Our portfolio company Courtyard recently launched a sneaker marketplace called Sneaks.
Differently to other sneaker marketplaces, buyers and sellers on Sneaks transact in physically-backed NFTs. Physically-backed NFTs are NFTs that grant holders ownership of an underlying physical asset. When buyers come onto Sneaks they can browse the marketplace of sneakers and after settling on a pair enter the checkout flow by connecting their crypto wallet. Sneaks is currently built on Ethereum so users need to connect with an Ethereum wallet like Metamask or Coinbase Wallet. Users pay for the sneakers in crypto assets like USDC and ETH and after completing their purchase receive an NFT of a 3-D rendering of the sneaker in their wallet.
The NFT grants holders ownership of the physical shoe, which users can keep or burn to receive the physical shoe. Sneaks works with a third party custodian called Brinks to secure the physical shoes until the NFTs are redeemed.
What I find interesting about physically-backed NFTs is that they can lower transaction costs and unlock latent utility of physical assets.
The online component of purchasing physical goods is seamless today thanks to products like Stripe, but the offline part - packaging, logistics, storage - remains naturally more difficult. Transacting with NFTs removes the physical component. The transfer of a physically backed NFT simply means sending the NFT from one wallet to another. Importantly, physically-backed NFTs still allow people to buy, showcase and participate in the value appreciation of their collectibles. Only when they decide to redeem the NFT for the underlying asset is there a need to deal with the challenges of physical ownership.
NFTs grant users absolute ownership of the underlying asset, irrespective of the application used. This means that user can choose to transact with their physically-backed NFT outside of Sneaks on other marketplaces like Opensea or Rarible. In the future, physically backed NFTs could also be used across a variety of DeFi applications.
As our physical and digital worlds continue to merge, bridges that transport our identity between both worlds need to be built. Physically backed NFTs, which translate property rights of physical assets into the digital realm are one such bridge.