Why is a set of electronic pixels worth $69 million? Each NFT asset is unique, and with the help of blockchain technology, digital assets can be confirmed. This allows it to integrate with industries such as gaming platforms, luxury goods, sports and art, and generate huge business opportunities.
NFT trading platforms such as OpenSea, social media where NFT project audiences such as Discord gather, and platforms such as Forte and Palm, which provide NFT technical services for games, music distribution and other projects, received huge financing and successfully entered the unicorn list.
Behind the explosion of NFT is the result of traditional investment institutions such as Sequoia Capital, a16z, etc., and the unknown whitelist mechanism has led to different investment returns for users of different classes in the NFT market. The NFT world has not achieved the purpose of “decentralization”, and is still controlled by a few people.
In March 2021, a group of famous paintings by digital artist Beeple, “Everydays: The First 5000 Days” (Everydays: The First 5000 Days), was auctioned in the form of NFT. The record for the most expensive digital artwork to date.
On March 5th, the first tweet in history released by Twitter CEO Jack Dorsey was also NFTized and sold for a high price of $2.9 million. The wonderful moments of the stars in the NBA games have also been cast into NBA Top Shot (NBA wonderful moment star cards) NFT, which are sought after by fans, and related NFT products have even sold for millions of dollars.
The full name of NFT is Non-fungible Token, which is a non-fungible token, which refers to a digital asset with unique characteristics. Unlike Bitcoin, Ether (ETH) or other tokens that can be exchanged with each other, NFTs have unique identification codes and metadata, which can record digital assets and become their unique credentials.
NFT has fundamentally changed the digital asset market. By storing data and materials on a public-facing digital ledger, it can prove who owns the NFT, and track and record the history of previous ownership, providing a perfect digital “contract” .
In 2021, NFT will detonate major social network platforms and become the darling of the market, from collectibles to the sports industry, from the game industry to the luxury industry, sweeping the world. Well-known luxury brands Gucci, Prada, Burberry, etc. have joined the carnival one after another, making NFT further out of the circle.
However, the blockchain data tracking platform Chainalysis stated in the report that some popular NFT collectibles have not received sustained attention and popularity after experiencing a short-lived peak. Hashmask NFTs, for example, had a trading volume of $380 million in the week of July 4, 2021, but their average weekly volume is currently below $21 million.
Similarly, the once-popular Mutant Ape Yacht Club NFT has a similar problem.
Are NFTs a flash in the pan? Or represent the trend of the future? Let’s find out.
Perspective of NFT Industry Chain Players
Around the NFT industry chain, multiple roles have been formed at home and abroad, including infrastructure providers, project creators, distribution platforms, intermediary services and other derivative application providers.
Infrastructure providers mainly provide the underlying blockchain technology. Most NFT products are issued based on Ethereum, which also drives the trading volume of Ethereum’s native virtual currency, Ether (ETH), to become increasingly active, even surpassing Bitcoin.
Project creators/distributors include producers of various cultural content products. Morgan Stanley divides the main NFT products into four categories: art collections, sports collections, digital art products, and P2E (Play-to-Earn) gaming platforms. Among them, P2E game platforms currently occupy the mainstream of NFT products, such as Decentraland, The Sandbox and other subversive new game modes, allowing players to get real money in the process of enjoying the game.The gradual popularity of NFT products has also changed various industries such as luxury goods, sports, and music. The IP side has a higher gross profit and more trendy monetization method, and some new applications have emerged as the times require. We will focus on the introduction of various types of The business model of NFT products and how it has changed the existing industry.
The issuance platform refers to the place where various NFT products are released, similar to the primary equity market. It can be a distribution platform for a certain category of NFT products, or a comprehensive distribution platform that aggregates various NFT projects. If the project issuer has the ability to issue independently, it can issue it independently on its own platform.
Players in the derivative application layer are also very active. For example, OpenSea, which is currently valued at tens of billions of dollars, is a secondary trading platform for NFTs. Players can create, issue and trade NFT products on it, and can also freely buy and sell creations on other platforms. , issued NFT products. While providing intermediary services such as payment, data, technology, etc., such as Moonpay, the payment platform that helps realize “NFT products-virtual currency-fiat currency”, and Forte, which helps game platforms connect with blockchain suppliers to embed NFT technology, they have all become unique. beast.
Behind the popularity of NFT, social platforms such as Twitter, Reddit, Discord, etc. have played a role in community marketing and recruiting new audiences.
Of course, it is Silicon Valley venture capital such as a16z (Andreessen Horowitz, Andreessen Horowitz Fund) and Sequoia Capital who have incubated and promoted the blooming of various unicorns in the NFT industry chain. The start-up capital they contributed is this The basis for the prosperity of the virtual industry.
This article will look at the business models of various mainstream players in the NFT industry chain, the type of unicorns most recognized by capital, and the real dominant force behind the NFT chain (Figure 1).
