Metaverse Series: Exploring the Metaverse Pass NFT

In the new social form of the Metaverse, NFT is the core element supporting the economic system. Through the confirmation of digital assets and the measurement of value, the transaction circulation and value transfer in the Metaverse are realized. We believe that NFT is an important underlying facility of the Metaverse. This article will study the mature overseas NFT market and the leading trading platform OpenSea, analyze the current situation of the domestic NFT market, and discuss the future development direction of the domestic Metaverse, in order to provide a reference for the prospects for the construction of the domestic Metaverse economy and social form. .  


NFTs – Passports in the Metaverse. NFT (Non-Fungible Token) is an encrypted digital certificate supported by blockchain technology to record the ownership of virtual digital assets such as artworks or collectibles. It is unique, irreplaceable, indivisible, programmable, and traceable. characteristics, and permanent preservation. Based on the above attributes, NFT can realize the copyright confirmation of digital assets, empower the transaction and circulation of digital assets, and provide users with a variety of consumption values ​​such as collection, investment and functionality, which constitute the important underlying facilities of the Metaverse economic system.

Exploring overseas: How does the NFT market stand out? The overseas NFT market officially started in 2017. Driven by the three major directions of star products, trading platforms and underlying technologies, there will be a development boom in 2021. Popular projects will be in short supply, and leading products and secondary transactions will drive the rapid expansion of the market. Overseas NFT trading models can be divided into two mainstream models: Ebay-like and Gallery-like, showing a pattern of one superpower led by OpenSea. We conduct a case analysis of OpenSea in order to provide a reference for the development of domestic NFT trading platforms: OpenSea aims to establish an open trading platform, connect buyers and sellers of NFT products, and achieve income by charging a 2.5% trading commission. We believe that the low user threshold, good purchase experience and continuous community building build OpenSea’s core competitiveness, and the first-mover advantage and scale effect help it cope with the challenges of competitors and stabilize its leadership position.

Looking at the country: the trend is rising, where will the NFT market go? Compared with overseas, the development stage of the domestic NFT market is relatively preliminary. Internet platforms have entered the market one after another after the market popularity gradually increased. 2021 will become the first year of the domestic NFT market. On the other hand, due to the relatively strict domestic policy environment, the primary transaction of PGC digital collections is still the core, and the commercial marketing attributes are strong. We believe that the current domestic market is relatively less open, and there is a large room for expansion. Looking forward to the future, we believe that regulation will gradually regulate the healthy development of the industry. On the basis of legal compliance, the industry is expected to achieve improved transaction liquidity and diversification of content sources, and implement various application scenarios such as real rights confirmation, additional rights, and interactive applications. We believe that users will enter a specific community based on the NFT they hold, participate in community communication, game entertainment, space construction and other interactions with a new virtual identity, and complete the construction of a new type of Internet identity, which is the underlying construction of the “Metaverse”. The way to go.


Industry policy risks, NFT technological progress is lower than expected, NFT transaction realization ability is lower than expected, NFT platform security is lower than expected, and legal certification issues.


NFTs – Passes in the Metaverse

What is NFT? Unique, immutable digital asset certificate

NFT (Non-Fungible Token) is translated as “non-fungible token”, which is an encrypted digital certificate supported by blockchain technology to record the ownership of virtual digital assets such as artworks or collectibles. The certificate indicates the historical transaction information of a specific digital asset, the digital signature of the transaction party, the asset metadata (or a link to the metadata), and the relevant rights and interests given to the holder or creator, and is generated by generating a unique digital asset. Coding, to realize the ownership confirmation and circulation of digital assets. We believe that NFT, as an important underlying facility of the Metaverse, realizes the transaction circulation and value transfer in the Metaverse through the confirmation and value measurement of digital assets, and is the core element of building an economic system in the social form of the Metaverse.

Figure 1: Illustration of the process of creation, issuance and circulation of NFT projects

Metaverse Series: Exploring the Metaverse Pass NFT

Source: ChainNews, OpenSea, Zora, CICC Research

Comparing non-fungible tokens (NFTs), homogeneous tokens (FT), two application tokens, and native tokens such as Bitcoin (BTC), NFTs benchmark digital assets and are unique.

From the perspective of native tokens and application tokens, native tokens are tokens (Coins) that are required to maintain the normal operation of the blockchain system and reflect rights and interests, such as bitcoin and ether. The way of use is the application token (Token). Native tokens can be directly used as a medium of circulation, and application tokens need to have a target value, behind which is the potential benefits brought by digital assets or certain rights and interests.

