Editor | Wu Talks about Blockchain
This podcast mainly discusses why Blur was wrongly invested, the current status of Magic Eden, token valuation, and related topics of NFT. The two guests shared their views on the current NFT market, investment experience, and the possibility of future market development. Overall, the valuation of Magic Eden tokens may be affected by the sluggish NFT market environment, especially based on the poor performance of tokens of NFT platforms such as Blur and Tensor. In addition, the guests also discussed the possible recovery path of the NFT market, especially the potential in liquidity, IP innovation, and community building.
Audio transcription is done by GPT and may contain errors. Listen to the full podcast:
Microcosm:
https://www.xiaoyuzhoufm.com/episodes/6708fee381cdab3a934f95a4
YouTube：
https://youtu.be/y8OAgXlgApI
This podcast is a continuation of the previous popular podcast "I Want to Be Someone" where three young people in the cryptocurrency circle talked about their "first pot of gold and the first pit".
Buy BLUR based on the results of on-chain data analysis, but make mistakes in judging the NFT market and team
defioasis: Welcome back to the Wu Says No Crypto podcast, I am Wu Says analyst defioasis. Recently in the NFT market, Magic Eden announced the launch of a new token. We also know that from last year to this year, the environment of the entire NFT market has not been ideal, and the performance of Blur and Tensor's tokens has not been as expected. So today we invited two guests to talk about NFT-related topics. This issue will be more relaxed, and everyone can share at will. First, please ask the guests to briefly introduce themselves and share some experiences related to NFT.
Xiao Guo: This should be my second or third time participating in this podcast. Last time, we also talked about some topics about the NFT market. My main direction is the research and analysis of on-chain data. Today, I would like to take this opportunity to talk about some of my thoughts on the NFT market.
In fact, I am not a particularly professional NFT player and I don’t buy many. Although I bought NFT when it was the hottest, I don’t have a deep understanding of the design of this type of product. At that time, I bought Blur’s tokens mainly based on the results of on-chain data analysis. Looking back now, this investment was actually a failure.
I think there are two reasons for the failure. The first is that we were confident that the NFT market would pick up, but we didn’t expect the market to become increasingly quiet. Almost no one is discussing NFTs now, except for podcasts like ours. The second is the choice of team. When I reflected on the investment in Blur, I found that the direction of the team’s operation was a big information asymmetry for retail investors like us. When we invested in Blur tokens, we speculated that it might enter the Bitcoin NFT market and compete with Magic Eden, but we didn’t expect it to launch Ethereum’s Layer 2 solution. This was completely unexpected.
After Blur launched Layer 2, it almost stopped the development and updates of Blur itself. For Blur token holders, it felt like the product was abandoned. Mining and staking ended up with nothing, and the Blur team seemed to no longer care about Blur, which was completely run by the community. This made me reflect a lot on the team's choice.
Shang: I’m Shang, and I’m currently an analyst at BitMEX and the host of the Wu English Podcast. My relationship with NFTs dates back to 2020, when I was interning at a Canadian startup. My job was to report on new trends in the cryptocurrency community every day. It was at that time that I started to get in touch with NFTs through SuperRare. At that time, I was surprised that a painting could sell for hundreds of thousands of dollars. BAYC (Bored Ape) had not yet come out. I later joined a team doing NFT fragmentation at the end of 2021 and 2022, and also participated in a lot of NFT research and construction.
I also participated in NFT.nyc and met Luca Netz of Pudgy Penguins. I also bought some NFTs myself, mainly on Ethereum, such as Mad Labs. I also participated in the second phase of Blur mining, and borrowed more than 70,000 Blur tokens at that time. Later, I was very optimistic about Blur like Xiao Guo. But everyone knows the result later. As for Magic Eden, I don’t know much, but they are going to issue coins recently, so I paid a little attention to it. Thank you defioasis for the invitation. Today we can talk about what happened in NFT recently.
defioasis: I started to notice BAYC at the end of 2021. At that time, I monitored the gas fees on the chain and found that the casting of a project caused the gas fees of Ethereum to soar. At that time, I didn’t know much about NFT. The price of BAYC was about 5 to 6 Ethereum, but I didn’t understand the market at all. It wasn’t until 2022 that I started trading NFTs, but at that time the market had turned from a bull market to a bear market, and I lost 50 to 60 Ethereum in the NFT market.