Figure 1: NFT industry chain spectrum
80% of NFT products are based on Ethereum public chain technology,
Drive the price of ether soaring
The issuance of NFT products relies on the underlying blockchain technology.
In 2021, the NFT market will experience explosive growth. Data from Dapper Radars shows that in the third quarter of 2021, the transaction volume of NFTs has reached the order of 10 billion US dollars, an increase of more than 300 times year-on-year. Morgan Stanley estimates that by 2030, the NFT market size will be $150 billion in the base case and more than $300 billion in the boom case (Figure 2).
Figure 2: NFT market size forecast (unit: $1 billion)
Source: Morgan Stanley Research
The rapid growth of NFTs has driven the market share and price changes of cryptocurrencies.
Currently, NFTs are primarily issued on Ethereum, utilizing the platform’s “smart contract” functionality. Ethereum is a highly versatile decentralized computing platform that allows developers to build digital asset markets and run Decentralized Finance (Decentralized Finance) protocols such as Compound and Uniswap.
In the month from December 6th to January 5th, 2021, the total transaction volume in the NFT space was $2.547 billion, of which 84.43% were based on Ethereum, 9.65% based on Ethereum’s sidechain Ronin, 2.7% based on Solana, 1.58% Based on the public chain Flow, the rest account for less than 1%.
As the native cryptocurrency of Ethereum, Ethereum has gained more transaction scenarios and the price has also increased significantly.
According to the financial report of the US cryptocurrency exchange Coinbase (COIN.O), in the third quarter of 2021, about 19% of its total trading volume was concentrated in bitcoin, while the trading volume of ether exceeded bitcoin by as much as 22%. In 2020, the transaction volume of Bitcoin and Ethereum will still account for 41% and 15% respectively. This trend change is inseparable from the popularity of NFTs.
According to Coinbase’s official website, the price of ether soared from $980 in January 2021 to a high of $4,867.8 in November 2021, an increase of four times, especially in the third quarter of 2021, when the price increased by more than 150%. It also happens to be the period with the fastest growth in the scale of the NFT industry (Figure 3).
Figure 3: Ether prices skyrocketed (ETH/USD)
Source: Coinbase official website (February 2022)
However, although Ethereum currently has the highest market share, it is not without competitors. Dapper Labs, the developer of popular NFT projects such as Crypto Kitties and NBA Top Shot, is currently building the Flow public chain. Flow has attracted many partners, including NFL (US National Football League), UFC (Ultimate Fighting Championship), Warner Music, NBA, Ubisoft and other world top brands. At the same time, the Flow project has also received investment from well-known investment institutions such as a16z and Coinbase Ventures.
Project creator: Four mainstream NFT products
Morgan Stanley’s report pointed out that there are four main types of NFTs. The first is sports collectibles, such as NBA Top Shot, Sorare star cards, and Topp professional baseball collectible cards.
Among them, NBA Top Shot records a wonderful moment in an NBA game. Due to the uniqueness of NFT assets, fans chasing stars have reasons to be enthusiastic. The dunk instant NFT shot by LeBron James in the game against the Stone Rockets on February 6, 2020 was quoted at $250,000, which is far more than the average physical fan card.
According to statistics, 6 months after the launch of NBA Top Shot, the sales reached nearly 500 million US dollars, with 826,000 registered accounts, of which 338,000 accounts held NFT (generating a transaction), and the user and transaction volume increased explosively.
In December 2021, Dapper Labs, the publisher of NBA Top Shot, raised US$23 million, led by the Coatue Fund, and participated by many NBA stars such as Michael Jordan and Durant.
NBA team owners have also seen the role of blockchain technology. Dallas Mavericks owners Mark Cuban, Cai Chongxin and others have established an NBA blockchain advisory subcommittee.
The second is digital artwork created by artists, such as Every Day: The First 5,000 Days.
The third is Generativeart, which is usually created algorithmically and issued with a total supply cap, such as the popular Crypto Punks, CryptoKitties, and the Boring Ape Yacht Club.
Among them, the Boring Ape Yacht Club is a programmatically generated NFT collection of 10,000 drawings of monkeys randomly, each with a unique background style, clothing, earrings, eyes, mouth and fur. In October 2021, Boring Ape NFT No. 8585 was resold for $2.7 million, making it the club’s most expensive work. As of March 2022, the total market value of these 10,000 NFT products reached $1.78 billion, held by 6,347 independent owners, with a minimum price of $38,000.Previously, Jay Chou’s stolen boring ape NFT was worth more than 3 million yuan. This means that a set of 30-50 head portraits of boring apes can be compared to a set of No. 1 billion-dollar mansion in Shenzhen Bay.
The fourth is P2E game platforms, such as Decentraland, Axie Infinity, Gods Unchained, Sandbox, etc.