From the perspective of different types of application tokens, homogenization is the main difference between the two. A homogenized token (FT) is a token that replaces the native currency to perform functions in a specific scenario; a non-fungible token (NFT) is a certificate representing the only digital asset and cannot directly exercise the transaction function. Similar to the issuance of stocks, the project party mostly issues homogenized tokens for financing purposes. There is no difference between each share, and there is a certain interest in the underlying value; however, non-homogeneous tokens are unique, even if the same project Tokens cannot be exchanged directly. In addition to giving the holder rights and interests, the more important thing is that it is the target specific digital asset.

Specifically, NFT has the following characteristics:

Unique: Each NFT has a unique and unique code to prove ownership of the corresponding digital asset. Although a document can be copied and distributed many times on the Internet, there is always only one original document.

Irreplaceable: NFTs are not directly interchangeable with each other. Any unit of Bitcoin or FT is equivalent, and the holder can exchange it directly; but the unique characteristics of NFT make it necessary to benchmark fiat currency or other equivalents when exchanging, reflecting the characteristics of non-homogenization.

Indivisible: NFT, as the record certificate of digital assets, is complete. One unit of ether is allowed to be split into two 0.5 units of ether for sale, and the transaction flow of an NFT asset must be carried out in a whole form.

Programmability: Using smart contract technology, the programmability of NFT creates richer application scenarios for it.Developers can program NFTs based on the three protocol standards of ERC-721, ERC-998 or ERC-1155, and can flexibly set conditions in transactions and support personalized scenarios.

Traceability: Since its creation, all transactions of NFT will be recorded on the chain. Therefore, the holder can easily trace the origin and identify the authenticity.

Permanent preservation: NFT is stored on a decentralized chain and cannot be easily tampered with, providing a permanent option for the preservation and collection of digital assets.

Figure 2: NFTs, FTs, and native tokens differ in fungibility, divisibility, anchored assets, underlying protocols, etc.

Metaverse Series: Exploring the Metaverse Pass NFT

Source: CryptoKitties official website, CICC Research

The types of NFT products are gradually enriched, and they are still mainly art/collectibles. According to Nonfungible’s classification, mainstream NFT projects include Collectibles & Art, Video Games, Metaverses, and Utilities and Finance. Among them, art and collectibles dominate the market, contributing 64% of the total sales to the NFT market in 2021. In addition, the application of NFT in the fields of music (Music) and sports (Sports) is also in the ascendant.

Figure 3: Art/collectibles are the current mainstream type of NFT market

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Nonfungible, CICC Research
Note: The statistical time period is 2021

Figure 4: Representative projects of various types of NFTs

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Nonfungible, Cryptoslam, OpenSea, CICC Research

How much is NFT worth? Realize the assetization of digital content to meet the needs of the virtual economic system

The Metaverse trend is gradually rising, and NFT may become an important underlying facility for building a virtual world economic system. The Metaverse is considered to be the development direction of the next-generation Internet form, and one of its key features is the intention to establish a complete and mature economic system that interacts with reality and reality. NFTs are unique, traceable, and permanently preserved, which can solve the problem that virtual world assets can theoretically be replicated indefinitely, protect scarcity, and return to value itself. We believe that NFT realizes the possession of digital assets, which meets the needs of the virtual world economic system. Its copyright confirmation, transaction realization, and collection value make NFT increasingly attracting market attention.

Copyright confirmation: the equity certificate of the anchored asset

The digital content ecology is increasingly rich, and effective media are urgently needed to define ownership.According to statistics from the National Copyright Administration, the market size of China’s online copyright industry will reach 1,184.7 billion yuan in 2020, with a compound annual growth rate of nearly 25% during the “13th Five-Year Plan” period. Behind the ecological enrichment and diversification of digital content, the problems of online infringement and piracy come one after another, which puts forward higher requirements for copyright management in the virtual world.Taking online literature as an example, according to an estimate by Analysys Qianfan, the scale of China’s online literature piracy losses in 2020 will be 6 billion yuan, equivalent to 20.9% of the online literature market. During the “Jianwang 2021” campaign, the National Copyright Administration deleted a total of 1.197 million infringing and pirating links, shut down 1,066 infringing and pirating websites and APPs, and investigated and handled 1,031 online infringement and piracy cases.In addition to the severe crackdown, the official pointed out that problems such as the mature interest chain of online piracy and piracy, and the difficulty of obtaining evidence and rights protection are still worthy of attention. As an equity certificate anchoring a specific asset, the non-homogeneous nature of NFT provides new ideas for copyright protection.

