The investment track of NFT worthy of attention includes: high-quality public chain, issuance and mobile platform, and the token itself.
Original title: “HashKey Research Report | Understanding the NFT Ecosystem”
Written by: Xiao Qifan, working at HashKey Capital Research
This article is the latest research report of the HashKey Captial research team on the NFT industry. It presents a full picture of the NFT ecology for readers and encryption enthusiasts. The report covers four chapters: NFT market overview, landing application scenarios, industry prospects and bottlenecks, investment and track evaluation. , For readers’ reference.
NFT is an emerging niche encryption field, which will become more and more noticeable from 2020. More and more celebrities and high-net-worth collectors will enter and participate in the investment of NFT products, and well-known institutions will participate in the deployment of NFT projects. The rapid development of NFT benefits The popularity of DeFi has become one of the future directions that Chain Circle has placed high hopes on after DeFi.
NFT’s current market capitalization is relatively small, but the industry is becoming more and more active. The landing application scenarios are mainly game props, encrypted artworks, and social tokens. The uniqueness and scarcity of NFT make it very suitable for marking the ownership of assets in the blockchain, and truly realize the connection between digital assets and real assets in the virtual world.
In the future, the liquidity of NFTs will become higher and higher, more physical assets will be on the chain, and financial development will be more inclined, but there will also be problems with insufficient ecological environment and safety supervision. We believe that NFT’s main tracks worth investing in include: high-quality public chains, issuance and liquidity platforms, and the tokens themselves.
In the field of blockchain, from the perspective of exchangeability, tokens can be divided into two types: homogenization and non-homogeneity.
Homogeneous tokens, namely FT (FungibleToken), use ERC20 as the basic standard, and are mutually replaceable and nearly infinitely split Tokens. However, homogenized tokens have limitations. Things that are truly valuable in real life are often irreplaceable and cannot be split infinitely. Unique assets cannot be anchored with homogenized tokens.
The non-fungible token NFT (Non-FungibleToken) is the only and inseparable token, such as tokenized game props, tickets, artwork, etc. NFT uses ERC721 as the standard, and then the ERC1155 protocol appeared, that is, each ID represents not a single asset, but a category of assets, allowing multiple tokens to be created in batches at once.
NFT industry is becoming more and more active
Starting with CryptoKitties in 2017, the NFT market has existed for more than three years, and almost all NFT projects are active on the Ethereum and WAX chains. As shown in the figure below, the top ten NFT tokens currently include Enjin, Flow, Decentraland, RedFOXLabs, Gala, SAND, Ultra, NFTX, WAX, and Bondly. Among them, the transaction volume of Enjin coins can reach about 100 million U.S. dollars within 24 hours.
According to the DappRadar NFT industry report for the third quarter of 2020, in terms of Ethereum, compared with the previous quarter, the number of daily active wallets of NFT increased by 350%, the number of NFT transactions increased by 57%, and the number of daily active wallet addresses and transactions of CryptoPunks was the largest. In terms of WAX blockchain, compared with the previous quarter, the number of WAX NFT daily active wallets increased by 24375%, and the transaction volume increased by 10,086%.
In addition, it is worth mentioning that Flow is another public chain that focuses on NFT encrypted games and encrypted art in 2021. It was developed and created by Dapper Labs, the development team of CryptoKitties, and is different from most Layer 2 expansion plans that divide the blockchain into shards. , Flow achieves capacity expansion without reducing the sharding of the blockchain: nodes no longer participate in the verification process of the entire transaction, and there is a division of labor between nodes, and they only participate in one of the links of collection, consensus, execution, and verification, so the speed is greatly improved , The throughput is improved. In 2021, the card project NBA Top Shot was developed based on Flow, and in February 2021 Flow announced that it would incorporate the NFT trading platform Opeansea into the ecosystem.
The total market value is growing fast, but the scale is small
As of February 25, 2021, the market value of NFT has reached approximately US$3 billion, of which the market value of Enjin coin accounts for 16.7% of the market value of NFT. The total historical transaction volume reached US$3.23 billion, and a total of 5.31 million NFT works were sold, with an average transaction price of US$60.
The growth of total transaction volume is based on the rise of a single NFT asset. The average price of NFT reached a peak of 4334.21 USD on February 22, 2021. However, this figure was about 100 USD half a year ago, an increase of 40 times. On February 21, the history of NFT assets The turnover also reached a new peak of 20 million US dollars, about 45 times that of six months ago.
