Author: metapi
1. Current status of NFT market
In 2022, the market transaction volume is 23.7 billion US dollars, the total market value is 22 billion US dollars, and the daily transaction volume basically hovers around 12 million US dollars. Compared with the market size of 35.5 billion in February and March, the market size has shrunk by 41%, and the daily transaction volume has plummeted by 99%.
In sharp contrast to the sharply declined transaction volume, according to NFTScan data on December 1, the Ethereum network has added 21.4267 million NFT assets in the past three months, with an average of 238,000 new NFT assets minted every day.
There are more and more NFTs, but the trading volume is decreasing. The oversupply in the market indicates that the enthusiasm for NFT speculation has cooled down, and people are no longer willing to pay a lot for pictures. In addition to liquidity issues, the high floor price of blue-chip NFTs also troubles users. The floor price of top NFTs is often dozens or even hundreds of ETH. The heavy capital investment has made this market a game for whale players. It has become extremely difficult for consumers with small funds to buy blue-chip NFTs, and ordinary users have become bystanders.
2. Three major application scenarios of NFTFi
NFT is not as easy to trade as homogeneous tokens (such as BTC, ETH). Due to the non-homogeneous nature of NFT, the market price of each NFT product is also different. Buyers and sellers need to reach a consensus on the same NFT (including the number). If the buyer feels that the price is too high, the transaction will fail. Crypto-punk is particularly serious, and the price of expensive and cheap products can differ by tens of thousands of times.
The problems of NFT liquidity and excessively high floor prices have directly led to a huge decline in trading volume. Some on-chain developers have tried to solve the problem with the help of decentralized finance DeFi, and the concept of NFTFI has emerged. NFTFI can be simply understood as the financialization of NFT, allowing NFT to solve its own liquidity problems with the help of the on-chain financial model.
At present, NFTFi mainly has three scenarios: NFT ownership fragmentation, NFT lending and NFT leasing.
The fragmentation of NFT ownership is mainly achieved by dividing the ownership of high-value NFT assets, issuing homogeneous tokens such as ERC-20, and improving the liquidity of NFT assets; NFT lending means that holders can borrow short-term funds by mortgaging NFT assets without selling NFTs, enjoying the rights of holding NFTs while improving the efficiency of using NFT assets; NFT leasing means that holders obtain income by renting NFT assets to users in need.
Although the three scenarios are designed to improve the liquidity of NFTs, due to the different scarcity of each NFT asset, even NFTs of the same brand can have very different prices due to certain different characteristics. When NFTFI tries to solve the liquidity problem, how to price different NFT assets has become a difficult problem, which is why there are no popular applications in the NFTFI market yet.
3. How to value NFT assets
Current valuation assessment variables include: scarcity, less is better; applicability, use cases beyond homogeneous assets, rewards, rights, privileges, etc. granted on NFT; team, celebrity effect; hype: strong marketing, attention from KOLs, attention from diamond hand users, etc.; community: the user scale and quality of the community supporting the project. Generally speaking, the higher the community consensus, the higher the price of the collection; aesthetic value: subjective appreciation of digital art, whether it looks good or not; expectations: speculation around NFT+metaverse/chain games; status: similar to luxury goods, NFT can be used as a form of identity and wealth.
It is undeniable that the current NFT value assessment is more inclined to evaluate the hype results and project operation methods, and players' purchase of NFTs is mostly driven by speculation. Therefore, when the market is cold, the price of NFTs falls more significantly than that of digital currencies. How to solve the pricing defects of NFTs and support the floor price of NFTs with value?
Without considering the market making of the project party, the pricing of NFT assets is mainly divided into two parts:
The first is the cost of owning NFT assets. The cost most likely determines the bottom line of your selling price. The surge and plunge of NFT prices is largely due to the fact that the cost of obtaining NFTs varies greatly: wool, airdrops, position placement, secondary purchases, etc. If the holding cost can be continuously increased during the purchase and use stages, the enthusiasm of players to sell at a low price will be greatly reduced, which solves the problem of protecting the NFT floor price.
The second is the consensus on price. In essence, the value of NFT is only the highest price the market is willing to pay, not the price that the seller considers "fair", so the NFT market needs evaluators, or in other words, NFT needs a set of value growth logic. Just like art, famous artists + time = treasures, the longer the time, the higher the value. Can NFT find a more certain value-added logic?
Looking at the entire crypto-circle, in the long run, only mainstream digital assets have the potential for stable value growth. Take Bitcoin as an example. Bitcoin's 10-year compound annual growth rate is 196.7%. NFTFI projects represented by MetaPioneers introduce mainstream assets into NFTs, and the price consensus is also solid. Therefore, in order to obtain a long-term, stable and continuously growing consensus on the value of NFTs, the best way is to anchor the value of NFTs to mainstream assets, thereby obtaining "deterministic value growth" and exchanging time for the genes of becoming high-quality investment assets. Only by living long can you rise high.
4. How to improve NFT liquidity
The current NFT lending platforms actually only explain the problem that large investors need to release liquidity in a bear market, but they do not have a good answer to why the market should pay for the liquidity they release.
As the basic asset of lending applications, NFTs at this time need to have the characteristics of collateral. The first point is to have a consensus on value, that is, the market believes that the NFT series is valuable and has confidence in its price. It will not collapse due to price fluctuations in the short term, and the lender is willing to accept this NFT as collateral; in addition, the mortgaged NFT assets must be liquid, because NFTs with no market and lack of liquidity will lead to poor liquidation and bring potential losses to the lender. Items with expected appreciation will bring a steady stream of buyers.
NFT assets have low liquidity, and users seek more liquidity to improve the efficiency of capital utilization. For blue-chip NFTs, users tend to hold them for a long time, but for new opportunities that continue to emerge, users need funds to participate. The higher the value of the NFT asset, the stronger the user's willingness to hold it for a long time, and the larger the funds occupied by the NFT asset. Therefore, lending NFT assets has become an inherent demand of NFT players. In summary, due to the outbreak of NFT assets, the formation of high-quality NFTs, and the liquidity needs of NFT players, the NFT lending market has initially taken shape. With the enrichment and continued development of blue-chip NFT assets and the growth of NFT holding addresses participating in the mortgage, the scale of the NFT mortgage lending market will further expand. However, it should be noted that the scale of NFT mortgage lending is limited by the following two factors: one is the scale of high-quality NFT assets, and the other is the proportion of assets participating in the mortgage.
V. Conclusion
In general, NFTFI is still in a very early stage. After all, NFT itself has only been popular for a year. It is still in the early stage, and there are only a few blue-chip NFTs. The previous NFTFI idea also directly led to a situation where there were too many wolves and too little meat. There were dozens or hundreds of NFTFI projects, and almost every one of them was eyeing blue-chip NFT projects. However, there were only a few blue-chip projects, and each user address was only about 4,000 to 5,000. In other words, the total number of users holding these blue-chip NFTs was only 20,000 to 30,000. Excluding the overlapping owners, the actual holders were only 10,000 to 20,000.
Although NFT fragmentation and the like should be able to be extended to non-holding users, mainstream NFT lending and NFT leasing projects are basically still competing for the "big customers" of 10,000 or 20,000. In other words, even if you are the first in the track, the number of users is only this number. The number of users of platforms such as Uniswap and Compound is completely not in the same order of magnitude. Through MetaPioneers, NFT is strengthened. The connection between the core assets of the industry is attracted by deep and continuous liquidity. Shallow speculative liquidity can be attracted, so as to truly realize the value flow and value growth of NFT.