Figure 5: The market size of China’s online copyright industry in 2020 will exceed one trillion yuan

Metaverse Series: Exploring the Metaverse Pass NFT

Source: National Copyright Administration, CICC Research

Figure 6: Large-scale losses of online literature piracy in China

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Analysys Qianfan, CICC Research

Protect the rights and interests of creators and copyright owners, and stimulate the vitality of the content ecosystem. Based on the decentralized blockchain technology, the smart contract of NFT records the unique Token ID, resource storage address and various information of each NFT, and is usually difficult to tamper with. For creators, assets can always be traced during the resale process of NFT, and a certain percentage of royalties will be charged in accordance with the contract, which facilitates the author’s rights protection and income acquisition of original works, and then encourages them to create more high-quality content. For copyright owners, NFT is conducive to copyright management, better coordinating and sharing with creators, and providing a new commercial form for copyright resource development.

Transaction realization: improve liquidity and facilitate value transfer

Assetization of digital content to realize transaction flow. NFT expands digital assets from digital currency to text images, video and audio, game props and other types. Any digital content can be used in the form of NFT to capitalize abstract rights and interests, give property rights attributes and realize clear price tags. With the development of blockchain technology, the scope of circulation of digital content has been expanded after being put on the chain, and the convenience and liquidity of transactions have been improved. Therefore, the expansion of tradable content and the gradual reduction of NFT production and transaction thresholds enable professional teams, independent creators and ordinary people to participate in the production, sale, and transaction flow of NFTs. Virtual content has strong liquidity and realizes value transfer.

The digitization of physical assets promotes circulation and transmission. For precious and scarce physical collections such as paintings, cultural relics, and porcelain, the official sale of NFTs, anchored collections or their limited copies has increasingly become a popular trend. For example, Qi Baishi’s first socialized digital collection “Picture of Shrimp” was unveiled at the Golden Harvest Auction on December 31, 2021. With the help of NFT, the issuer expands the coverage of users and expands the circulation objects of products to general consumer groups. In addition, physical asset information is uploaded to the chain to facilitate information traceability and ensure authenticity. We believe that the use of NFT circulation to replace physical asset transaction settlement may be a possible application direction of NFT.

Figure 7: Asset NFT can simplify its transaction process and improve liquidity

Metaverse Series: Exploring the Metaverse Pass NFT

Source: NFTGO, CICC Research

Figure 8: Many types of NFT assets are highly liquid

Metaverse Series: Exploring the Metaverse Pass NFT

Source: NFTGO, CICC Research

Note: The data statistics date is May 5, 2022; liquidity = weighted average of sales/issues of all projects under each category

Consumption value: collectible, investment and functional

From the perspective of C-end users, we believe that collectability, investment and functionality are the main motivations for purchasing NFT products:

Collectibility: Art/collectibles, as the most widely distributed NFT asset type, provide convenience for the collection needs of ordinary consumers. Ordinary people buy NFTs at low prices, which can not only satisfy the curiosity of collecting high-end value items, but also obtain scarcity guarantees in the form of limited sales. In addition, the purchase and display of NFT products with strong social attributes such as avatars or star cards are gradually becoming a trendy behavior to flaunt one’s own interests and find common circles.

Investment: The uniqueness and scarcity of NFT assets make some users value their future appreciation space and liquidity, and use the purchase of NFT products as an investment method. Take Ͼ #4156 in the CryptoPunks series as an example, as the product with the highest cumulative transaction volume[1], its transaction price has risen from $1.246 million on February 19, 2021 to December 2021 in the last two transactions On the 10th, it was 10.257 million US dollars, an appreciation of more than 8 times.

Functionality: Some NFTs represented by game props are not only asset certificates, but also have unique use value in specific scenarios. First, allowing players to benefit from entertainment. For example, Axie Infinity’s “Play-to-earn” model allows players to buy, raise and breed digital pets, and then earn money from the marketplace. Second, protect the legitimate rights and interests of players. We believe that by “marking the price” for game items and creating a decentralized trading platform, it can not only meet the needs of players to buy and sell accounts, reduce offline transaction losses, but also avoid the loss of virtual assets caused by official game modification and server shutdown. potential risks.

Figure 9: Users display and like collections in the NBA TOP Shot community

Metaverse Series: Exploring the Metaverse Pass NFT

Source: NBA TOP Shot official website, CICC Research

Chart 10: Axie Infinity players earn AXS tokens through gaming

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Axie Infinity official website, CICC Research

Chart 11: From February 19, 2021 to December 10, 2021, the CryptoPunks series product Ͼ #4156 appreciated more than 8 times

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Nonfungible, CICC Research

Exploring overseas: How does the NFT market stand out?