In terms of total transaction volume, the total transaction volume in 2020 will be 1.8 times that of 2019. As of February 25, 2021, the total transaction volume will reach 170 million. The transaction volume in the first two months of 2021 will be that of the entire year of 2020. 2.7 times.
It can be seen that the industry’s interest in the NFT market is heating up. At present, NFT only accounts for 0.2% of the total market value of the encryption market. The market value is very small. The NFT market is still in its infancy and is a niche area.
Well-known institutions participate in deployment, celebrities participate in investment, popular projects perform well
Some projects in the NFT field, such as MEME, NBA Top Shot, Hashmask, etc., have brought great economic benefits and performed well, making many participants believe that NFT will become a new explosive sector.
In addition, some influential celebrities are also participating in the NFT. For example, members of the Lincoln Park band initiated a music NFT auction on Zora in February 2021.
Some well-known organizations have also entered the game one after another, including Marvel, the National Basketball Association (NBA), LouisVuitton and other luxury brand owners LVMH and other well-known organizations have also participated in the deployment of NFT, the influence of the organization will strongly promote the further growth of NFT .
Landing application scenarios
Encrypted game-the earliest landing attempt, one of the main applications of NFT
We believe that NFT gives players real ownership of game assets, disintermediates the transaction of game players’ assets, and seamlessly transfers and uses them in multiple games. Game data can be safely stored on the chain, while the game code is open source, players can use their creativity to create game rules. In the future, the degree of decentralization of encrypted games will be more thorough, and there will be more high-quality public chains dedicated to game development.
Since 2013, some online games that incorporate Bitcoin have been born, which is the inspiration behind today’s blockchain games.
At the end of 2017, CryptoKitties was born. This is generally considered to be the beginning of the blockchain game industry. CryptoKitties once created a record of 14,000+ daily active addresses in a single day (2017-12-09), which once caused the ether. The transaction was blocked. As of April 30, the total transaction volume was 43067.04 ETH, which is about 200 million yuan.
Ether Go, the first blockchain placement game, launched in April 2018, had a daily activity of nearly 5,000 users, and completed more than 40,000 transactions in just over a day. In the following two years, the number of blockchain games has achieved tremendous growth, especially represented by platforms such as EOS and Ethereum. A batch of phenomenal games have sprung up, but they have maintained their enthusiasm for a while.
The following table shows some of the main projects in the field of blockchain games:
Game track project
Featured Project-NBA Top Shot
Ranked No. 1 in total transaction volume
The NBA Top Shot card game quickly became popular in 2021 after less than half a year from the public beta. Calculated by historical total turnover, the turnover of NBA Top Shot has now reached more than 200 million US dollars, ranking first in encrypted collectibles, about the ranking of transaction volume. The second CryptoPunks is 3 times larger, and there are nearly 1.7 million wallet addresses participating in the collection, and about 90,000 collectors. Among them, the digital collection card of the famous Los Angeles Lakers star LeBron James’ classic dunk shot on the platform was sold for $71,400, becoming the highest-priced card so far.
- Based on Flow Blockchain Development
Unlike most NFT projects based on Ethereum and WAX, NBA Top Shot is developed based on the Flow blockchain, which is a public chain developed by Dapper Labs, the development team of CryptoKitties, and uses cryptographic technology based on Professional Proof of Secret Knowledge (SPoCK). Use Layer 2 to achieve decentralized high performance. Flow uses the PoSy consensus algorithm to upgrade and protect the developer’s code. It is highly friendly to developers, has strong security, high throughput, and can better meet the needs of regional centralized games. The ecology is also constantly improving. The famous NFT exchange Opensea Join the Flow ecosystem on February 24, 2021.
The history of traditional star cards
- Originated in the United States, mainly based on baseball cards
The earliest baseball cards were issued in the 1880s, which was also the era when baseball professionalized. A player photo was printed on a card. This kind of star card is called a TradeCard. The early player cards were mainly used as gifts for buying cigarettes, and candy and toy manufacturers followed suit and gradually became a collectible in the United States. Goodwin & Co., maker of Old Judge and Gypsy Queen tobacco manufacturer was the first company to manufacture star cards. Topps was the first company to officially produce player cards, and it monopolized the market for a period of time after 1951. After the antitrust law was introduced, Topps only retained the right to issue NBA basketball superstar cards, and the American player card market has since entered the Warring States era.