Later, I shifted my focus from NFT itself to NFT market platforms. There were many innovations at the time, such as trading mining, witch attacks and other ways to compete with OpenSea, and Blur's Bid Pool was also a big innovation. I wrote a lot of articles about NFT market platforms in 2023, especially Magic Eden's multi-chain strategy, which seems to be very successful so far.
However, from an investment perspective, I have also experienced many failures, such as buying NFT platform tokens such as X2Y2 and ROSE in the early stage, which have now fallen by almost 99.99%. Blur's investment results are also not satisfactory.
The inversion between the primary and secondary markets will be the norm, and Magic Eden tokens are expected to be lower than their primary market valuations after launch.
defioasis: Combining our investment experience in the past one or two years, it seems that the performance of the three of us in investment is not ideal. Back to Magic Eden, because its last financing was in mid-June 2022, it was at the stage when the NFT market was turning from a bull market to a bear market. At that time, Magic Eden completed a $130 million financing with a valuation of $1.6 billion. If we look at the current market environment, Blur's FDV is less than $500 million, and Magic Eden's competitor Tensor on Solana has an FDV of less than about $300 million. So if Magic Eden issues coins now, I think it will be difficult for it to support a $1 billion FDV. What do you think? If Magic Eden issues coins, what do you think its valuation can reach? Shang, can you talk about it first?
Shang: Well, I think this is a normal phenomenon, that is, the phenomenon of inversion between the primary market and the secondary market is not only in the NFT field, but can be seen in the entire cryptocurrency industry. Especially during the bull market in 2021 and 2022, the market was over-inflated and the financing was very watery, but the secondary market did not have enough liquidity for all investors to exit smoothly. Therefore, if Magic Eden issues a coin, its valuation may be lower than the primary market. This is not because of the problem of NFT itself, but the result of the entire market cycle and industry phenomenon.
Specifically, Magic Eden is unique in that it integrates multiple chains. You can trade assets on the Solana chain on Magic Eden, as well as assets on EVM-compatible chains, Bitcoin, and Ordinals.
This may be a good narrative, but there are still many variables as to how much its valuation can reach. What we are most concerned about now is how its tokens are distributed. If it is like LayerZero, which has some leverage despite criticism of its operations, its FDV may not be so bad. If the tokens are too dispersed, especially if there are too many airdrops, the situation may be unfavorable. There have been many such examples recently, and the market performance has been very poor, especially if these tokens are not distributed to users who actually have demand for Magic Eden tokens, then the performance of its tokens may be sluggish.
In addition, in terms of the team, I don't think Magic Eden's team is particularly crypto-native. This is a problem because they are not closely connected to the crypto community and have not demonstrated a particularly effective token economic model. Especially as a US team, they may not adopt certain "Ponzi" structure practices. So, frankly speaking, I am not particularly optimistic about the prospects of their tokens. If I had to guess, I think their FDV might be between $500 million and $1 billion, which would be good enough to be about the same as Blur.
Magic Eden and Blur are both Paradigm-invested projects. Is there any instruction for them not to compete with each other?
defioasis: OK, then I want to ask Xiao Guo, because Magic Eden has just mentioned that Shang also mentioned that it actually adopts a multi-chain strategy. Now a lot of its trading volume is concentrated on Bitcoin's NFT. Xiao Guo, you are also very interested in the Bitcoin ecosystem. What do you think about the future of Bitcoin NFT and Magic Eden's strategy?