Development History: Star products, trading platforms, and underlying technologies boost the growth of the NFT market

Looking back, the NFT market has gone through four stages: the budding period, the initial period, the construction period and the outbreak period. We believe that the ecological construction of star products, trading platforms and underlying technologies is an important force to promote the development of the industry:

Figure 12: Since the concept gradually formed in 2017, the NFT market will usher in explosive growth in 2021

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Cryptoslam, official website of each platform, CICC Research

Infancy (before 2017): NFT-like projects have emerged before the concept is officially formed. Colored Coin, which was born in 2012, is considered to be the earliest NFT-like token. It consists of a group of bitcoins that are endowed with specific attributes and can represent currency, commodity certificates, intelligent property and other financial instruments.In 2014, the peer-to-peer trading platform Counterparty was established to support asset creation and decentralized trading. Most of the projects in this period were created around the cryptocurrency field and did not attract much attention from market participants.

Inception (2017): Pioneer projects lead innovation in the crypto market. Thanks to the increasingly mature Ethereum environment, the first NFT project, CryptoPunks, appeared in June 2017. Larva Labs issued 10,000 pixel avatars on the blockchain, bringing images to the market as encrypted assets for the first time. Since then, Dapper Labs released the ERC-721 standard dedicated to building NFTs in September, and launched another popular NFT product, CryptoKitties, in November. According to NFTGO statistics, there were 44,800 wallet addresses holding CryptoKitties at their peak. In the same year, in order to explain the difference between CryptoKitties and other projects under the ERC-20 standard, the founder Dieter Shirley formally proposed the concept of NFT, and the market began to explore the potential space of encrypted assets.

Construction period (2018-2020): The trading platform and underlying technology will improve the ecology. After the popularity of CryptoKitties cooled, the NFT market returned to calm and entered the construction stage. In terms of trading platforms, OpenSea was established in February 2018 and has rapidly grown into the largest NFT trading platform. Its unlimited creator entry form reduces the threshold for NFT issuance and accelerates the popularity of the NFT market.In addition, trading platforms such as SuperRare, Nifty Gateway, and Rarible have also been established. In terms of underlying technology, sidechains such as Polygon and Layer 2 solutions have taken shape, Web3.0 smart wallets such as Metamask have been continuously improved, and new standards such as ERC-1155 have been launched, and the NFT market infrastructure has become more mature. At the same time, at this stage, popular projects such as Axie Infinity (2018) and NBA Top Shot (2020) have been launched one after another.

Explosion period (after 2021): The supply of content is rich, and the celebrity effect helps to increase the popularity. In 2021, the entry of rich and diverse content, celebrities and well-known IP will accelerate the growth of the NFT market. In March, Beeple’s work “Everydays: The First 5000 Days” was auctioned at a high price of 69.34 million US dollars, which attracted widespread attention in the market. Subsequently, Yao Ming, Jay Chou, Takashi Murakami (Japanese artist), Jack Dorsey (Twitter founder), Mick Jagger (Rolling Stones lead singer) and other celebrities from all walks of life successfully released their own NFTs, involving entertainment, games, sports, music and other fields , NFT exposure continued to increase, driving head projects such as Axie Infinity to climb to the peak of trading in 3Q21. According to Cryptoslam statistics, the total transaction volume of the global NFT market in 2021 is US$18.6 billion (US$32.32 million in the same period last year).

In January 2022, the decentralized trading platform LooksRare was established. With the low handling fee (2%), user sharing revenue, token airdrop and other mechanisms, the transaction volume once surpassed OpenSea, re-increasing the market that has declined since its peak in 3Q21 transaction amount. However, according to Dune Analytics, OpenSea’s daily transaction volume has once again surpassed LooksRare since mid-February. Considering that LooksRare is still in the early stage of its establishment and there are a large number of wash sales transactions, we believe that whether the platform can maintain its popularity in the future and become a strong challenger to the NFT market competition landscape remains to be seen.

We believe that the underlying technologies such as blockchain and smart wallets lay the foundation for the development of the NFT market and enable the efficient implementation of NFT projects; innovations in platforms and products inject a steady stream of liquidity into the market and achieve prosperity on both ends of supply and demand, and the NFT market can flourish in 2021. Years of accumulation have ushered in the first wave of upsurge.

Market status: the user scale is growing rapidly, and the product head effect is obvious

Since 2021, the NFT market has expanded rapidly. In terms of transaction volume, the total number of transactions in the NFT market in 2021 will reach 43.36 million, an increase of more than 40 times over the previous year; the highest number of transactions in a single month is 5.92 million, an increase of 39 times over the previous year. In terms of the average transaction price, the average monthly transaction price in 2021 was US$365 per piece, a 10-fold increase over the previous year; the highest average transaction price in a single month was US$1,043, a 17-fold increase over the previous year. We believe that the rapid expansion of NFT transaction scale is due to the fact that NFT and related concepts have entered the public eye, and the top projects have performed well, which has driven strong market transaction demand.

