The Rage & the Blaze: Community Banks Back ClubNFT
NFTs are raging. Banks as limited partners in venture funds are blazing. But, what in the world is a bank-backed fund doing investing in an NFT start up?
NFTs (short for non fungible tokens) are digital assets with proof of ownership stored on a blockchain so you can “own” something that is infinitely replicable. In human speak: you can buy that funny picture someone posted on Facebook and prove to your friends you own it with a certificate of authenticity. And because you can prove you own the rights to the image, you can sell to someone else and the chain of ownership is added to the digital record much like the change of ownership of a house at the register of deeds.
Unlike a house, you can right click on a digital image and “save as” to do your own museum heist without rappelling through a skylight or crawling under lasers. Without the proof of ownership stored on the blockchain, however, your stolen artwork is easily identified as a cheap fake and worthless for resale. Want to understand more about NFTs? Planet Money did a great and entertaining podcast on how millions of dollars are trading hands on everything from digital art to the next sports trading card.
Why would a group of banks invest in what effectively amount to digital baseball cards? When a NFT is “minted” the exchange that hosts it creates an inception token. Think of this as the very first deed on the house. Every subsequent exchange of ownership builds on this original digital deed to show a chain of title that proves ownership. If that inception token is lost, well now your autographed Walter Payton rookie card is no more valuable than a Xeroxed copy of an autographed Walter Payton rookie card.
Enter ClubNFT, a cloud-based solution that safely stores a copy of the NFT and the inception token. If something happens to the exchange (which is basically a like the register of deeds in the property example or the auction house in the artwork/baseball card examples) then you still have both the original asset and proof that it is the original if you’re using ClubNFT. In short, you can think of ClubNFT as a sort of safety deposit box for digital assets.
ClubNFT represents what the bank of the future will look like, and that’s why we’re investing in it at the Alloy Alchemist Fund. ClubNFT beautifully illustrates how concepts, like safety deposit boxes and bank vaults are being reinvented. We’re investing for that kind of reinvention.
I love how the CEO of our anchor investor summarized it: “I want you to invest in the things we should be doing to avoid being a casualty of the Innovator’s Dilemma, but we would screw up internally because we are so risk averse.”
The industry faces a huge challenge: we need to digitally transform while we explore opportunities to transform our business model. That’s why we created the Alloy Alchemist fund with some of the most innovative banks across the country to create the bank of the future which likely looks nothing like banking as we know it.