- Carrying cultural value
Traditional sports such as baseball and basketball are an important part of American culture. Player cards sometimes represent a legendary era or a great team, and have a high collection value. In addition to baseball, the influence of the basketball culture represented by the NBA in the world is self-evident, and there are no shortage of super sports superstars such as James and Kobe. The current star card is no longer just a photo of one or two players printed on the card. There are more new ways to play, such as limited cards, rookie cards, jersey cards, and autographed cards of the stars. These cards are scarce. The collection value is getting higher and higher over time.
Advantages of NFT star card over traditional star card
- More expressions
In addition to the star pictures on the traditional star card and the basic information introduction text, the NFT star card also has the form of short video or GIF animation to record the “exciting moments” of the NBA star. The NFT star card has more forms of expression and has more features. Attractive, interesting, higher investment and collection value.
- Low storage difficulty
Cards may experience oxidation, discoloration, breakage, etc. during the storage process over time. The ink on the star’s autograph card may also fade. After the NFT star card is put on the chain as an asset, there will be no storage or transportation problems of the physical star card. NFT assets can be stored in the wallet, and the storage cost is almost zero. This also reduces the collection threshold of the star card and attracts more players. Participation, and the stronger liquidity of the assets on the chain gives the NFT star card collection more ideal investment attributes.
- Counterfeit card risk reduction
The traditional star card trading market is not regulated. After the official card is sold, counterfeit cards may be sold in the secondary market transactions between individuals. Players may buy counterfeit products at a high price if they make mistakes in their judgment. With the help of smart contracts, the origin of the NFT star card and every address that holds or transfers it can be tracked. Each card is unique and cannot be copied, and the information cannot be tampered with. The probability of a fake card is very low. .
Crypto game advantages
Compared with traditional games, encrypted games have the following advantages:
- Players have ownership of game assets
In traditional games, the ownership of game assets belongs to the developer. Players only have the right to use. Developers can transfer or change the user’s game assets at will. In encrypted games, users can truly own the game assets through smart contracts.
- Game data can be stored permanently and safely
In traditional games, game data is at risk of being stolen by hackers, while encrypted games are based on blockchain technology. Hackers cannot invade and attack distributed ledgers. Therefore, game data can be permanently stored and cannot be tampered with.
- Open source game development
The code of traditional games is not open source, that is, game manufacturers formulate the rules of the game. Encrypted games are different from traditional games with a single point of trust. It is a peer-to-peer ecosystem. The code of the game is open source and transparent. Developers can play creatively and freely innovate. Make the game more playable, which also reflects the concept of Web3.0.
- The degree of centralization is more thorough, decentralized community governance (DAO) empowers NFT games
The incomplete infrastructure in the game ecosystem and the incomplete decentralization are one of the problems of NFT games. Even if the player nominally owns the ownership of the game assets, the form of NFT presentation on the front end is determined by the centralized server of the game manufacturer.
DAO means that through a series of open and transparent rules recognized by community members, the community can operate autonomously without being governed by anyone. Any token rewards, votes, and transactions in the NFT game community are recognized by the entire community. The data is open and transparent, any member can query and cannot be tampered with. Once deployed, it will not be affected by the creator and external forces. DAO will play an important role in the struggle for “decentralization” in NFT games.
- Build a game-specific public chain ecology
At present, most NFT games are developed based on Ethereum, but Ethereum has shortcomings such as low TPS and high gas cost. The high-quality public chain infrastructure dedicated to NFT game development is also one of the future development directions of NFT games. Flow developed by DapperLabs is a leading public chain dedicated to games. It has obtained exclusive cooperation rights with NBA and other organizations. NBA Top Shot was developed and established on Flow. Flow has the advantages of low cost, low latency, high throughput, and friendly development environment and user experience.
Encryption art-the most suitable application for NFT
We believe that the encrypted art market can bring economic benefits that traditional systems cannot achieve. Through smart contracts, the historical transaction information of the artwork, including the sender, exhibition records, and transaction records, is completely open and transparent, which greatly reduces the transaction cost of the artwork, and the creator essentially owns the ownership of the artwork. Artists can also get compensation for secondary sales through provable programming. The artworks anchored by NFT are scarce and unique, and it is this scarcity that drives people’s demand for artworks.