In these games, the most common NFT assets are digital plots. For example, game publishers usually generate tens of thousands of digital plots with a limited total amount according to different coordinate axes X and Y in the virtual world. As NFT products, For sale; and players can buy digital plots for self-built virtual houses or stores to gain appreciation; even characters, props, accessories, etc. in the game can be NFT products. Since players can buy, own, and trade digital assets in their games to monetize NFTs, the popularity of P2E gaming platforms has been born.
For example, Decentraland, the current platform with the largest market value of NFT tokens, was launched in 2017. At that time, the price of digital plots in the game was only $20/block, and the issued MANA tokens were worth $0.02/piece. By 2021 In April, the price of its digital parcels soared to $6,000 to $100,000 a piece, an increase of more than 300 times.
The second-ranked sandbox has a higher reputation in China, perhaps because in December 2021, Zheng Zhigang, a real estate giant in Hong Kong, China and CEO of New World Development Group, announced that he would buy the largest digital land in the sandbox for US$5 million. one of the blocks. Zheng Zhigang is the eldest grandson of Zheng Yutong, the founder of New World Development.
And famous rapper Snoop Dogg created the Snoopy universe in a sandbox, and then sold the rights to his virtual world neighbor for $450,000.
Subverting the traditional model, the financialization trend of NFT game platform is obvious
According to the statistics of the crypto market analysis platform CoinGecko, the top ten NFT projects by market value, calculated by multiplying the number of tokens by the price, totaled $29.56 billion, accounting for 70.55% of the total market value of the NFT market. The trend of concentration is more obvious.
Among them, the total market value of P2E game platforms accounts for 40% of the total market value of the NFT market.
This is also supported by research findings from the academic community. A report published on the Nature website by a research team composed of Matthieu Nadini and others from the University of London and other institutions shows that since July 2020, the transaction volume of artworks has only accounted for 10% of the NFT market, while the total transaction volume of collectibles and game NFTs has accounted for to more than 80%.
P2E gaming platforms almost all issue their own tokens, thus creating a higher market value (referring to the number of tokens on the platform * token price). As of February 2022, Decentraland has a market cap of $4.96 billion, Sandbox has a market cap of $4.4 billion, Axie Infinity has a market cap of $4.3 billion, Gala has a market cap of $2.4 billion, and Smooth Love Potion has a market cap of $937 million ( Table 1).
The high market value stems from the complete subversion of traditional game models by P2E games with the support of NFTs – players can make money in the game.
Taking Decentraland as an example, in this 3D virtual world, players can use MANA tokens to buy digital land “Land”, and develop and design buildings on this land, which can also become NFT assets. Due to their unique identification codes, these NFT assets can be traded on the external NFT secondary trading platform OpenSea or the secondary market Marketplace that comes with the project.
However, if you want to create shops, scenes or various applications on digital land, the platform requires users to use the 3D modeling software The Builder or The SDK to create 3D model scenes and embed them. Generally speaking, the threshold for creation is relatively high. Players are mainly involved in secondary trading of their NFT assets.
Similar to Decentraland’s gameplay is Crypto Voxels, a blockchain-based virtual world where players can buy land, build shops or art galleries in the platform’s “City of Creation.” Currently, Ether is the only payment method in Crypto Voxels to trade in-game NFT assets, such as buying and selling land, leasing land to developers, etc. Somnium Space is the same.
On the Axie Infinity platform, there are two tokens – AXS and SLP. Players first use the token SLP to buy a pet named Axie, each pet is a unique NFT, and use them to breed to get new Axie . These virtual pets are all NFT assets, which can be sold in the game in exchange for the token SLP, and then converted into real legal currency to achieve “play and earn”.
The common point of the P2E model is that each game platform is a decentralized financial Defi system with its own tokens. The digital assets purchased or newly created by the players in the game are owned by the players and can pass through the secondary market. The transaction is realized.
P2E platforms usually have their own communities on social platforms such as Reddit, Twitter, and Facebook. For example, Decentraland’s community on Reddit has attracted 85,000 members and 554,000 followers on Twitter. Through community drainage, developers continue to ferment topics, attract more participants to join, and push up the activity of the game platform, token prices and the market value of the corresponding NFT assets.
In this way, a new era of community-centric game economy has emerged. Here, the platform is only the maker of rules and the organizer of resources, while users are involved in building and continuing the life of the entire game.
The report “Game Industry and GameFi” launched by Ouyi Research Institute pointed out that blockchain technology gives players ownership of in-game assets and allows them to earn income by actively playing games, which is the key to the P2E model. Most of the revenue in P2E games is no longer going to the big centralized game companies, but to good players.
This is an important shift in the gaming world, as it is difficult for players to trade or sell their digital assets within traditional games. However, in the P2E model, users can own NFT assets such as their own land and scenes, and the realization ability is transferred from the platform part to the user. Through various encrypted asset trading platforms, there is a smooth exchange mechanism between digital assets and tokens, tokens and fiat currencies, which has opened up the barrier of virtual asset monetization.