Figure 13: The number of NFT transactions has increased significantly, and the fluctuation of the average transaction price has increased

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Cryptoslam, CICC Research

User side: The shortage of supply stimulates price increases, and the user retention rate is relatively low. In terms of quantity, the number of active wallets in the NFT market in 2021 is 2.57 million, an increase of 28 times compared with the beginning of the year; the number of buyers is 2.3 million, an increase of 30 times compared with the beginning of the year; the number of sellers is 1.2 million, an increase of 37 times compared with the beginning of the year. The number of participants on both ends of supply and demand has increased significantly, but the phenomenon of short supply is obvious: the growth rate of active smart contracts in 2021 is only 401%, reflecting that the supply of active NFT projects is far less than the surge in market demand. We believe that this not only drives up the prices of existing NFT projects, but also attracts some highly speculative and low value-added projects into the market, increasing the market’s thirst for high-quality projects. In terms of quality, the retention rate of various types of NFT users is generally low. The highest retention rate in 3Q21 is only 13%, and the general level is concentrated in the range of 5%-10%. We believe that this mainly reflects that NFT is still an emerging market, and users are mostly trying new things.

Figure 14: NFT market participants have increased significantly, relatively in short supply

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Nonfungible, CICC Research

Note: Active smart contracts refer to the total number of smart contracts that enable NFT transactions, and a project can use multiple smart contracts; active wallets refer to buying and selling NFT assets, or using NFT for other interactive behaviors such as games

Figure 15: The overall user retention rate in the NFT market is low

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Nonfungible, CICC Research

Note: Some game NFT transactions that occur on the side chain are not included in the statistics.

Product side: The head effect is obvious, and popular projects focus on virtual image assets.

In terms of the volume of popular projects, the head projects occupy the majority of the market transaction share. As of May 5, 2022, among the TOP10 projects with Cryptoslam transaction volume, the TOP3 transaction share reached 70%. We believe that NFT has a strong community effect, and its value mainly comes from the extensive recognition of digital assets. Therefore, popular projects are based on first-mover advantages and effective marketing promotion, and their influence is easy to achieve a snowball effect.

In terms of popular project types, avatar NFTs represented by CryptoPunks and BAYC have the most number of listings.Such projects are no longer limited to traditional static profile pictures. Projects such as CloneX are laying the foundation for the idea of ​​building a Metaverse community platform by introducing dynamic 3D images, increasing interactivity and sociality.

Chart 16: List of TOP10 projects with total transaction value (as of May 5, 2022)

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Cryptoslam, NFTGO, official website of each project, CICC Research

Trading side: active secondary market transactions. According to Nonfungible statistics, the transaction volume of the NFT secondary market in 2021 will reach US$12.429 billion, an increase of 376 times over the previous year; the transaction volume of the primary market will reach US$2.939 billion, an increase of 85 times over the previous year. The secondary market accounted for 81%, an increase of 31.73ppt over the previous year. We believe that secondary market liquidity is the key reason for the active overseas NFT transactions.

Figure 17: The secondary market drives the rise of NFT transactions

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Cryptoslam, CICC Research

Competitive landscape: One super-strong trading platform and two business models coexist

The creation, casting and circulation applications of NFT constitute the complete value chain of the industry. The upstream of the industry chain includes the infrastructure layer and the content creation layer. The former refers to the underlying technology providers that provide services such as public chains/side chains, token standards, and smart wallets, while the latter refers to art creators or IP parties from all walks of life. The midstream of the industry chain mainly completes the production, issuance and initial transaction of NFT. Among them, one type of participant is a professional trading platform, which acts as a medium to connect technology vendors and creators; the other type of participant is a project party, building a platform with its own NFT project to complete the primary market issuance. The downstream of the industry chain is the application channel and secondary transaction of NFT. The application channel includes platforms with various functions such as curation, social networking, and finance; the secondary transaction platform mostly spans the primary and secondary markets, and runs through the upstream and downstream of the industry chain, so it is an NFT. An important node in the industrial chain.

Figure 18: NFT industry industry chain map

Metaverse Series: Exploring the Metaverse Pass NFT

Source: ChainNews, official website of each platform, CICC Research

OpenSea takes the lead, and the trading platform is super strong. The comprehensive trading platform OpenSea has obvious advantages over its competitors. Looking back at the transaction share of mainstream platforms in the past 12 months, except for the launch of LooksRare in January-February 2022, OpenSea has always ranked first with a market share of over 50%, and the highest is 98%. %. Other mainstream platforms have their own characteristics and are comparable. Due to the differences in platform hot events and leading projects, the transaction volume of each platform fluctuates within a certain range. Among them, the art platform SuperRare and the comprehensive platform Rarible rotate in the third or fourth place, and the monthly transaction volume is roughly in the range of 15-30 million US dollars, and the peak value can reach 40 million US dollars. Other platforms, such as Foundation, have a monthly transaction volume of about $5-20 million.

