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Hackernoon logoHow ‘Fractional NFTs’ Can Help Accelerate the Future of Fantasy Sports on the Blockchain by@elizabeth-levine

How ‘Fractional NFTs’ Can Help Accelerate the Future of Fantasy Sports on the Blockchain

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@elizabeth-levineElizabeth Levine

I write everything technology Twitter @lizalevinenyc

With a current valuation of around $19 billion, Fantasy Sports is big, but COVID-19 is bigger. Nobody in the fantasy sports industry expected that the pandemic would not only delay games but ultimately shorten the sports season by months. With more people staying at home during the pandemic, the demand for online gaming platforms has increased significantly. 

But COVID-19 aside, the global fantasy sports market is anticipated to hit $48.6 billion by 2027, according to a recent report published by Allied Market Research. The Fantasy Sports & Gaming Association in the U.S. reports that 70% of fantasy sports players compete in leagues that charge a fee and a player spends an annual of $653 on fees. In 2018, the global market for all fantasy sports was estimated at around $13.9 billion and is projected to grow to $33.2 billion by 2025. 

What Does the Global Scoreboard Look Like for Fantasy Sports?

Global fantasy sports market is composed of many sports like Soccer, American Football, Baseball, Basket, Cricket, and other sports. The market size does not follow the amount of fans the sport has. Example: Soccer (4Bil fans) is the most popular sport and Cricket (2Bil fans) the second. 

But in the Fantasy Sports space, with 70% of the market in the US and UK, the football segment accounts for the majority of the market share, and at the international level, the fantasy cricket segment is expected to grow with the fastest CAGR of 17.9% by 2027, due to the growing popularity in the Asia-Pacific region.

As sports and fantasy leagues have slowly returned, it’s clear that they will never be the same moving forward, especially with the new technologies that have made global financial accessibility even easier. With tech like blockchain and digital money becoming more mainstream, bringing the fantasy sports sector onto the blockchain allows for it to transform into a more transparent, accessible, and cheaper ecosystem for users. 

What If Fantasy Operated Like the NASDAQ?

But what if fantasy sports could operate similar to the NASDAQ and New York Stock Exchange (NYSE)? I spoke with Christian Hentschel, the founder and CTO of TradeStars, a blockchain startup that has over 30,000 users on its now public “sporting stock exchange.” 

There’s no question that traditional fantasy sports need some tweaks. But why? Why is it better to look to an athlete’s real-time performance, rather than simply competing against other users?

Daily Fantasy Sports, or DFS, according to Hentschel, is an innovation from around 10 years ago that leveraged the rise of smartphones, and expanded greatly based on similarities to the sports betting with a better legal framework to develop.

Historically, the U.S. prohibited sports betting, with its legal landscape considering it an offense, rather than economically beneficial. Fantasy sports has flourished upon this, considered to be a “game of skill,” rather than a “game of chance”.

“I believe the quick adoption and expansion was largely attributed to sports fans finding a similar dynamic to sports betting, since historically it was prohibited in the US,” Hentschel shared. “For example, competing against other sports fans, in a social environment allows individuals to express how much they know about their favorite sports.” 

The TradeStars founder went on to add that new technologies like blockchain have opened the door to bigger opportunities like what TradeStars has created. “I believe that new technologies like blockchain, the now common way in which people use their smartphones to communicate, mobile penetration mixed with the lack of creativity and innovation in the traditional Fantasy Sports space opens the door to a huge opportunity for new ideas.” 

“I strongly believe there’s an enormous opportunity to innovate in the fantasy sports space,” he says, pointing to the UK for reference. “The UK, the most crowded and regulated market, has seen this trend for the past four years, where people demonstrated that trading over fantasy stocks instead of building a team, is the next big iteration for the industry.”

What Are ‘Fractional NFTs?’

TradeStars relies on a few relatively new concepts for the blockchain industry, such as non-fungible tokens (NFTs) and decentralized finance (DeFi).

Fantasy sports enthusiasts, let me ask you this – what if, rather than building a virtual team of players and competing against another user in traditional fantasy, you could “invest” into stocks that represent the performance of athletes, similar to how consumers invest in stocks which represent publicly traded companies’ performance? 

What if, each athlete’s real-life performance is tokenized on the blockchain? That would make sense, right?

Enter a New Type of NFT

The idea to represent the Athletes' performances (tokenization) on a blockchain through a unique item like the NFT standard, needed a tweak for allowing players to be able to buy / sell fractions of it. Here's the concept of “fractional non-fungible tokens,” or Fractionable NFTs. 

“This ‘Fractionable NFT’ enables NFTs to now be partially owned,” Hentschel explains. “We came out with the idea of using the ERC-20 standard to represent the NFT fractions, and provide the capability for the NFT to set the price and circulating supply of these shares as a function of the market supply and demand.”

Decentralized Trading

In plain, the Fractionable NFTs represent the tokenized real-time performance of athletes themselves and manages the supply and price of its shares through the use of an AMM (automated market making) or Bonding Curve algorithm. Similar to the liquidity pools seen on conventional decentralized exchanges.

Fractionable NFTs set the price based on its shares supply and demand, and rewards for the shareholders in the form of TSX (the platform’s main governance token) are based on statistics tracking the athlete's real-life performance. The major difference, compared to traditional fantasy’s, according to the TradeStars founder, is how TradeStars introduces economic incentives into the platform, which are tied to these tokenized stats and the Fractionable NFT shares’ supply and demand. 

Take DraftKings, for example, which cross-pollinates audiences between Daily Fantasy Sports (DFS), sports betting, and online casinos. We are now seeing brands leveraging digital platforms to help expand their reach beyond their vertical industries--we now see a horizontal shift. 

Jason Robins has indicated plans to not only power markets for betting on everything, but to become “the premier brand in digital sports entertainment.” The explosive growth of the sports betting industry in the United States, alongside rapid worldwide expansion within esports, connected health, and social gaming, has spawned a surge of intellectual and investment capital flowing to innovative startups. 

With the introduction of the TSX into the system, we reward the community and real users of the platform. This is a unique capability and enormous advantage of using the blockchain for this type of product. “By having the fractionable tokens supply managed by a bonding curve algorithm, we incentivize the opportunity on the buyers or sellers side, as it does not follow a liner “PxQ” traditional price setting. We set up the opportunity on the buyers or sellers side.

Simply market supply and demand, but the interesting thing happens with the introduction of our TSX governance tokens. The payout dividends for the shareholders sets an incentive on the opportunity to spot and buy early those assets that promise the most upside to your investment, influenced by their portfolio real-life performance.”

By using their sporting knowledge, and relying on their favorite real-life statistics, fans can speculate on short or long-term positions and compete against each other in a unique social experience for a trading platform. TradeStars revealed that while it currently focuses on cricket, it intends to bring soccer and other eSports to the platform in the near future.

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