With the transfer of monetization rights and the transformation of the game ecology, will the traditional game industry suffer a devastating profit blow? How do they cope? Embrace the trend and become the most natural choice.
Traditional gaming giant Ubisoft has taken the lead in exploring NFTs. On December 8, 2021, Ubisoft announced the beta launch of Ubisoft Quartz, a new platform that allows users to acquire game items such as NFTs for weapons, clothing or vehicles. Ubisoft Quartz calls these NFTs “Digits” and they are all based on the Tezos blockchain.
Investing in NFT game start-ups has also become an option for giants.
In February 2022, Com2uS, the largest game developer in South Korea, invested in 5X5 Gaming, a new P2E game developer based in San Francisco.
Luxury goods enter NFT, a new era of digital transformation is coming?
Not only the game industry, but also the luxury industry has been changed by NFT. According to Morgan Stanley, NFTs will grow into a $300 billion industry by 2030, while the luxury digital/hyrid collectibles market could reach $33 billion.
In April 2021, the high-end watchmaking and jewelry brand Jacob & Co. sold an NFT virtual watch called “Epic SF24” at the auction of luxury NFT auction house ArtGrails for up to $100,000.
In August 2021, Gucci released a digital version of the Dionysian bag in the Metaverse community Roblox (RBLX.N), priced at 350,000 Robux (Robux’s token), or about $4,115, while The Dionysian bag sells for $3,400 in real life.
In 2021, at the Los Angeles Electronic Entertainment Expo, Burberry cooperated with P2E game developer Mythical Games to launch NFT dolls and avatars based on brand elements in the multiplayer game “Blankos Block Party”, including jetpacks. A series of accessory NFTs, such as , armbands and pool shoes, can be used by players in the game.
Why are luxury brands entering the NFT market one after another?
First of all, they can place advertisements in NFT platforms or works such as music and games, generate brand effects, and more accurately reach the target group of young and trendy people.
In February 2022, Gucci announced the purchase of virtual plots in the sandbox, and the construction of a Metaverse experience store to sell NFT retro bags, etc. These primitive inhabitants of the Metaverse are the main group of luxury consumers.
In December 2021, Kering, the parent company of Balenciaga, created a specialist division to explore business opportunities in the Metaverse.
Second, even in the virtual world, users also need identity and class recognition. By pairing avatars with luxury virtual objects, clothing and personality differentiation can be achieved.
It is also for this reason that NFT avatars are popular on social media. Twitter launched Twitter Blue, a paid subscription service for NFT avatars, to enable NFT ownership verification, and to decorate users with hexagonal profile pictures instead of ordinary circles to distinguish ordinary avatars. Celebrities such as Jay-Z, Reese Witherspoon, Snoop Dogg and Stephen Curry are keen to use NFTs as Twitter avatars, making them a trendy status symbol.
Thus, Genies, an avatar technology platform, was born, where players can create their own 3D sprite avatars, and then equip wearable NFTs for social platforms and community events.
Third, Morgan Stanley pointed out in a research report that the development of Metaverse will bring about a new e-commerce ecosystem and further improve the efficiency and profitability of the entire retail industry. Selling one more virtual product is almost zero cost for brands, and high profit margins will attract more brands to the virtual world, forming a positive cycle.
Since the outbreak of the new crown epidemic in 2020, major luxury brands have been hit. Taking the mature European market as an example, according to Fortune Business Insights estimates, it will take seven years for luxury goods sales to return to pre-pandemic levels. Brand Finance estimates that the world’s top 50 luxury brands lost a total of $7.6 billion during the epidemic. Faced with such a situation, luxury giants have sought digital transformation and business expansion.
The luxury NFT e-commerce platform came into being, and the most representative one is the Exclusible NFT platform.The platform helps luxury brands in five verticals (supercars, watches, fashion, beauty, and jewelry) to release limited-edition NFTs and incentivizes users through gamification and social elements, allowing users to share NFTs and build a community around the brand. In December 2021, Nike acquired RTFKT, which launched virtual sneakers and collectibles, with the aim of accelerating digital transformation and expanding its reach.
Finally, the NFT market is clearly favored by Gen Z. According to Christie’s, 91% of clients who participated in the auction of Beeple’s digital work “Every Day: The First 5,000 Days” were newcomers. Among them, the most are the millennials born between 1981 and 1996, accounting for about 58%; while the customers born between 1946 and 1964 are the least, accounting for only 3%. The Bain Luxury Research by Bain Consulting predicts that by 2025, 70% of luxury goods will be sold to millennials and Gen Z (post-95s).
Intermediary service provider: OpenSea’s historical transaction volume exceeds 10 billion US dollars
For the explosion of NFTs, NFT trading platforms have played a key role in fueling the flames, and they are especially favored by capital.
OpenSea is currently the largest NFT trading platform, allowing users to freely create, sell and buy various NFTs. Since going live, OpenSea has recorded more than $10 billion in historical sales, and OpenSea charges a 2.5% commission on each transaction, meaning its total revenue has reached $250 million.