Disadvantages of traditional digital art trading
In addition to the conditions for the art itself to be chained, the drawbacks of traditional art transactions are also an important reason for the generation of encrypted art. The disadvantages of traditional artworks are as follows:
Poor work flow
In the traditional art market, the trading venues are mainly galleries, auction houses, etc. Creatives exhibit their works in galleries or auction houses through intermediaries. Buyers can use USB to copy artworks after payment. The disadvantages of this trading model are obvious: low exposure rate of works, large restrictions by time, region, and crowd, low liquidity and popularity, and poor liquidity.
The creator cannot own the real copyright
After the buyer obtains the work from the creator, he can make a copy of the same work and continue to trade on the secondary market. The scarcity of the work of art is reduced in the continuous copying and dissemination, and the value of the collection decreases. Compared with the initial sales revenue, the economic benefits of secondary sales resale appreciation are objective.
Over the years, original creators have been fighting for royalties from secondary sales, that is, “renewal rights”. France first introduced the concept of “renewal rights” in 1920. The renewal tax rate is usually very low, and artists in France can get resale 3 % Of dividends. In countries that follow the EU’s 2001 “Artist Resale Rights Protection Directive”, artists can get 4% of the proceeds from resale.
In the United States, California legislatively recognized the right of renewal in 1976. In 1991 and 2011, Congress had solicited opinions from the public on the right of renewal system, but none of it was passed. In 2012, the California Renewal Right Act was abolished. In addition to insufficient legislation, law enforcement is also very difficult. It often requires the participation of the legal level to come in and the original creators can collect the proceeds of secondary sales, and the legal cost is relatively high.
The following table sorts out the main projects of NFT in the field of encryption art and the characteristics of each project:
Collection Art Track Project
NFT empowers the field of art-SupeRare
SuperRare is one of the major crypto art markets established in 2017. The platform has functions such as galleries, auction houses, museums, social networking, and business. At present, there are more than 600 creators on the platform. Works are generally sold at a price of ETH. The total transaction volume reaches about 20 million. The total transaction volume is about 16,000. The most expensive work currently has a unit price of 165 ETH, about 85,000 U.S. dollars. Works are sold on the platform. All of the artists and works will be reviewed by the platform.
- The average transaction price of commodities has risen sharply
The above figure shows the average transaction price of NFT commodities in SuperRare. As of the end of February 2021, the average transaction price of commodities has been fluctuating and rising, reaching a peak of US$8,135 on February 16, which is 47 times more than the beginning of 2020, and is entering 2021. After the year, the increase was even greater than before.
Source: DuneAnalytics, queried by rchen8
- Demand for collectibles continues to rise
The above figure shows the growth of the number of artists and collectors in SuperRare in 2020. The gap between collectors and artists is increasing. At the end of 2020, the number of collectors will be approximately twice that of artists. The total number of collectors and artists The amount is increasing, which shows that the demand for collectibles is rising.
SuperRare empowers art trading
- Increase in artist’s primary sales revenue
Investors from all over the world can appreciate the works of artists through the platform, and the exposure of their works is higher than that of traditional auction houses, and in the point-to-point decentralized ecosystem of the encrypted art market, artists are not subject to high commissions from middlemen such as auction houses and dealers. As a result, 85% of the income from primary sales belongs to itself (the platform charges 15% commission), and the income from primary sales of artists increases.
- Artist and secondary sales rights binding
The Ethereum smart contract has added a secondary market sales franchise. In the Superare trading market, after the artwork is traded in the secondary market, the original creator can get a 10% commission from it and obtain passive income from being resold. Because the smart contract has the power to control the assets, the payment will be automatically made immediately after the second transaction, and no third-party legal personnel are required to execute it. The artist truly has the right to the second sale.
Advantages of Encrypted Art
In general, the advantages of encryption art over traditional art can be summarized in the following three points:
Compared with traditional art transactions, encrypted artworks reduce high transportation costs, storage costs, maintenance costs, legal costs, etc.
Increase exposure and liquidity
At present, traditional art transactions are very restricted in time, location, and audience. The main art exhibitions are only concentrated in large cities such as New York, Berlin, Paris, and Hong Kong. The audience is mainly the wealthy class of society. Smart contracts have successfully connected the global market, integrated global art resources, and brought together artists, collectors, investors, and critics from all over the world. Players can choose to invest in NFT asset fragments, and the collection threshold is lowered, and they can be used on the encrypted art comprehensive trading platform Browse the artwork at any time.