Xiao Guo: Before discussing Magic Eden, I would like to talk about the market value of Blur first, and then compare it with Magic Eden, which may be a better reference. In fact, when I invested in Blur, it was because of a point mentioned by defioasis that made me think for a long time. At that time, Blur's full circulation market value was less than 1 billion US dollars, and the FDV of many projects at that time was at the level of tens of billions or even billions. At that time, Blur's position in the NFT market was already very advanced. Although some of the trading volume was caused by brushing and mining, its overall valuation was still relatively low, which gave us some room for investment.
Back to Magic Eden, according to the data, after it opened Ethereum transactions, although there was a brief increase in trading volume, its market share on Ethereum is very small, only about 1% to 2%. Blur's trading volume still accounts for about 60%, so it can be said that Blur is still the leader on the Ethereum chain. Magic Eden's main market used to be Solana, but later it decisively entered the Bitcoin NFT market, especially after the launch of the Ordinals protocol. This reminds me of a question: Magic Eden and Blur are both projects invested by Paradigm. Will Paradigm, for some reason, instruct Blur not to enter the Bitcoin NFT market and choose to focus on Ethereum's Layer 2? Maybe they don't want the two projects to become direct competitors.
But then Magic Eden launched the Ethereum NFT market, which seemed to stab Blur in the back. This is just my personal speculation, and there is no evidence to support it. But it does make me think that Blur and Magic Eden may have chosen different markets to avoid competition.
Back to Magic Eden's market value, we can analyze it through data. Currently, through Similarweb, we can see that Blur's website traffic is about 1.3 million per month, while Magic Eden's monthly visits are about 3.4 million. Although its visits have also declined, the decline is not as large as Blur. From this perspective, Magic Eden's overall data performance is worse than Blur, especially in the Bitcoin NFT market, where its market share has reached 50%.
Now the question is, how to position and value Magic Eden? If it is regarded as a multi-chain NFT market, or as the leader of the Bitcoin ecosystem, its valuation model will be more complicated. Magic Eden is currently working in multiple markets, but how to tell the NFT story well? Especially when its market value is compared with Blur, it is difficult to give a clear judgment. In addition, the attitude of the team is also difficult to understand. As an external investor, we have no direct contact with the team and do not know their internal strategy and future plans. Many times, we can only speculate on their next move based on public market information.
For retail investors, this information asymmetry makes it difficult for us to make correct investment decisions, especially for projects with sufficient cash flow, as they do not have much motivation to increase the value of tokens. After the tokens are issued, the teams of many projects have basically completed their tasks, and retail investors can only watch the rise and fall of tokens, disconnected from the actual operation of the project itself. This is a common phenomenon in many token projects at present.
Shang: Yes, especially for US teams. Under regulatory pressure, they will not actively promote the market like teams in other regions. They can only provide some basic liquidity support, but will not interfere too much with the market value. Many recent projects are like this. After issuing tokens, there is basically no follow-up action.
Xiao Guo: Yes, including some old DeFi projects, such as Uniswap and the renamed MakerDAO. Unlike network tokens such as Ethereum or Bitcoin, the tokens of many projects have nothing to do with the projects themselves. How much money a project makes has nothing to do with the value of the token. The so-called governance tokens have little practical significance for retail investors, because the number of votes held by retail investors cannot influence any decision at all.
Shang: Yes, another particularly important variable is the regulatory environment in the United States. The SEC's regulation of tokens prevents high-quality projects from giving tokens any real value, because once value is given, it will be classified as a security, which restricts many good projects. On the contrary, those projects with poor quality can operate unscrupulously, forming a negative cycle.
NFT is a tool that allows project owners to manage the market value of airdrops in the early stages
defioasis: Yes, OpenSea recently received a Wells notice from the SEC. The SEC believes that NFTs on the platform are securities and intends to file a lawsuit. Back to Blur, Blur’s role as a governance token is actually not very big. During the Blast mining period, staking Blur tokens was expected to receive Blast airdrops, but the final result was not ideal.
