Non-fungible tokens (NFTs) are a $41 billion business, and where there are multiple zeros behind any product, there are usually insurers. However, that is not the case with NFTs, a segment of the cryptocurrency market that was worth less than 1% two years ago.

But, with today’s (March 3) announcement that insurance broker and wealth manager IMA Financial is investing in an R&D facility to figure out how to assess risk and underwrite NFT coverage, it seems pretty clear that coverage gap is about to change.

NFTs are unique cryptocurrency tokens that contain images, videos, or virtually any form of media. Files cannot be changed and are tracked on blockchains. Artwork, NBA slam dunks, and seven-figure, eight-bit images of CryptoPunk aliens can be found on NFTs. The most expensive, a digital collage by artist Mike Winkelmann, drew a winning bid of $69 million at a Christie’s auction last year, despite the fact that the buyer did not obtain the actual copyright to the work, not even the exclusive rights to display it.

Figuring out how to value NFTs, assess risk and set premiums is the goal of IMA Web3Labs, a company tasked with launching IMA’s insurance offerings, even though only a few sizable insurance policies have been written for the market. of cryptocurrencies broader. .

very little coverage

The three major cryptocurrency exchanges, Gemini, Coinbase, and Crypto.com, have assets covered in cold-storage wallets worth several hundred million dollars, while stock and cryptocurrency trading firm Robinhood is covered by Lloyd’s. of London for your assets.

Lloyd’s has also partnered with CoinCover to offer individuals hot wallet coverage, and last March reinsurance giant Aon launched a pilot program to offer coverage to digital asset companies.

Saying the company prides itself on finding “innovative and effective solutions to manage risk,” Paul Washington, Executive Vice President of IMA Financial Group, explained that the project “allows us to explore the risks associated with digital meta-assets from within the metaverse, so that we can better prepare our clients to manage those risks.”

Firstly, this will involve assessing available custody solutions for high-value NFTs, the company said, noting that there is “a gap between the growth of NFTs and the fundamental transfer and risk management strategies to protect them, a gap leaving business operations. in the decentralized financial market at risk”.

a lot of theft

IMA Financial has a lot of work ahead of it. For one thing, NFTs are a complex commodity to value because, like fine art, they’re worth only what the market says they are, and for insurance purposes, that’s heavily influenced by historical value over time.

On the other hand, they seem to be just as susceptible to hacking and theft as cryptocurrencies. Earlier this month, an NFT collector Announced on Twitter that he had been hacked after he was tricked into clicking a link that gave the thief access to his digital wallet.

His NFT collection, which included a dozen highly sought after Bored Ape Yacht Club and Mutant Ape Yacht Club collectibles worth more than $2.5 million, was stolen and hastily resold for $700,000 by the thief, before news of the robbery could reach the NFT markets.

Then on February 19, OpenSea, the leading NFT marketplace, was itself hacked, with over 250 NFTs worth $1.7 million stolen.

This is despite the fact that non-fungible means that they are unique. As such, it should be easy for NFT marketplaces or private buyers to check and see if they are stolen, particularly on expensive items.

While this pales in comparison to recent crypto hacks (just two incidents in the last six months netted nearly $1 billion), it’s a big deal, especially as attack vectors range from simple phishing to exploiting security flaws. complex coding.

See more: PYMNTS Crime Series: Another Day, Another Nine Figure Crypto Hack

In addition to that, a February report by blockchain intelligence firm Chainalysis found a major laundering trading issue and emerging money laundering concerns in the NFT market.

Any value there?

However, there is a larger risk that is more difficult to assess, which is whether or not NFTs will actually hold their value, just like a Jeff Koons painting or an autographed Mickey Mantle baseball.

While there is a lot of marketing hype and drama surrounding NFTs, as brands like Nike and Samsung, not to mention recording artists as diverse as Snoop Dogg and Dolly Parton, make high-profile dives into a market awash with money and brand opportunities, there is a big question as to whether the NFT business has any real legs, both from a collectible and marketing perspective.

On the one hand, on the marketing side, the most effective use of NFTs is within metaverses, or virtual reality worlds where companies can set up signs, offer customer service and experiential marketing games, and equip avatars. of people with virtual designer bags.

IMA Financial established its Web3Labs in Decentraland, the leading blockchain metaverse, with “Web3” referring to the next-generation blockchain-based web infrastructure that many cryptocurrency supporters believe is the future of the internet.

The problem is that the metaverse is in its infancy and can only be developed with the wide availability of high-resolution 3D user technology needed to immerse metaverse participants, and that technology doesn’t exist yet.

On the other hand, the main current use of NFTs is in immersive massively multiplayer online (MMO) games, particularly blockchain-based play-to-win games like Axie Infinity.

While many in the industry believe they are the future, Axie is the only major player right now and is having serious problems attract enough new players to support the play-to-win model, which relies heavily on creating and selling in-game items in the form of NFTs.

One major gaming company, Ubisoft, recently introduced NFTs to a roar of customer dissatisfaction, with Cointelegraph taking note in December, that 96% of the votes on a YouTube product launch ad were dislikes, largely based on customers viewing NFTs as simply taking cash.

It’s not just about games: Korean pop star Sunmi and her label, Abyss Company, were the objectives of a similar backlash from K-pop fans recently, for exactly the same reason.

There’s a semi-famous image on the internet meme circuit of a couple divorcing on their knees in court in the late ’90s, dividing the joint wealth they amassed into a collection of several dozen Beanie Babies.

For the uninitiated, Beanie Babies are small stuffed animals that are distributed in large numbers, but with some models in very limited quantities. In the 1990s, they went from a collector’s craze to a boom, to a tulip bubble big enough to brand a new HBO. documentary filmBeanie Mania.

Have you seen any lately?