Figure 19: The mainstream trading platforms are more than one, and OpenSea has a market share of over 90%

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Dune Analytics, CICC Research
Note: There are many statistical gaps in the daily trading volume of SuperRare in 2022, and the share is underestimated.

The two mainstream business models cover multiple levels of customers. According to the differences in platform positioning, NFT types, entry methods, sales fees, etc., we believe that the current trading platform can be mainly divided into two business models, namely the Ebay-like model and the Gallery-like model:

Ebay-like model: covering multiple fields and low transaction threshold. Platforms represented by OpenSea, Rarible, and LooksRare are similar to “Ebay” in the NFT market. The market positioning is generally a comprehensive and multi-domain trading platform, allowing users to independently mint, display, and trade NFT, attracting a wide range of user circles. NFT assets also show diverse characteristics, basically covering mainstream NFT types such as art, games, sports, and virtual worlds. In terms of entry methods, low thresholds help expand coverage: the platform does not set restrictions on creators, and any user can freely create and trade NFT works after registration. In terms of sales fees, the platform charges a sales service fee of 2%-2.5%, which is at a low level in the industry. Therefore, such platforms usually have rich works, a large number of users, and a wide range of price ranges, but the low threshold for entry also leads to the uneven quality of platform works, which requires users to identify themselves.

Gallery-like mode: limited sales of specialized art forms. Platforms represented by SuperRare, MakersPlace, Nifty Gateway, etc. are similar to “Gallery” (art galleries). In terms of market positioning, the platform focuses on the most popular art fields, providing curatorial space for art creators, and most works are sold in limited quantities. NFT assets include art forms such as still/moving pictures, 3D works, audio or video. The entry method has a certain threshold, most of which are invitation system or application system, and the right to enter is in the hands of the platform. In terms of sales fees, the rate of this type of platform is relatively higher than that of the first model, in which the service fee for the first sales is up to 15%. In general, such art trading platforms are characterized by specialization and branding, and mainly serve professional art creators and connoisseurs. Some platforms also set up collector consulting teams to provide global customers with support services such as NFT entry, exclusive sales docking, off-site acquisitions, and market intelligence mining.

Figure 20: Comparison of different NFT trading platform models

Metaverse Series: Exploring the Metaverse Pass NFT

Source: ChainNews, official website of each platform, CICC Research

The third type of platform is built around a specific NFT project. In addition to the above two models, some NFT projects also have their own platforms to meet the needs of users. For example, players of the blockchain game Axie Infinity can browse, buy or sell electronic pets on the Axie Infinity Marketplace; the sports star project NBA Top Shot has its own official website to support transactions and provide users with community display and communication space; launch Larva Labs, the leading projects such as CryptoPunks and The Meebits, also has its own official website for special display.Compared with the first two models, this type of platform is mainly built to support a popular project, and is also an important way for the distribution team to build brand awareness and create a community atmosphere.

Case study: OpenSea – the market leader of NFT trading, with lower threshold + rich products to achieve user scale advantage

OpenSea is the largest trading platform in the NFT market today, and its development has gone through the initial, low and explosive periods of the market. We believe that in the course of its development, OpenSea relies on its own first-mover advantage and scale effect to continue to operate in the long run, and the accumulated experience has certain reference significance for domestic NFT platforms. Therefore, we take OpenSea as a case to sort out the history of the platform, clarify the business model, and discuss the competitive advantages, in order to provide a reference for the future development of domestic NFT trading platforms.

Platform History: Take the lead in entering the game, continue to work hard to meet the market boom

Inception period (end of 2017-February 2018): CryptoKitties inspired founders to transform. OpenSea was formerly a blockchain-based shared WiFi project. After the establishment of NFT industry standards and the emergence of the pioneer project CryptoKitties, the founder transformed the project into a platform focused on serving NFT transactions, and launched the OpenSea beta version at the end of 2017. In February 2018, the official version of OpenSea was released, positioned as “Ebay for encrypted commodities”.

Low period (March 2018-2020): The overall performance of the market is cold, and the platform continues to streamline operations. The short-lived upsurge of CryptoKitties dissipated, and the NFT market returned to calm. OpenSea did not cause much repercussions when it was first launched. According to Dappradar statistics, the cumulative number of OpenSea users reached 933 in February 2018, and it fell to 321 in March. During the same period, the main competitor RareBits is no longer in operation. Under the dual pressure of the industry and competitors, OpenSea focused on its own positioning and adopted various means to successfully survive the “cold winter”:

Open source: charge commissions to protect basic cash flow. OpenSea requires a commission charge at the beginning of its launch. Compared with RareBits, which does not charge the first sale service fee and refunds the gas fee, the former effectively avoids excessive consumption and ensures continuous operation in the cold winter of the market.