In the end, Blur returned to the form of a so-called governance token. I think Magic Eden's token may follow the same route and become a similar governance token. Magic Eden also mentioned before that their tokens are not entirely issued by Magic Eden itself, but are managed by a foundation, which also leads to a certain separation between the token and the platform entity.
Therefore, I think Magic Eden's token will also be more inclined to become a governance token like Blur. As for the dividend route, it does not seem realistic from a legal perspective, especially for an American team. Let's move on to the next question. As you just mentioned, the NFT market, whether on Ethereum or other chains, is currently in a relatively confused state. The transaction volume of major platforms has dropped significantly compared to the peak in 2021. Do you think there is another wave of opportunities for NFT? Where might the future direction be? Shang, you can talk about it first.
Shang: If I were to summarize my views on NFTs, I would say there are two points. First, NFTs are a kind of artwork, and people are willing to collect them and treat them as an asset. In traditional industries, collectibles are a very large field. Second, NFTs are a tool for project parties to manage the market value of airdrops. Because the supply of NFTs is fixed, project parties can issue NFTs relatively easily, and at the same time adjust the rules as needed. Before issuing coins, many projects will use NFTs to manage airdrop expectations or market pull.
For example, it is difficult to increase the price by issuing coins directly, but it is relatively easy to increase the price by issuing NFTs. The liquidity of NFTs is not that high, and the project party can create a sense of rising prices through the performance of NFTs, thereby increasing the attractiveness of the project. These are the two main functions of NFTs.
However, the current NFT market faces some challenges. First, can the cryptocurrency circle attract external traffic? Second, the trend within the cryptocurrency circle is also important. Especially from the perspective of collectibles, the current market environment is not very good, interest rates are high, and everyone has less spare money. Avatar NFTs (PFP) such as CryptoPunks are highly homogenized. Buyers are not very interested in these traditional NFTs now, and market demand is declining.
If you use PFP as your profile picture, you hope that others will identify with you and think you are cool. But now this trend has passed, just like everyone used to wear Jordan shoes, but now Jordan shoes are no longer popular. If you still use CryptoPunks as your profile picture, it will look a bit outdated. As more and more Memecoin NFTs are created, the market's hype has also shifted to these more liquid assets, rather than expensive, fragmented and difficult to hype CryptoPunks.
Relatively speaking, I think the most certain point is that NFT will still exist as a tool for project parties to manage airdrops. We have seen projects like Berachain manage market value by issuing NFTs, and their NFTs have performed very well. Mad Labs is also one of the largest NFT projects on Solana. Many times, there are coin issuance plans behind NFTs, or they are associated with collateral and value capture of other projects.
Therefore, if NFT is only used as a symbol of culture or art, I think it is not easy for ordinary people to control it. Unless you are particularly familiar with the art circle or the culture of the crypto circle, such as Milady, NFT, although it looks ugly, but it is very cool, people are still willing to buy it. Otherwise, NFT still needs to be endorsed by a real project to exist and play a role in the long run.
From the perspective of asset standards, NFT will exist for a long time, but we cannot see where the turning point will be in the future.
Xiao Guo: Regarding the question of whether NFT will exist for a long time, I have a similar view. Although I simply hope that it can exist for a long time, after the continuous downturn in the market, I am indeed shaken. I believe that many people have such thoughts. We can review the history of ERC-20 tokens. ERC-20 tokens came out of the ICO fire in 2017, and now 80 to 90 percent of the tokens on the market are based on the ERC-20 standard. However, many ERC-20 tokens issued that year have disappeared now, but this asset format has laid the foundation for subsequent projects, such as the well-known UNI, DAO, and even new generation projects such as ARB and OP.
NFT is actually similar to ERC-20. I think NFT is one of the only two asset types that have come out. In addition to homogenous tokens, NFT is another type of asset that operates independently on the chain. So we can also see that many blockchain projects, such as Solana, Cosmos, Arbitrum, Sui, and even TON, have borrowed this design logic from Ethereum, and the system usually contains two types of tokens: homogenous and non-homogeneous. This shows that NFT, as an asset type, has already occupied a place in the blockchain ecosystem and it will exist for a long time.