In 2020, OpenSea still has only 4,000 active users and trades $1.1 million per month; in January 2022, it has 689,000 users, and the monthly transaction volume also soars to $5.6 billion (Table 2).
Table 2: Service fee and royalty design revenue of mainstream NFT market platforms
According to Dune Analytics data, OpenSea’s market share has soared, from more than 61% in July 2021 to 95% by the end of December 2021, ranking first; while Super Rare ranks second in terms of total transaction volume and users The volume is only 1/24 and 1/6 of OpenSea respectively.
In July 2021, OpenSea completed a $100 million Series B financing led by a16z, with a post-investment valuation of $1.5 billion. In January 2022, OpenSea completed a $300 million Series C financing, led by hedge fund Paradigm and cryptocurrency fund Coatue, with a valuation of $13 billion, a nearly 10-fold increase in half a year. According to Crunchbase data, OpenSea raised a total of 9 rounds of financing before and after, with a total financing amount of 430 million US dollars.
Forbes estimates that OpenSea co-founders Devin Finzer and Alex Atallah each own 18.5% of the company and are worth about $2.2 billion.
Capital influx, there will be more than 30 unicorns in the NFT field in 2021
The integration with the game and luxury industries, a clear business model, and the rapid increase in the transaction volume of the secondary market have made the NFT track attract a large influx of capital. According to the “2021 Global Unicorn List”, in 2021, there will be more than 30 unicorns in the NFT field, which are distributed all over the world, and the soaring speed of valuation is very amazing. Among them, Sequoia has 4, and a16z has 8 (Table 3).
From the perspective of unicorn types, start-ups that provide infrastructure such as payment and technical solutions for NFT projects are obviously more favored by capital. It seems that even in a decentralized world, the growth of “shovel sales” is more certain.
In May 2021, Forte, an NFT infrastructure platform headquartered in San Francisco, USA, raised $185 million in Series A financing, with a valuation of $1 billion. By the end of 2021, its Series B financing was $725 million, and it had raised $900 million in one year. Forte has created a platform that enables game developers to easily integrate blockchain technology into their games by partnering with different public chain and sidechain providers such as Ethereum, Cosmos, Solana, XRP Ledger, Polygon, etc. , to create tokens and communities.
The Palm NFT Studio, co-founded by Ethereum co-founder Joseph Lubin and others, mainly provides services for creators in the fields of entertainment, art, games and creative culture. For example, it helps DC Comics, one of the two American comic giants, to enter the NFT world. . In addition to this, Palm has also launched the Palm Network sidechain. In December 2021, Palm raised $27 million in Series B financing, led by Microsoft’s M12 fund.
Headquartered in Delaware, USA, Mojito.xyz designs and operates Ethereum-compatible NFT platforms, games and communities. The platform provides effective tools and solutions to help users use credit cards, online banking or cryptocurrencies to support the primary and secondary sales of NFTs, conduct product auctions, mint to generate NFT artworks, hold secondary sales, and more. On October 15, 2021, the platform helped the 277-year-old British auction house Sotheby’s launch “Sotheby’s Metaverse,” a marketplace for digital art collectors.
Encrypted payment company MoonPay is valued at as much as 22 billion yuan. Its main business is to help people use credit cards to buy cryptocurrencies or other digital assets in markets such as OpenSea, Bitcoin.com, Abra, ZenGo, Spot and Trust Wallet to reduce the difficulty of purchase .
In addition to game platforms, NFT music and sports collection platforms have also received support from major institutions. For example, Royal, an NFT music distribution platform, was launched in May 2021, and received financing from many institutions in November, including a16z, Coinbase and other well-known institutions; Candy Digital, founded in the same month, received 100 million US dollars in Series A financing in October of that year, becoming one of the independent players. Corner list.
These NFT infrastructure providers, without exception, are helping major game developers, artists, and major institutions to more easily and deeply integrate with the NFT industry, making the NFT market more and more institutional participants.
At the same time, these unicorns are themselves active builders of the ecosystem in the NFT field. For example, MoonPay purchased a collection of World of Women NFT for £567,000 at Christie’s London Evening Auction.
And investing is a deeper connection. In September 2020, Animoca Brands, with traditional mobile game development as its core business, was delisted from the Australian Stock Exchange. Today, its valuation has exceeded 14 billion yuan, turning it into a hot technology unicorn. It is not only the project developer of sandbox and racing game REVV Motorsport, but also an early investor in star projects such as Axie Infinity developer Sky Mavis, Decentraland, and Dapper Labs. According to Crunchbase data, Animoca Brands has made 157 foreign investments with a total amount of US$600 million. It can be seen that Animoca Brands is both a chain game developer and an investor.
According to statistics, from November to December 2021 alone, NFT start-up companies have received 11 financings, and many traditional institutions such as Tiger Capital, SoftBank Capital, and Sequoia Capital have set foot in them (Table 4).
