.
Authentication
One of the traditional challenges of the sports memorabilia market is ensuring that a given asset is authentic. Counterfeit goods are one of the obvious problems with any such asset class, and one that applies not only to sports collectibles, but also to wine, luxury goods, antiques, and jewelry. Each time an item is put up for sale or changes hands, the authentication process is a critical and sometimes time-consuming aspect of the process.
In general, authentication requires not only that the object be originally established as authentic, but also that its provenance be traced through each set of hands that has controlled it. In the traditional world, this can be very difficult to do, as there are many gaps in an asset’s ownership path, and authenticity must be repeatedly established.
At the same time, the purely digital world can have authenticity issues of a different type. Digital markets often allow any arbitrary entity to enter the market, register, and create and distribute digital assets as art. There is no practical effort made to preserve the integrity or verify the authenticity of a branded offering or an asset’s provenance. But this doesn’t have to be the case. Digital technology provides an immutable and reliable chain of ownership that can be used to verify the authenticity of an item as long as it has been authenticated as some prior point.
When creating asset-backed NFTs for sports collectibles, the minting party can create an NFT that documents and stores a unique “fingerprint” or set of identifying details that can’t be changed or falsified. By creating a detailed digital record of every detail of size, shape, defects, blemishes, angles, and other identifying aspects, the owner of an asset can make a counterfeit-resistant online asset that assures the identity and provenance of the associated physical item. And that record is then stored on a digital blockchain that ensures it can’t be tampered with. So once a piece of important memorabilia has been inspected and verified as authentic, the NFT ensures that its provenance remains unassailable, while the asset stays safely stored in a vault.
Conclusions
Though the sports collectible market hasn’t changed very much over the past few decades, the arrival of digital asset classes, and in particular NFTs, is about to make a huge imprint on the category. By associating physical collectibles with digital assets in the form of asset-backed NFTs, sellers and collectors will be able to unlock a huge variety of benefits from the digital world while retaining the inflation-resistance, stability, and excitement of the original collectible. Meanwhile, eager crypto and digital finance investors can enter the market of physical goods, and enjoy all of the associated upside of authenticated physical holdings, while still operating in a digital-first decentralized environment that offers its participants a whole world of digital experiences, enhanced features, and fascinating history. Sports collectibles themselves may be artifacts from the past, but asset-backed NFTs are the category’s future.