Of course, its future popularity does not necessarily depend on micro-innovation or mechanism design, but on the inflow of market funds. Just like we experienced the ICO boom in 2017, we may have thought that the ICO model would never come back, but Solana made us relive the ICO gameplay in the recent boom. Although there are some changes after the combination of ICO and AMM automatic market maker, it is still ICO in essence.
Therefore, I think NFT will also go through a similar cycle. Maybe not this year or next year, but in three or five years, it will attract market attention again with new gameplay. However, it is not certain whether there will be market participants like Blur or Magic Eden at that time. Let's look at past examples, such as the Layer 2 project Loopring, which existed in the ICO era. Although it was leading at the time, it did not keep up with the subsequent Layer 2 craze, and EtherDelta disappeared completely. Therefore, even if the NFT wave comes again, it is not certain whether it will happen on Ethereum.
In this regard, I think Magic Eden is doing better than Blur because it does not bet on a single ecosystem, but tries to support multi-chain non-fungible tokens, such as Bitcoin, Ethereum and other chains. However, the entire NFT ecosystem currently lacks a wealth effect, and it is difficult for retail investors to see its value. This is my current view on NFT and my expectations for the future.
defioasis: I will share a little bit about it. In the development of NFT on Ethereum this year, the floor price has actually increased to a certain extent. One of the projects that performed well is Pudgy Penguins. Pudgy Penguins' success lies in its development in the direction of IP. By launching physical products such as plush toys, it has entered the real world's trendy toy market and successfully extended the value of NFT to the offline market. This is a case worth paying attention to.
In fact, there are many trendy toys in society now. When we go to the mall, we can see many brands, some of which we have never heard of. The core of trendy toys is to visualize the IP image, such as making it into plush toys or other objects, or even making it into a game like Pokémon, and through these methods, the IP is pushed into the real world and cash flow is generated.
With cash flow, you can use it to do more NFT-related things, such as market value management, or even directly pull the price to bring more economic returns to the holders. I think Fat Penguin is doing better now. It creates real-world returns through IP entity. In addition, big projects like LayerZero are also willing to airdrop to Fat Penguin holders. From this perspective, Fat Penguin is a project worth paying attention to.
In addition, from the perspective of asset classes, NFT asset formats like ERC-1155 will not die out in the short term. But it is not clear in what form it will become popular again in the future. It is still a question whether the NFT market can exist in the long run. In the early years, the popularity of OpenSea in 2020-2021 was impressive, but its valuation has dropped by 90%. Instead, many people are now turning to Blur or Magic Eden. It remains unknown whether these platforms will continue to exist in three to five years, or whether NFT will usher in a new outbreak point. Therefore, I remain relatively pessimistic about the prospects of the NFT market. If you want to invest in the NFT market, now may not be a particularly ideal time.
NFT needs a new liquidity solution, but it abandons the characteristics of NFT attributes, and it is better to speculate Memecoins
Shang: Do you remember Pandora?
defioasis: Yes, Pandora was once very interesting. It focused on the duality of image and currency, but now it has disappeared.
Shang: Yes, if the image-coin duality doesn’t work well, the role of the NFT market will be further reduced.
Xiao Guo: Regarding Pandora, its problem actually goes back to the ERC-20 liquidity problem we talked about earlier. Uniswap solved the liquidity problem of ERC-20 tokens through the automatic market maker mechanism, and Pandora is actually an exploration of NFT liquidity. The second outbreak of NFT will definitely require new liquidity experience or gameplay. For example, the fragmentation, Pandora, and AMM-based NFT platforms such as Sudoswap that we have tried before are all explorations of liquidity.
From my point of view, Pandora has made many attempts at liquidity, including DeFi mortgages and iterations, many of which are ideas borrowed from ERC-20. There will definitely be more explorations of NFT liquidity in the future. As for larger IPs or more beautiful pictures, I don’t think they will have much impact on the overall NFT ecosystem.