The Whitelist Mechanism: The Driving Force Behind the Skyrocket
What is less well-known is that NFT has exploded in popularity, and its keywords have continued to rise in Google searches and are frequently mentioned on major social media platforms. There is a driving force behind all of this.
The blockchain data platform Chainalysis was once included in Forbes’ list of “$1 billion startups”, and its report pointed out that NFT is popular all over the world, and the most critical transaction element is the whitelist issuance mechanism.
NFT relies on community and word-of-mouth development, which is determined by the NFT issuance mechanism. In foreign countries, NFT project parties usually gather a group of loyal fans in the community before the release of new NFT products. Leave comments, increase activity, participate in offline activities, etc. At present, the social media platform Discord is valued at 95 billion yuan, while Reddit is also valued at 65 billion yuan.
The NFT issuance platform will add high-performing loyal followers to a whitelist, allowing them to buy large amounts of new NFTs at an issuance price similar to the primary market during the NFT minting period.
Whitelisting isn’t just a nominal return – it means significantly better investment outcomes.
OpenSea data shows that when selling newly minted NFTs, 75.7% of whitelisted users are able to make a profit, and 51% of whitelisted players receive a return on investment (ROI) of 200% or more; Only 20% of whitelisted players can make a profit, while 59% of non-whitelisted players lose 50% or less of their stake (Figure 4).
Figure 4: ROI for buying and selling newly minted NFTs: Whitelisted vs non-whitelisted buyers on OpenSea
The return on investment of whitelisted and non-whitelisted players is vastly different. The whitelist issuance mechanism allows early supporters to obtain greater profits at a lower price, providing huge economic returns for those who “scream enthusiastically”.
In reality, whitelisted users are also individuals, capitalists or brands who have more right to speak, or have IP effects.Ordinary people have a higher probability of being exposed to non-whitelisted players of NFT projects through the community.
The problem is that the dismal yield of non-whitelisted players will make it doubtful whether the NFT model can continue.
In addition, there are doubts about the sustainability of NFT projects.
The Nansen report pointed out that the NFT market volume surged at the end of May and the end of August 2021 (Figure 5). The peak in May was due to the explosion of cypherpunk NFTs, while the peak in August was driven by the boring ape NFTs. It is these two key projects that made NFTs frequently out of the circle and greatly promoted the transaction volume of OpenSea. However, the current transaction popularity of these star products is rapidly declining.
Figure 5: NFT transaction volume in 2021 (unit: ETH)
Investment institutions: a16zVS Sequoia, who is the leader of NFT venture capital?
Social media is the main venue for NFT projects to raise new audiences, and venture capital institutions provide start-up funds for the entire NFT industry chain.
It is worth mentioning that OpenSea’s A and B round investors, a16z, can be called a beacon of capital in the crypto world. So far, a16z has more than 23 funds with a total scale of over 28.2 billion US dollars.
The well-known a16z has been talking about constantly since its establishment. With its bold and avant-garde style and eclectic investment philosophy, it has become a famous venture capital in Silicon Valley in the past ten years, and has invested in Facebook, Twitter, Airbnb, Coinbase and other star projects.
Crunchbase data shows that a16z has invested 1,165 times and recorded 187 exits. The most famous exits include Fanatics, Reddit and Coinbase. Take Coinbase as an example, it invested 8 times until Coinbase was listed. According to data from Futu, a16z has now cashed out over $4.3 billion after its listing on Coinbase.
When a16z invests in the NFT field, it is even more relentless. According to Pitchbook data, in 2021, a16z participated in about 39% of venture capital (by value) in this space. According to its official website, the companies invested by a16z include NFT trading platform OpenSea (the latest valuation is 82.4 billion yuan, the same below), NFT chain game developers leading Dapper Labs (48 billion yuan) and Sky Mavis (19.5 billion yuan), public areas. Blockchain network DFINITY (60 billion yuan), NFT infrastructure company Forte (6.5 billion yuan), NFT chain game Mythical Games (8.5 billion yuan), blockchain analysis platform Nansen, NFT music platform Royal, social media Reddit (65 billion yuan) Yuan), Metaverse game Roblox, virtual fashion creator RTFKT, public chain Solana, decentralized trading platform Uniswap, cryptocurrency trading platform Coin Switch Kuber (12 billion yuan), etc.
According to the Hurun Research Institute’s “2021 Global Unicorns” list, a16z ranks seventh among the top ten institutions that have voted the most unicorns in the world, up two places from the ninth in 2020; and as the world’s most successful Sequoia Capital took the lead with 206 unicorns captured, accounting for 20%, ranking first (Table 5).
Recently, the veteran Sequoia Capital is not to be outdone, and has frequently issued high-profile signals of All in Crypto (cryptocurrency) and Web3.0.