Clarify ownership of works
Encrypted art exhibition and circulation information will all be recorded on the chain, which is convenient for reviewing and tracking specific works of art, and the possibility of counterfeiting and counterfeiting is greatly reduced. The ERC721 agreement clarifies the source of the tokens, clarifies the ownership of the work, and the residual value of the secondary sale belongs to the creator.
Encrypted art future vision
There are four main points about the future development trend of encryption art:
Combine or bundle with more elements to form new asset classes
Such as finance, architecture, etc., these innovative bundles will release the greater potential of crypto art.
Artwork will be combined with more trendy products or toys
The cash flow income of the trendy play market is higher than that of the artwork, and personalized design and trend attributes have become the consumption logic of many young people today. The popular scale of the trendy play market will continue to expand. This trend has already existed in the traditional art world in the tide play market. For example, the works of the artist Takashi Murakami. His paintings and sculptures have strong toy attributes.
In the future, there may be more comprehensive trading platforms and second-hand trading platforms similar to Opensea. Secondly, another source of liquidity is DeFi. After users mortgage high-quality NFT assets in the DeFi agreement, loan to purchase new assets, the liquidity of NFT will increase.
In addition, in addition to single-edition limited-edition artworks, there will also be more multi-edition limited-edition artworks trading and circulating. Multi-version artwork is a series of the same artwork commissioned by the artist or produced by the artist according to his own ideas. For players, the multi-version artwork has a lower collection threshold, stronger social attributes, increased liquidity, and higher appreciation space.
Art verification and anti-counterfeiting technology upgrade
With the upgrading of the authenticity and traceability chip technology, players will be less likely to encounter counterfeit products.
Social tokens-one of the most potential incremental markets for NFT in the future
We believe that social tokens embodies the connotation of Web3.0 peer-to-peer transmission, which helps to reduce the dependence of creatives on centralized platforms, increase the circulation and monetization of creative works, and can truly realize the binding of creatives and rights. Compared with physical assets on the chain, the value capture of native assets in this type of Internet community will be higher. At present, people have only touched the shallow potential of social tokens, and social tokens may become one of the most potential incremental markets for NFT in the future.
Social token classification
Social Tokens are tokens supported by personal reputation, brand or community, and are a relatively new application in the NFT field. Social tokens are built on the premise that the value of the community will continue to increase. Social tokens are roughly divided into two categories: personal tokens and community tokens.
Created by an individual, it will appreciate with the growth of personal value, but the capture value is limited, and it is greatly influenced by the personal brand. Creators can manage the communities they create by issuing coins.
It is usually used to enter communities that have specific membership qualifications. For example, you must have tokens issued by the creator of the community before you can enter a specific telegram discussion group, obtain information or services, etc. At the same time, these communities will also issue tokens. Coins encourage people to contribute to the community. Community tokens are mostly the governance tokens of decentralized autonomous organizations (DAO). The community usually has more achievements than individuals and has greater growth potential.
In general, early investors in personal tokens may get huge returns, and community tokens may capture more incremental value. The following figure shows the main projects of the two social tokens summarized by Messari and their token value:
Source: Organized according to Messari
Social token value
Increase the ability to monetize creative works
The Internet provides a platform for creatives to share their works, but the commercialization capabilities of creatives’ works, work sharing, dissemination capabilities, and value-added space are all limited, that is, the creatives’ work monetization ability is insufficient. But the emergence of Web3.0 is expected to solve this problem. Creators can distribute social tokens in the community to allow supporters to share their favorite works, thereby increasing liquidity and achieving the purpose of adding value to their works. In addition, creatives can follow the community The activity and contribution of internal users are divided into levels and enjoy tokenization rights.
Creators and rights binding
Creators can use social tokens to allow fans to access the creator’s work on the creator’s full social platform. Fans can no longer rely on the platform to support creators and favorite works. This way, they support the creators through tokenized tools. Creators can enjoy all the profits of the value-added space of their works, and realize the binding of creators and rights, which also reflects the core connotation of the peer-to-peer ecosystem of Web3.0.
The current featured project of social tokens is Whale issued by WhaleShack. WhaleShark was first issued in May 2020. It is supported by a vault composed of a large number of NFT assets, including a large number of artworks, collectibles, virtual item tokens, creators His works can be sold on Opensea with Whale prices.