Rather than focusing on the entire ecosystem investment of NFT, I personally prefer to focus on how to create new NFT liquidity directions. Of course, there will definitely be many failed attempts, and we have seen three or four failures in the past. But if the NFT ecosystem is to prosper, new liquidity solutions are key.
Shang: Yes, I think the liquidity of NFT is ultimately a multiplication effect. If the NFT itself has no value, no matter how good the liquidity is, it is useless. 0 multiplied by any multiple is still 0. If an NFT is really valuable, even if there is no perfect liquidity solution in the market, people will still be willing to trade it. The price is just a problem.
Xiao Guo: Yes, it is indeed difficult to judge the value. Like many Meme Tokens, its value comes more from culture and consensus. The same is true for Bitcoin. Its value is difficult to measure using a realistic framework. I think the IPization of NFT and Meme Token have some similarities. Their value lies in the establishment of consensus.
defioasis: Yes, many current liquidity solutions, whether it is collateralized lending, fragmentation, or image-coin duality, ignore the unique properties of NFTs. Ultimately, these solutions just treat NFTs as another form of token. If the rarity and uniqueness of NFTs are completely abandoned, then there is no difference between it and FT (homogeneous token). In this case, it may be faster and more direct to directly speculate on Memecoins.
Shang: Yes, there is absolutely no need to complicate the issue.
defioasis: Yes, so in pursuit of liquidity, if the unique attributes of NFT are abandoned, then it loses its meaning of existence. From this perspective, NFT is meaningless, and it would be faster to speculate Memecoins directly.
Share the NFT projects that you personally follow or are optimistic about
Shang: I think before we end, we can talk about whether there are any NFT projects that everyone is optimistic about now.
Xiao Guo: Actually, when NFT was at its hottest, I once thought about buying a Punk when the market was not good. Because I like the design concept of Punks, especially its element combination gameplay. However, later Yuga Labs, the parent company of Bored Ape, acquired Punk, which made me give up this idea. I think Yuga Labs has commercialized NFT, which is somewhat different from the concept of early NFT.
I also considered buying some ENS domain names. ENS is both an NFT and a domain name asset. But I was a little disappointed with the ENS team. Although they earned a lot of income through the ENS DAO, these funds did not seem to be fed back into the ecosystem construction, but were controlled by the company. I was confused by the way ENS operated, which is why I did not buy ENS domain names later.
Shang: Well, I understand your point. The imbalance between the team and the market does make people doubt the long-term viability of the project.
I am currently optimistic about Mad Labs, which is one of the largest NFT projects on Solana. They are also developing an exchange called Backpack, which focuses on compliance issues. The community of Mad Labs is very active and the atmosphere is very good. In addition, I also hold Bit Bears NFT from Berachain. Berachain has many innovations in the token economic model and has great development potential in the future.
defioasis: Mad Labs is indeed a project worth paying attention to, especially in the Solana ecosystem. Fat Penguin is also a project I am investigating. Many large project owners are willing to airdrop to Fat Penguin holders. I am currently considering whether to buy it.
In general, if the NFT market picks up, I might be more inclined to invest in leading projects, such as CryptoPunks or BAYC. However, the market is still bearish, so I will not enter this track on a large scale for the time being.
There is an idea, which is to buy NFTs that may be airdropped in the future. Hold these NFTs, and then expect to get the amplification effect of airdrops in the future. This idea may be more speculative, and I have been thinking about this strategy recently. For example, Mad Labs, I actually pay attention to it. Mad Labs has a relatively large influence in the entire Solana ecosystem. I am also considering whether there will be other big projects that will airdrop it in the future, and maybe I will find an opportunity to buy one.
Another one is the Fat Penguin mentioned earlier. Recently, some big project owners are willing to airdrop to Fat Penguin holders, so Fat Penguin is also a project I am investigating. These are some of my investment ideas for NFT and the NFT market.