Around 2021, Sequoia Capital participated in the cryptocurrency exchange FTX (valued at 160 billion yuan, the same below), P2E game developer Animoca Brands (14 billion yuan), blockchain security company Certik, Asian crypto asset financial services PayPal Finance, New Social Network Bit Clout, Crypto Asset Management Platform Coinshift, DeFi Platform Beta Finance, Video Chat Platform Gather, Polkadot Ecological DeFi Parallel Chain Parallel Finance, NFT Social Platform Pulsr, Blockchain Solution Provider Stark Ware (13 billion yuan), privacy encryption startup Iron Fish, digital asset custody platform Fireblocks (50 billion yuan), decentralized capital market project Clearpool, Polkadot-based NFT platform Sub Gift and other projects.
Over the past year, Sequoia’s bets in the cryptocurrency space accounted for 20% of its total investment. In February 2022, Sequoia announced the launch of a dedicated cryptocurrency-focused fund of $500 million to $600 million focused on liquid tokens and digital assets.
Not only that, but Sequoia has also begun to introduce NFTs into its own corporate culture. On December 1, 2021, Sequoia Capital auctioned the 2005 YouTube investment memorandum as an NFT, and the final auction price exceeded $800,000; on December 8, Sequoia Capital revised its self-introduction on Twitter, claiming that it Its mission is to “help adventurous people build great DAOs”. DAO (Decentralized Autonomous Organizationd) refers to a decentralized autonomous organization, which coordinates and cooperates through a set of shared rules implemented on the blockchain, and has the characteristics of openness, transparency, autonomy and so on. One of the main benefits of DAOs is that they are more transparent than traditional companies, as anyone can view all actions and money flows in the DAO.This greatly reduces the risk of corruption and censorship.
In October 2021, Sequoia Capital’s official website revealed that in order to expand its transaction types, the company will become a registered investment advisor (RIA) with the U.S. Securities and Exchange Commission (SEC) in order to allocate more capital in areas such as cryptocurrencies, and more Use leverage flexibly.
As early as March 2019, a16z had applied to become an RIA. At the time, a16z’s operating partner, Margit Wennmachers, known as the Iron Lady, also said that the move was to seek greater investment flexibility, especially when it came to cryptocurrencies. .
Venture capital firms have limited ability to invest outside of the traditional startup space, and by becoming an RIA, a16z can put more money into areas such as crypto (often involving the purchase of tradable currencies, rather than shares). It can be seen that a16z has a slightly better sense of smell in the encryption field than Sequoia.
Web3.0 Era: Centralization or Decentralization?
For a long time, NFTs have been touted as the democratic force of art.
The DeFi protocol used in the NFT platform, also known as “decentralized finance or distributed finance”, refers to the development of various financial applications in an open decentralized network. The goal is based on blockchain technology and cryptocurrency. Recreate and improve the existing financial system.
However, the development of the NFT platform seems to deviate from its original intention of “decentralization”.
OpenSea data shows that only 20% of users contribute 80% of the NFT secondary market transaction volume, and only 5% of users receive 80% of the NFT secondary sales profits.
The research team composed of Matthieu Nadini and others from the University of London and other institutions analyzed the purchase, sale and transfer transaction records of 4.7 million NFTs from 2017 to April 2021, and found that 10% of the traders contributed 85% % of NFT transactions and owns more than 95% of NFT assets.
This shows that the vast majority of NFT assets and trading volume are only in the hands of a few people, and the trend of centralization is obvious.
The whitelist mechanism, which causes different investors’ yields to vary, is also similar to the primary and secondary market mechanisms of the traditional securities trading market. Under the whitelist mechanism, a small number of highly mature investors who have the right to speak in the real world monopolize most of the profits, which also reflects the departure from the idea of ”decentralization”.
The pursuit of NFT projects by traditional capital also makes people question the existence of “decentralization”.
NFT is regarded as an important application in the era of Web 3.0. Web 3.0 is user-centric and emphasizes that users have autonomy. Brian Brooks, formerly Acting Administrator of the U.S. Office of the Comptroller of the Currency (OCC), Chief Legal Officer of Coinbase, and General Counsel of Fannie Mae, explained Web 3.0 in detail at the U.S. Cryptocurrency Hearing basic concept.
He believes: “The characteristic of Web1.0 is that the content cannot be interacted with, but only time magazines are moved to the screen to read; the innovation of Web2.0 is that users can not only read, but also interact. Blogsphere is the A typical representative, but in the end, the income of Internet activities is monopolized by a very small number of companies such as Facebook and Google; the difference of Web 3.0 is that users who create online content can actually own the underlying network by virtue of their participation in labor. ownership. That’s the essence of decentralization.”
However, Twitter founder Jack Dorsey recently tweeted that Web3.0 is not actually owned by users, but by venture capital institutions (VCs) and their limited partners (LPs), and Web3.0 is ultimately owned by A centralized entity with a different label, even alluding to a16z controlling the Web 3.0 concept.