The figure below shows the estimated value of WhaleShark’s NFT asset library (Nonfungible.com January 2021 audit results). The NFT assets in the asset library have been on the rise for several consecutive months, with a value of approximately US$2.7 million on December 31, 2020. At the end of January 2021, the value is close to 6 million U.S. dollars, an increase of 120% in one month.
It is worth noting that Nonfungible’s valuation method relies more on historical data. The valuation of most NFT assets is based on the average transaction unit price of the past few months, and there is a lack of forecasts for the future. This valuation method is relatively conservative, and the value of the vault currently assessed by Nonfungible can be regarded as the lowest asking price.
Whale is not only supported by the NFT asset library, but also other different functions in the community, such as games, purchasing virtual assets, etc. Whale also created a DAO (Decentralized Autonomous Organization), that is, Whale is completely governed by participants without centralization Organization.
Today’s social tokens are not only increasing in value, but their ecology is also rising rapidly. The following figure shows the main components of the social token ecology:
Token issuance platform
Such as Stakeonme, Roll, Rally, Zora, Fyooz, etc. provide platforms for token issuers to mint and issue social tokens.
Token creation accelerator
The main role is to incubate social tokens, such as helping creators design token models and create token standards.
Mainly used for community governance, the main functions include group verification, identity verification, voting, proposal, initiating DAO, airdrop, rewarding, asset sales, income farming, etc., such as Gnosis, YUP.
Thoughts on the value of social tokens
Compared with physical assets on the chain, social tokens capture higher value of native assets
Social tokens are supported by actual value in the context of the continued development of the fan economy. Take personal tokens as an example. The higher the personal influence of the issuer, the higher the price of the token. Brand and prestige endorsement. Compared with assets on the chain, the value of native assets in this type of Internet community will be higher, but it is not obvious before the official arrival of the Web3.0 era.
Have requirements for the ability to identify talents and brand value
Social tokens are mainly supported by personal reputation, brand or community, and will appreciate with the growth of personal or community value, which requires investors to identify talents.
In addition to the aforementioned application of NFT in crypto games, crypto art, and social tokens, NFT also has many exciting projects on other tracks. The following table sorts out NFT’s comprehensive exchanges, databases, and decentralization. Domain name, finance and some representative projects combined with DeFi:
Outlook and bottlenecks
High-quality assets enhance market liquidity
First of all, it is expected that more high-quality comprehensive trading platforms will appear in the NFT field, providing players from all over the world with a place to mint or trade NFT. In addition, DeFi can provide liquidity for NFT. High-quality and widely recognized NFT assets can be mortgaged in the DeFi agreement. Users can purchase new assets after mortgaged NFT. High-quality NFT assets will improve market liquidity.
More real assets on the chain
The true meaning of NFT is to provide an on-chain channel for real-world items and act as a bridge between the physical world and the blockchain world. In addition to the existing game props, art collections and other applications, in the future, more real assets such as real estate and copyright can be chained and exist in the form of NFT. In addition, NFT can also be regarded as a chain process of real hobbies, such as movies, music, drama, fashion, etc. can all be chained, and the gameplay will be more diverse.
Financial attributes increase
Commercial bills such as bonds and insurance policies need to carry a large amount of information in the process of circulation and transactions in the financial market, and they are unique. As a non-homogeneous token, NFT can be used to mark different physical objects, and the information of bills can be tracked. NFT can empower the financial sector, and financial attributes will increase in the future.
The ecological environment is not perfect
Compared with the previous popular DeFi ecosystem, the ecological perfection of NFT at this stage is not perfect. Different from the similar business and investment logic of each track in the DeFi field, the NFT track is clearly differentiated, the projects are quite different, and there are only a small part of the competition. Road development is relatively mature and has investment value, resulting in insufficient NFT projects and track combined force and limited influence. Secondly, the concepts of private keys, wallets, and mnemonics involved in NFT have a high threshold for players, and many players are discouraged because of this. In addition, since the NFT market is an emerging niche field, liquidity is worse than that of DeFi projects.
Higher security risk
First of all, the global regulation of NFT policies is still in a blank stage. NFT development is a state of unregulated “barbaric growth”. According to the characteristics of NFT non-homogeneous tokens against physical objects, criminals may use NFT to launder money and trade. Criminal activities such as prohibited items. In addition, as the value of NFT assets continues to increase and the ecosystem gradually expands, it may become a new target for hackers after DeFi, and network security vulnerabilities are also potential risks.
