Since September, the DeFi boom caused by liquid mining has gradually cooled down. Although Uniswap started liquid mining during this period, it is difficult to change the overall decline of the DeFi market. However, recently, multiple currencies in the NFT field have begun to explode, especially the MEME token which has risen nearly 15 times within a week, which has successfully attracted market attention and even overshadowed Uniswap. Many people exclaimed: NFT will be the next investment boom. So what is NFT? Can NFT change the declining trend of DeFi and help the DeFi building to flourish?
1. What is NFT
To understand what NFT is, it is necessary to understand the standards of several token development in the industry. We all know that Ethereum can issue tokens. From a technical point of view, these tokens can be divided into the following three types:
Homogeneous tokens (Fungible Token, NT), also known as interchangeable tokens, are mainly produced by the ERC-20 standard. Each token can be exchanged at will, split and integrated; Non-Fungible Token (Non-Fungible Token) , NFT), also known as non-fungible tokens, mainly produced by the ERC-721 standard. The smallest unit is 1, which cannot be split or replaced each other; of course, Ethereum later proposed a semi-homogeneous token standard- –ERC-1400 and ERC-1404. The semi-homogeneous token standard allows tokens to be divided into different subsets according to “classes”, and the tokens in each subset are the same. For example, stocks can be divided into common stocks and preferred stocks, and common stocks and preferred stocks. They cannot be substituted for each other, but every share in common stock or preferred stock is the same and can be substituted for each other.
In fact, non-fungible tokens (NFTs) have appeared very early, that is, the popular crypto cat game on Ethereum at the end of 2017. In this game, each crypto cat is a unique breed, and there is no exactly the same cat. At present, NFT is mainly used in fields such as games, artworks, domain names, and collectibles.
2. Why is NFT so hot?
Speaking of the popularity of NFT in the past one or two days, the MEME and WHALE projects must be mentioned.
The first is the MEME project, which was originally a joke made by Jordan Lyall, the head of DeFi products at ConsenSys, to mock DeFi. However, the joke came true. The community really created MEME coins and introduced a liquid mining design: players who pledge MEME tokens can earn corresponding points, and then use the points to exchange for NFT collection cards, and this collection card , Can be directly linked to OpenSea for sale. Subsequently, the MEME coin soared 15 times in a week, which attracted the attention of the market.
Similarly, there are WHALE tokens issued by the WhaleShark community. The total number of WHALE tokens is capped at 10 million, of which 1 million will be reserved for partners and management teams, 4 million will be distributed at a rate of 50,000 WHALE per month, and the remaining 5 million will not be clearly used. Similarly, the WhaleShark community has also designed a liquid mining mechanism: creators can pledge their own NFT works to get WHALE tokens, and plan to reward ten $WHALE creators with 2000 WHALE every month in the first three months. Attracted by liquid mining, the price of WHALE increased from USD 3 on September 23 to the current USD 9.1, a nearly two-fold increase in two days.
Of course, it can be seen from the above cases that the popularity of NFT today, just like the popularity of DeFi in the past few months, is not about DeFi or NFT itself, but the token speculation brought about by liquid mining.
The popularity of NFT today is no different from the popularity of CryptoKitties three years ago. People are pursuing the high returns brought by speculating on CryptoKitties, not the CryptoKitties themselves. At that time, people’s fiery speculation on CryptoKitties even caused the blockage of the Ethereum network, which is similar to the hot DeFi in recent months. It is similar to the high fees of Ethereum; and CryptoKitties, the former Ethereum star project, has become quiet, and even many new investors have never heard of it.
3. Can NFT save the decline of DeFi?
The combination of NFT and DeFi mining has made many market participants excited and believe that it is the next market outlet after DeFi.
So, can NFT save the decline of DeFi since September? Difficult.
Although NFT and FT are defined as non-homogeneous tokens and homogenous tokens, it is more appropriate to distinguish between the two by “standardized” and “non-standardized”.
The so-called “standardization” is just like industrial streamlining products, the products are homogeneous, the price is uniform, and the transaction difficulty is low. For example, our common futures contracts are standardized financial products: the contract terms for futures transactions between buyers and sellers are all formulated in advance according to standards, such as delivery time, contract face value and other terms, which are all formulated by the exchange in advance. Buyers and sellers only need to “negotiate” prices to conduct transactions, which is convenient and fast.
“Non-standard” is like an independent store, pursuing high quality and individualization, and “customizing” according to customer requirements. It is a product tailored for high net worth customers. For example, a forward contract is different from a futures contract in that both parties negotiate the terms of the contract. Because it is “non-standardized” and cannot be “batch” transactions on the exchange, it can only conduct one-to-one transactions, so liquidity is very poor.
Although people like to claim that “DeFi” advocates “decentralization” and “diversification”, many people have not yet realized the importance of “standardization” or “homogenization” for the development of DeFi: for example, in the lending market, only homogeneous Pledged assets can only be carried out, otherwise the market will not be able to confirm the value of the collateral, which will cause liquidation risks; another example is AMM DEX, the liquidity provided by LP must be homogenized assets, otherwise it is impossible to form an asset pool, and it is impossible to proceed. “Bulk” transactions.
However, for NFT, its assets are “non-standardized”, and each of its assets has unique characteristics, which also makes it impossible for people to have a unified evaluation of this type of asset. Therefore, NFT is a “private customized” product, which cannot be “batch” transactions on the exchange, only one-to-one over-the-counter transactions, and the liquidity is very poor.
The market size gap between non-homogeneous tokens and homogenized tokens is just like the market size gap between private custom shops and assembly line factories. In other words, the difference between investing in non-homogeneous tokens and homogenizing tokens is like the difference between investing in the securities market and investing in art auctions. The former institutions and small and medium investors can participate, while the latter is mainly for high-net-worth clients.
Therefore, it is difficult for NFT to save the current decline of DeFi mining. This is not because NTF’s current infrastructure, user scale, capital scale, etc. do not meet the requirements, but NFT itself is “privately customized” to meet individual needs—not so much that NFT has a small scale of funds and user population It is better to say that it is so.
Perhaps NFT can rely on “liquid mining” to issue coins, which will cause market speculation and prosper for a while, but it will eventually return to its original niche market. Because the “non-standard” feature is difficult to meet the market’s requirements for “inclusiveness”, it is difficult to become a mainstream asset in the exchange market without “inclusiveness”.