In his view, venture capital institutions actually control the token share of a large number of Web 3.0 projects and make huge profits, which is far from their vision and contrary to the spirit of Bitcoin. They should use huge profits for real Free and Open Source Software Funding.
China’s NFT Market: Definancialization
In China, all kinds of transactions related to virtual currency are strictly prohibited. The People’s Bank of China issued a relevant risk warning in July 2021, warning relevant institutions within its jurisdiction not to provide services such as business premises, commercial display, marketing promotion, payment diversion and other services for virtual currency-related business activities, and financial institutions and payment institutions shall not directly or indirectly Provide virtual currency related services to customers.
Overseas, the barrier-free exchange and circulation mechanism between NFT assets and virtual currency, virtual currency and legal currency is the basis for its prosperity. In China, it is difficult for NFTs to have financial attributes. At present, many institutions mainly issue non-tradable NFT collections. For example, in October 2021, McDonald’s China released the first NFT work “Big Mac Rubik’s Cube” and distributed 188 NFT works to employees and consumers. In December 2021, Nayuki’s tea official announced the brand ambassador “NAYUKI” and launched 300 NFT digital artworks around the IP online.
Internet giants such as Tencent, Alibaba, and NetEase have the ability to build the underlying blockchain technology. For them, the “digital collection” platform is one of the applications based on blockchain technology (Table 6).
Table 6: Overview of the NFT ecosystem of major domestic listed companies
In August 2021, Tencent’s Magic Core App was launched, which is the first platform in China to issue digital goods based on the Zhixin Chain NFT technology agreement. At present, its NFT products are issued in the form of contacting artists through private channels, and private creation is not open. The issued products are mainly collections, and secondary transactions are not supported. Based on Tencent Zhixin Chain, Tencent Music and China Reading Group in Tencent Group have also launched corresponding digital collection platforms.
Alibaba also joined in with the launch of the whale finder app. WhaleTrack is based on the private blockchain Ant Chain developed by Ant Group. There are currently two main products, one is the payment code NFT skin, which will be displayed above the payment code after purchase; the other is digital artwork, mainly through Contact the artist for creation and sale, private creation is not open. In December 2021, the platform released two digital artworks, “Cyberpunk Grey Wolf” and “Cyberpunk Pleasant Goat”, each with 10,000 copies and an issue price of 9.9 yuan per copy. This platform also does not support the transfer or transaction of collections in any way, and only provides collection appreciation, display to friends, and limited gift functions.
In October 2021, the NFT platforms and products launched by Chinese Internet companies have undergone self-rectification, such as deleting the word “NFT” and renaming them as “digital collections” or “digital commodities”. While weakening the investment attribute, the promoters have publicly stated that they strictly guard against speculation.
Under the compliance, the current domestic digital collections are mainly reflected in the collection function, and lack of financial attributes such as transactions and monetization, it is difficult for a 10-billion-dollar unicorn platform like OpenSea to emerge.
As the most popular P2E game platform for NFT applications, it is difficult to have the opportunity to spread its wings in China. At present, the growth of the game industry under the traditional model has slowed down. According to a report released by the China Audio-Video and Digital Publishing Association, the actual sales revenue of China’s game market in 2021 is 296.513 billion yuan, a year-on-year increase of 6.4%, but the increase is nearly 15% lower than the previous year; and the domestic game user scale is 666 million, a year-on-year increase of 0.22% , the number of users is gradually saturated. So, can the NFT model bring new business opportunities to the game industry?
Previously, listed companies such as Tianxiaxiu (600556), China Mobile Games (00302.HK), and Qujiang Cultural Tourism (600706) all expressed their intention to develop Metaverse social applications or games, which caused a stir in the market, but at present, due to domestic The monetization path of “NFT assets – platform tokens – legal currency” has been cut off, and the possibility of the emergence of a P2E game economic model is not high.
However, Alibaba, Tencent, and ByteDance are all overseas and have joined the NFT investment wave.
For example, Mutong Technology, a Chinese game company acquired by ByteDance, sold a total of 25,000 NFT blind boxes for “Endless Showdown” overseas, at $25 each, which were sold out within 2 minutes.
In March 2022, the South China Morning Post, which was acquired by Alibaba, split its NFT business into a new company, Artifact Labs, and sought third-party financing. Artifact Labs’ NFT series is based on the front pages published by the South China Morning Post about major historical events, such as the return of Hong Kong in 1997, the outbreak of bird flu, the Asian financial crisis, and the death of Princess Diana. Buyers can bid on a specific historical event NFT, or buy blind boxes from multiple selected events.
At the same time, Tencent teamed up with Temasek in March to invest in Immutable, an Australian NFT chain game developer, which was recently valued at US$2.5 billion and became a new unicorn.
The layout and card positions of the NFT industry are obviously still surging.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/a-group-of-boring-monkeys-can-buy-a-set-of-shenzhen-bay-one-welcome-to-the-new-era-of-web-3-0/
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