A Beginner’s Guide to Wrapped NFTs

After the boom of NFTs in 2021, overall sales are going down. According to The Wall Street Journal, the number of active wallets in the NFT market fell 88% to about 14,000 in May 2022 from a high of 119,000 in November 2021. The crypto market welcomes a new gen of NFTs – wrapped ones, or wNFTs, or NFT 2.0 as I call it. Let’s understand what it is and which potential wNFTs have.

What is wrapping?

Despite the fact that most crypto enthusiasts are aware of wrapped crypto tokens and currencies, we will start from basics.

Wrapping a token is exchanging one set of standards for token interaction with another set of standards. Blockchains, e.g. Bitcoin and Ethereum, vary with protocols, functionalities, and due to the fundamental difference in their algorithms, they cannot talk to each other. This issue is resolved by wrapped tokens that are cryptocurrencies pegged to the value of crypto assets originated from a different blockchain.

The original asset is ‘wrapped’ into a digital vault, and a newly minted token is created to transact on the other blockchain. Wrapped tokens allow non-native assets to be used on any platform, build bridges between networks and implement interoperability in the cryptocurrency space.

The evolution of NFTs

NFTs (non-fungible tokens) have become a buzzword in recent years. The creativity of their content and forms impresses, and the industry experienced a meteoric rise. Below there is a chart of NFT market capitalization and volume for the past year, provided by CoinTelegraph and demonstrating the enormous rise of industry:

However, there is an elephant in the room: NFTs are still difficult to use and not trustworthy. The industry is far from mass adoption, despite the growing infrastructure of marketplaces and institutions.

Onboarding for NFTs, and crypto at large, is a fairly complex process that many users and companies simply cannot handle. But you can just remember the 1990s when emails seemed to be a tech miracle and rocket science – that’s why many businesses spent millions on hiring specialists to code emails for them. The information gap gave early adopters tremendous leverage of their lucrative agencies until education and technological advancement made it easier for brands to do it themselves.

This path is also followed by NFTs.

The era of NFT 2.0

The current iteration of NFTs is not much designed for mass adoption and mainstream consumption. It prompted the industry players to develop new technologies and ways to reinvent NFTs and add more value to its core.

A wNFT (wrapped NFT) is an upgraded NFT with expanded functionality such as economic set-up, on-chain royalties, rental mechanism, time/value/event-locks, protection of devaluation, and anti-fraud system. I also call it NFT 2.0 which tends to evolve the principles and rules of fundraising in particular and several other industries in general.

There are numerous competitive advantages of wNFT technology to traditional NFTs. Thanks to this format, NFTs wrapped into collateral can be given without worrying about a possible dump of its tokens (ERC/BEP-20) and can define a preferred time lock setup.

Wrapped NFTs may contain collateral in the form of fungible and non-fungible tokens. It opens doors to new forms of fundraising and partnership building. Which ones? We will discover it in the next article.