The non-fungible token (NFT) sector has been on the rise since the beginning of the summer. This segment of the crypto ecosystem is mostly driven by digital artworks and play-to-earn projects. Nevertheless, some creators are competing with each other to offer us unique NFTs, which sell for several hundred ethers (ETH).
An NFT offering instant returns
Aave founder Stani Kulechov sold an NFT called “Yield” for 350 ETH, or $1.15 million. But it’s not just a short video, it’s a fully realized social experiment.
Stani Kulechov is the founder as well as the CEO of Aave, a protocol for earning interest on deposits and borrowing assets. Interested in finance, he got involved in the fintech ecosystem while studying law at the University of Helsinki. It was there that he discovered Ethereum and the concept of smart contracts. In 2017, Stani launched ETHLend, one of the very first DeFi dApps. Since then, he has been on a mission to create tools for an open, transparent and fair financial ecosystem through the Aave protocol.
According to the information on the work, the buyer of the NFT is faced with a dilemma :
- Either he keeps the NFT, and then considers selling it to another buyer for a profit.
- Or he can send it back to Kulechov by October 31 and get all his money back, plus 10% of the value of the NFT or 10 ETH, whichever is less.
Since the artwork sold for a high price, the buyer will receive the 10 ETH rather than the 10% of the sale price. But the question is whether he will keep the NFT or accept the $33,000.
“The idea is to determine whether the winner of the auction will keep the artwork over time and not return it and value the artwork more than the transaction itself. It’s absolutely fascinating.”Stani Kulechov
A Cornelian dilemma for the NFT buyer
Basically, this NFT is a social experiment about the perceived value of an asset and the notion of the temporality of money. In marketing jargon, perceived value is customers’ assessment of the merits of a product or service, and its ability to meet their needs and expectations. In NFT, perceived value is the price that the public is willing to pay for a work.
It’s hard to imagine, for example, that an image of rocks or an alien punk could be worth more than 10 bitcoins. Yet the buyers of these works perceive this value, which is ultimately a subjective matter.
Furthermore, the fact that the buyer can return the NFT for its sale price plus 10 ETH also introduces a notion of the temporality of money. The time value of money is the concept that a sum of money is worth more today than it will be at some future date. Indeed, if you have to choose between 10 ETH today or in 3 months, you will choose to get them today, because you can put them on a lending protocol for 3 months and get a return.
However, if you have the choice between 10 ETH now or 12 ETH in 3 months, the choice is not so simple. You will have to calculate the amount of lending interest over the next 3 months to determine which option is more profitable.
In our experience, there is an additional layer of complexity, as the buyer does not know the future value of the work. However, if the NFT craze continues, it is very likely that the “Yield” NFT will be better valued.