NFTing the Middle East

June has kept us all over the place just like May 🤹. We announced an investment in Khazenly, a Cairo-based on-demand digital warehousing and fulfillment platform… and our 7th startup from Egypt (lucky 7? :P). Khazenly team, welcome again to our big Arzan VC Family!

Just on that same day, Fatura (AVC Fund II) announced that it got acquired by Tanmeyah Micro Enterprise Services (an EFG Hermes subsidiary). And last Friday, MUNCH:ON (AVC Fund I) got acquired by Careem – our former Fund I company. (And that brings us to 11 exits to-date 😎).

Well, enough unintended bragging for now, do you know what these have in common?
– A $560K New York Times column.
– Beeple’s $69M JPEG.
– Jack Dorsey’s $2.9M tweet.
– Kristel Bechara’s Beauty in DeFi.
NFTs. Vatican got involved in them too, so there must be something holy good about them. Let’s find out what it is.

NFTing the Middle East

First off, let’s recap what non-fungible tokens are:
– digital assets or virtual goods — which can range from images to songs to videos to tweets — that are verified through blockchain technology
– non-fungible = no 2 NFTs can be identical
– inspired by the success of cryptocurrencies and powered by blockchain
– a new way to buy & sell digital items such as collectibles
– a new form of royalties for digital creators
– thanks to NFTs, assets can be certified as authentic (thanks to digital signatures of the artists themselves)
– the owners are able to claim exclusive ownership over these digital assets

The typical process to buy or sell an NFT:
1/ Set up a digital wallet and buy cryptocurrency
2/ Connect your wallet to an NFT marketplace
3/ Mint/list your NFT or start bidding on pieces

CB Insights’ 2021 Blockchain Report notes that last year there were 250+ rounds in NFT space (vs. 21! in 2020), collectively raising over $4.8B (130x more than in 2020), with US driving ~80% of all Q4’21 funding, followed by Asia and Europe.

Why the sudden global excitement for NFTs?
1/ because “decentralization” / Web 3.0 ecosystem is very attractive right now and NFTs are a building block of a “user-first” future
2/ new sources of revenue for everyone – from big brands to local street artists
3/ the classic “get in before it gets too pricey” argument

Future use cases:
– writers’ content distribution and monetization
– NFTs as loan collateral (from DeFi to NFTfi)
– NFT index funds
– selling diamonds via NFTs
– burning calories and getting rewarded with NFTs (fitness x video games)

What’s Middle East’s footprint in NFTs?
In terms of interest in NFTs, UAE ranks 7th globally (first places belong to Southeast Asian countries and Canada), and Lebanon is on the 10th spot, ahead of the USA.
However, our region’s traffic to NFT marketplaces remains at below 10% of the global traffic as shown on the graph below.

In 2021, three regional NFT marketplaces raised about $10M according to Wamda. Nifty Souq claims to be the first and biggest inclusive and environment friendly NFT marketplace in MENA (more about the envi-friendly aspect below). In Egypt, Odiggo, who you’d all know as a car parts marketplace, recently pivoted into an NFT marketplace. Meanwhile in Saudi, only days ago, Saudi’s first NFT marketplace NuqtahNFT signed a partnership with US’ Consensys to facilitate knowledge transfer and empower Web 3.0 startups in KSA. And if you attended the 116th session of the UN World Tourism Organization (UNWTO) in Jeddah, you were lucky to get an NFT souvenir — courtesy of the Saudi Tourism Ministry.

In the world of art – in parallel – the region’s first online NFT exhibition took place in November 2021 thanks to UAE-based Emergeast gallery. Meanwhile, Kuwait held its first NFT art exhibition last year at Gallery Bawa. NFTs are becoming popular among artists in the Middle East (here’s your top 15 watchlist), mainly because they believe that NFTs will help them protect their rights and provide them with a just financial compensation.

What’s the NFT regulatory framework like in the Middle East? Many grey areas. The future may possibly require NFT AML laws to support the growing purchases. Blockchain is not allowed in Egypt and, until recently, cryptocurrencies were banned in Qatar. For now, Dubai is at the forefront thanks to its Virtual Assets Regulatory Authority (VARA), which was set up earlier this year to manage the issuance and trade of virtual assets and virtual tokens and authorize virtual asset service providers (among other tasks). In May, VARA joined the Metaverse to become Dubai’s – and the Metaverse’s – first government authority.

I mentioned above the environmental friendliness of NFTs. Or should we say unfriendliness? Transacting on blockchain is surprisingly very energy intensive. One transaction consumes more energy than an average UAE citizen consumes on a weekly basis (source: Money Supermarket/Wamda). Could this become a major setback for NFTs in the long run?

Whether you’re an NFT fan or not – what’s your take on NFTing the Middle East? Is it all only a temporary marketplace wrapped in naive enthusiasm? Too early to tell, of course. But its implications for the art and gaming industries are real and significant, and most probably here to stay. In the Middle East, too.

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Lucky launched its new Lucky One card that comes with a wide list of benefits – and cashback on every transaction.

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Merit Incentives‘ CEO Julie Barbier-Leblan will be speaking at Loyalty & Awards conference in Madrid in October 2022.

Get popcorn

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• Financial Reporting Manager at Cartlow (Cairo)
• Business Development Manager at Merit Incentives (UK/Hybrid)
• Senior Back-End Developer at SubsBase (Cairo)
• Digital Marketing Manager at Citron (UAE)
• Junior Graphic Designer at Citron (UAE)

Our Cairo team – Mohanad & Noha – will be at the Flat6Labs investor mixer on July 6 — ping us if you’re also attending… 😉

Hasan