Why invest in NFTs like Sorare?

Disclaimer: This article is not investment advice. You have to weigh up for yourself whether an investment makes sense for you. We only present arguments and counter-arguments that speak for or against Sorare NFTs.

On the actual topic: Since the Corona crisis at the latest, it has become clear that there has never been as much money in circulation as there is at present. The money supply has multiplied in the last two years – even though it only increased very moderately until the financial crisis in 2008. In 2008, however, it started slowly. Bailouts to prevent larger crises. Starting with American banks and later states like Greece. None of these crises was actually solved, but only postponed into the future with the money printing machine. At the latest since the “reconstruction fund” after Corona, it is clear where the journey is heading – not only in Europe. States and companies are kept alive by buying up bonds and shares and keeping them cheap. In short: money is simply pumped into the system without end. The effects are clearly visible:

Real estate is becoming unaffordable no matter where you look. The stock markets have recovered at record speed after Corona and are moving from all-time high to all-time high. And then comes Bitcoin and Ethereum, which have simply more than quintupled in a very short time.

So where is the journey heading?

Admittedly, no textbook or expert could have really reckoned with the developments of the last few years. It looks as if every theory has been invalidated. Therefore, it makes sense to concentrate on the fundamental laws of economics. And these say, for example, that an increase in the money supply must be accompanied by inflation. Before Corona, however, inflation only affected assets, i.e. real estate, stocks, etc. With Corona, a second important factor was added, namely the shortage of goods. Both are an extremely toxic combination that we are currently experiencing (winter 21/22) with astronomically high energy prices and consumer goods inflation that has not been seen for decades. Anyone who did not see this coming should go back to university….

In short, there has never been as much money in circulation as there is right now and what is missing are investment opportunities. Stocks are already extremely expensive and the low interest rates have long been priced in. Some shares like Tesla have already been valued at 1 million euros per car sold. Real estate in halfway good locations brings maybe 1% rental yield and that without fair consideration of risks. Attractive is different.

Real estate also has the problem that its value depends heavily on the interest rate level. And this can change at any time and turn the market upside down again.

Ok, but what is the solution?

It would be nice if there were investment opportunities that do not depend on interest rates and whose value cannot be destroyed by central banks, wouldn’t it? Welcome to the crypto age. Bitcoin, for example, is a deflationary currency and in principle exactly the answer to these problems. No one can just increase the total amount of bitcoin. It is capped at 21 million.

But Bitcoin also has a problem: unlike shares and real estate, it does not deliver an internal rate of return, i.e. no dividend or rent. For this, there are cryptocurrencies that work with Proof of Stake, for example, and also generate a return just for owning such a cryptocurrency. You can also make your cryptocurrencies available on “defi platforms” and collect a fee.

So there are already solutions to this problem – at least outside Bitcoin itself.

NFTs with an internal rate of return

Again, this is not investment advice and just my personal opinion. But so-called NFTs (Non fungible Tokens) that can generate an intrinsic return are the logical step into the future imho. And here we haven’t even started to explore the possibilities.

In short, it is possible to put just about anything into an NFT. Even a Rolex. Or music. Or real estate. Not just a pixelated image like a crypto punk. The big advantage is this: an NFT can’t be faked, can be freely traded and can also be “lent” via smart contracts, for example. I can buy an NFT of a piece of music and receive a licence fee every time this piece is played on the radio. That’s what I mean by internal rate of return….

But now we come to NFTs and Sorare. Sorare also works with these NFTs. Sorare is not a central provider like a Fifa Ultimate Team or similar. Only you own the cards you buy there. You can always trade them on a marketplace like OpenSea. You are not dependent on Sorare.

And the internal rate of return is also taken care of. Theoretically, it is conceivable to lend such an NFT for a certain fee. Whether this will be possible in the near future and you as a manager can simply borrow a rare Kilian Mbappe for 0.01 ETH/week remains to be seen. The fact is: with NFTs, everything is possible in principle.

What makes Sorare NFTs so special is that they can also generate a return in the form of prize money. This return depends mainly on the prize money and the costs for the cards needed. Currently, you can still play in a Threshold League with an investment of €1,000, for example, which pays out around €30 per match day. Not always, but in the vast majority of cases.

The dangers with NFTs

In principle, the dangers are quickly explained and also obvious: NFTs can in principle be printed without any limit and are therefore inflationary. Sorare limits the number of NFTs, of course, and so there is actually only one “unique” card (per season). So Sorare can’t just decide to make hundreds of them – that would implode the price.

It is definitely not a strategy to blindly buy NFTs just because they are apparently “the future”. Especially since 2021, many are jumping on the NFT bandwagon and trying to make gold out of crap. You always have to keep one thing in mind: An NFT is always worth as much as someone is willing to pay for it on the market. Therefore, you have a fundamental interest in how the market will develop around certain NFTs. Here, for example, it also depends on which community is behind it and which vision it has. And of course how the community limits itself, e.g. in terms of publishing similar NFTs.

Also risky is the purchase of NFTs without an inner return, e.g. art that is not lent out. Here you are 100% dependent on the increase in value. Of course, you can be successful with this, but in principle you only win in the bubble, i.e. if someone is always willing to pay you much more for it later. The combination of the dependence on appreciation and the inflationary nature of NFTs is quite problematic and can lead to a total loss. No one will want to buy an NFT that in principle exists countless times in this form, does not stand out from the crowd, has no intrinsic return and can be printed virtually infinitely – albeit in a slightly adapted form.

Conclusion: NFTs in the future

We are not clairvoyants. We do not claim to know where the journey will lead. NFTs are fundamentally risky because it’s tough to estimate their value, especially those without clear value in the form of a dividend or royalties, for example. But they also bring endless opportunities that you might not even think about today. The fact is that NFT values cannot be faked and thus also reflect the expression of real wealth. No one can fake a cryptopunk worth millions of euros and pretend to own it. But I can drive a Lamborghini for two days and spend money on €200 champagne bottles at the club with relatively little money. One is real wealth, the other is just fake wealth.

Sorare has managed to set up its own ecosystem with NFTs that can show an inner return in the form of prize money. Sorare has secured the licences and no other provider will come close.

It will be really interesting when institutional investors also play a role in NFTs and, for example, derivatives trading is made possible. Because this is where the real money flows. However, since this is only sluggishly the case even with cryptocurrencies, we are probably still a few years away from this. It is therefore all the more interesting to deal with NFTs now.

If you are interested in the topic and want to get started with NFTs at Sorare, just click here.

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