Investment and track evaluation
A track with investment value
High-quality public chain, issuance and flow platform, and the token itself.
High-quality public chain
Ethereum’s high gas fee, slow speed, and network congestion limit the development of many applications, and the user experience is poor. New types like Flow are used as game-specific blockchains or L2 solutions such as Matic and xDai Chain support games or The potential of the streaming media industry. It is a potential NFT investment direction to invest in L1 or L2 to support the development of high-quality public chains or expansion solutions for NFT projects with higher throughput. However, compared with the more concentrated investment in the token itself, the more extensive investment such as the public chain may bring less income.
Issuance and mobile platform
NFT is a non-homogeneous token with uniqueness. Unlike a homogenous token, its commodity attributes are greater than currency attributes. Since the attributes of NFT commodities are larger, commodity issuance and mobile platforms are one of the main investment directions, such as trading platforms such as Opeansea and Superare. Opensea and Superare have not yet issued tokens. The platform governance token Rari of the trading platform Rariable allows players to buy and sell NFT commodities, conduct liquidity mining, and obtain token rewards. Investors can deploy such tokens.
However, it is not recommended to deploy a trading platform that is too small and has a small market value. The first depth is not enough, the price fluctuates, and users are prone to short-term losses. The second platform is not guaranteed to be standardized.
The token itself
The art collections, game props, social tokens, NFT financial products, and platform governance tokens mentioned above all have investment value. Collectibles and artworks often become valuable due to different reasons or backgrounds. These reasons are usually not replicated and are scarce. Investors need to use their own artwork knowledge reserves to evaluate their collection value. Game props are also based on the popularity and popularity of the game itself. Interesting value is different.
In view of the scarcity and uniqueness of NFTs, the application of NFTs in the financial field is an important direction for future development. Among them, insurance, derivatives, and indexes are the main investment opportunities for NFTs in the financial field. The value of platform governance tokens depends on the quality of the assets it governs and the quality of the ecosystem, and represents an index of the value of NFTs on the platform. With the rise of “fan economy” and “ownership economy”, social tokens with personal value and community value are also one of the potential token investment directions.
NFT works, artists, trading platform quality, and external evaluation are important indicators for evaluating NFT
Investing in NFTs in the cryptocurrency field is similar to alternative investments by traditional investment institutions. Compared with traditional investment, alternative investment has poor liquidity and weak information effectiveness, and may earn excess returns. It also helps reduce the overall portfolio volatility in the investment portfolio and increase investment diversity. Similar to the valuation methods of traditional artworks, players’ investment in NFT mainly needs to consider the following four elements:
NFT work itself
The NFT work itself is the most important indicator for evaluating NFT. The intrinsic value of NFT products such as collectibles and artworks is difficult to estimate. There are certain requirements for the level of artistic appreciation of players. The premise of maintaining or increasing the value of game props is that the game itself has always remained attractive to users, and players can follow their personal interests. Evaluate the investment value of NFT works from the perspective of hobbies, artistic feelings and appreciation.
If an artist is well-known, buyers are more inclined to buy the work. This type of artist with high market demand can sell the work at a high price. On the contrary, the possibility of a fledgling artist’s work selling at a high price is very low. Active artists in the NFT field include: Matt Kane, Pak, Josie, Pascal Boyart, Hackatao, Coldie, Trevor Jones, JOY, etc. Players can prioritize the works of these artists.
Quality of the trading platform
Auction houses play a big role in the traditional art market. If an artist’s work is purchased by a well-known auction house, then the artist’s status in the art world will be recognized to some extent, and the value of his work will be further enhanced.如今NFT 交易平台越来越多，玩家需要对其质量进行评估，须挑选知名度高，有信誉保障的平台购买，以此保障NFT 作品的质量。比如用户可以选择SuperRare 这类艺术家及其作品经过严格审查的平台购买NFT 资产。
如果一个NFT 项目将其元数据储存在第三方中心化服务器，若该项目最终破产或第三方服务器遭黑客攻击，用户将遭受损失。对于收藏者来说，NFT 项目的上链程度是很重要的，应选择上链程度高的、元数据存储在链上的NFT 项目。对于这类项目，用户也可以在在太坊浏览器或其他查询工具中追溯信息源头，跟进NFT 资产状态。