As discussed previously, NFTs could be donated to charity. If you are a nonprofit and are deciding whether to start accepting NFTs, one issue that you must address is how to liquidate the NFT. Most nonprofits have gift acceptance procedures that require immediate liquidation, and any asset given to a nonprofit does not bring any real value to the charity unless it is liquidated. There are certain marketplaces that will buy and sell NFTs, like Opensea and Rareable, and other larger cryptocurrency exchanges have launched or are launching NFT marketplaces too (e.g., Coinbase, Kraken, etc.).
A charity considering accepting NFT donations should make sure it has an exit strategy in mind before moving forward. Being ready and willing to accept the NFT is one thing, but the asset needs to be liquidated to assist the charity with its mission. As such, it is not enough to simply know that NFT marketplaces exist. The prudent charity would also be set up on a marketplace which can provide liquidity for donated NFT assets.
When a charity decides to accept and liquidate cryptocurrency and NFTs, there are still security concerns. There are many stories of NFTs getting stolen or hacked, on top of countless tales of lost Bitcoin and other crypto assets. Like crypto, once the NFT is gone, it is gone and there is no way to get it back. This security risk should be top-of-mind for charities because the charity will need to hold the NFT for some period of time (even if brief) between donation and sale. Access to NFTs should be limited in all cases, and appropriate security measures should be considered.
If there is a good market for an NFT, it is not even as easy as selling cryptocurrency. This is because NFTs are exchanged for cryptocurrency (usually Ethereum) rather than USD. The charity then needs to sell the received cryptocurrency for actual dollars. This makes liquidation a two-step process for whomever is selling the donated NFTs.
Of course, that assumes the charity has an easy path to liquidity. What if there is no buyer? Then the charity might be stuck holding the NFT, unless the donor is willing to buy it back or they know someone else who is willing to buy it. Of course, a donor buyback would be a transaction with a disqualified person, which charities must be particularly cautious about given stiff IRS penalties. This possible illiquidity demonstrates the importance of a viable exit strategy for charities. NFT donations have enough uncertainty on the donor-taxpayer side – possible illiquidity for the receiving charity only makes things trickier!