Throttling: OpenSea’s previous team was downsized. As of August 2020, the OpenSea team has only expanded to 7 people. A small and professional team can save redundant expenses on the one hand, and improve execution efficiency on the other hand.

External Discovery: Inclusive discovery of new external projects. Thanks to the unrestricted market positioning and the active exploration of the founders, the projects listed on OpenSea in the early stage have outperformed their peers, and the open market has begun to take shape.

Internal Innovation: Innovatively launch new features to create a first-mover advantage. At the end of 2020, the new function Collection Manager will be launched. Users do not need to pay the on-chain cost before selling NFTs, and only charge gas fees when consumers buy. The pioneering functional innovation has expanded the supply of creators. Combined with the early entry of diverse projects and a friendly atmosphere with low thresholds, OpenSea has continuously attracted users in the primary and secondary markets, and its liquidity has continued to improve. It has established a first-mover advantage before the industry outbreak. .

Figure 21: Comparison of the number of early users between OpenSea and its competitor RareBits, which was launched in the same period

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Dappradar, CICC Research

Expansion period (after 2021): The market warming has helped the platform to set records, and the valuation has risen rapidly. The popularity of the NFT market in 2021 will boost the rapid expansion of OpenSea. According to Dune Analytics statistics, in March 2021, the platform’s monthly transaction volume exceeded 100 million US dollars for the first time; in April, the cumulative number of transaction users exceeded 100,000; in July, OpenSea’s transaction share in mainstream trading platforms has reached 93%; In 2021, the transaction value for the whole year was US$14.6 billion, a year-on-year increase of 603%. At the same time, OpenSea has also attracted increasing attention from the capital market. It has successively completed A and B rounds of financing under the leadership of A16Z, with a valuation of US$1.5 billion in July 2021. In January 2022, led by Coatue Management and Paradigm, OpenSea received another $300 million in Series C financing, with a valuation of $13.3 billion.

Figure 22: The development process of OpenSea has gone through the initial stage, low ebb and explosion stage of the market

Metaverse Series: Exploring the Metaverse Pass NFT

Source: OpenSea official website, Dune Analytics, IT Juzi, CICC Research

Note: The transaction size only includes transactions implemented on the Ethereum main chain Ethereum, not including side chain transactions

Business model: connect buyers and sellers to generate income through transaction commissions

OpenSea is a trading platform that connects buyers and sellers in the NFT market. Buyers and sellers correspond to the two basic functions of Create and Explore on the main interface of OpenSea respectively. After the seller completes the creation and successfully sells the NFT, it has to go through three steps of establishing the NFT project set, creating or uploading the NFT, and choosing to sell, and set the sales royalty and pricing method; the buyer can browse the NFT assets on the platform through the exploration function, If you find the desired product, you can pay the price or send a bid according to different sales methods. In this process, the platform side assumes the function of maximizing transaction convenience and creates an aggregated market by increasing the number of wallets and blockchains it supports, increasing the volume of on-chain assets, and expanding asset types.

The main source of revenue for OpenSea is the commissions it collects on transactions. For every transaction completed on OpenSea, the platform will charge a 2.5% sales service fee. In the NFT market, some community-driven and token-governed platforms will return the service fee income obtained to the user group. However, as a market leader with a stable position, community governance is not the focus of OpenSea’s marketing. The founder of the team holds control, and all service fee income is owned by the platform.

Figure 23: OpenSea platform page display

Metaverse Series: Exploring the Metaverse Pass NFT

Source: OpenSea official website, CICC Research

Competitive advantage: inclusive and open, building NFT aggregation market

OpenSea aims to establish an open trading platform, so that a wide variety of NFT markets can be integrated, searched, and circulated, creating a user-friendly platform atmosphere in multiple ways. We believe that low user threshold, good purchase experience and continuous community building build the core competitiveness of the platform.

1 Low cost of use, high compatibility and simplicity of operation, lowering the threshold for users. A series of mechanism designs of OpenSea reflect its concept that everyone can participate, simplify the difficulty of entry, and improve the attractiveness of the platform.

Low cost of use: First, OpenSea’s unlimited entry method allows anyone to create their own NFT works, which fundamentally lowers the platform’s entry threshold; second, it pioneered the function of “no gas fee for uploading” to further expand users Base; third, the 2.5% sales rate is lower than most competitors, and cooperates with the Ethereum side chain to reduce customer transaction costs.

Strong compatibility: In terms of quantity, the number of smart wallets and blockchains compatible with OpenSea is leading. At present, the platform supports a total of 13 smart wallets such as MetaMask and Coinbase Wallet; it supports three on-chain assets including Ethereum, Polygon and Klaytn. Among them, Polygon serves as the side chain of Ethereum, and the two can interact with each other, thereby alleviating the pressure of Ethereum’s network congestion and realizing transaction speed and fee reduction. In the future, OpenSea will also promote cooperation with blockchains such as Flow and Tezos.

Figure 24: The number of OpenSea compatible smart wallets and blockchains leads the industry

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Official website of each platform, CICC Research

Note: Rarible only lists wallets supported by Ethereum, there are other exclusive wallets on Tezos and Flow chains that are not listed here

The operation process is simple: on the one hand, users can create an NFT by uploading files, filling in the name and product description, etc. Optional information also includes custom attributes, levels or numbers for NFTs, and special functions such as setting the holder’s hidden content, which is convenient for creators to operate with one click. On the other hand, users can also choose to import assets directly from third-party platforms.

2 The asset types are rich and diverse, and the retrieval algorithm is powerful, providing users with a good purchasing experience. Integrated asset classes superimposed with advanced retrieval algorithms enable OpenSea to meet the individual needs of users.

Diversified NFT assets and rich coverage scenarios: In terms of total volume, according to the official website, there are more than 2 million NFT project collections (Collections) launched on OpenSea, including more than 80 million single NFT products. In terms of types, the platform covers nine types of NFTs, including art, collections, games, and sports, providing users with a wealth of choices.

Powerful retrieval algorithms and optimized user experience: OpenSea allows users to retrieve NFTs based on the characteristics of different items. For example, for buyers of CryptoPunk and BAYC, there is a big difference in the labels that classify the items to which the two items belong: CryptoPunks are classified by different skin tones, hair accessories and accessories, etc., while BAYC is classified by coat color, eyes and facial movements, etc. are differentiated. According to the properties set by the issuer when minting NFT, OpenSea adds a custom filter to each item set, which is convenient for buyers to filter and retrieve different item sets.

Figure 25: CryptoPunks and BAYC have their own search filters on the platform

Metaverse Series: Exploring the Metaverse Pass NFT

Source: OpenSea, CICC Research

3 Community investment project feedback platform. In February 2022, OpenSea launched two community investment programs, Ecosystem Grants and OpenSea Ventures. The former mainly provides financial support to three types of teams that develop NFT minting and trading tools, support new user onboarding and resource provision, and create highly accessible and inclusive spaces. The latter invests around the Web3.0 ecosystem, focusing on the four directions of multi-chain world, NFT social networking and games, NFT standard protocols, transaction activity analyzers or aggregation tools.We believe that the launch of the two investment projects will help the platform to better improve its infrastructure and master cutting-edge technologies.

To sum up, the first-mover advantage and scale effect help OpenSea to stabilize its leadership position. Under the influence of events such as token airdrops, the transaction volume of community governance platforms such as Rarible and LooksRare once surpassed OpenSea, but in terms of user scale, OpenSea still occupies a dominant position. We believe that Rarible and LooksRare have the characteristics of community decision-making and token governance, which are closer to the concept of Web3.0. However, when the market is not yet fully mature, the increase in its transaction volume often comes from wash sales, that is, a small number of speculators complete most of the transactions, and the platform has not attracted a user circle that can bring continuous liquidity increments. On the contrary, the first-mover advantage and scale effect accumulated by OpenSea are enough to make it face the challenges of competitors.

Figure 26: Basic situation comparison of OpenSea, Rarible and LooksRare platforms

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Dune Analytics, official website of each platform, CICC Research
Note: Data as of April 2022

Looking at the country: the trend is rising, where will the NFT market go?

Industry overview: The development stage is relatively early, and the layout of large factories is accelerating

The development stage of the domestic NFT market is relatively preliminary. The domestic NFT industry started relatively late. Since 2Q21, Internet platforms have entered the market one after another. In 3Q21, the popularity of the overseas NFT market has driven major manufacturers to enter the market and launch their own NFT trading platforms.However, due to the differences in domestic and foreign market environments, the paths chosen by the above-mentioned platforms are differentiated from those of overseas models. At present, most of them focus on the primary transaction of digital collections. We believe that 2021 is the first year of the domestic NFT market, which can be divided into two stages:

Initial stage: In the early stage, it is mainly based on overseas experience. From April to May 2021, the music copyright industry has cooperated in the field of NFTs: In April, Douban music copyright company Vfine Music and streaming media NFT trading platform CyberStop reached a cooperation, musicians can issue NFTs on the platform; May Huoyinyue Released the label Free Spark, becoming the first organization in China to focus on the distribution of music NFTs. Subsequently, Music Bee launched the NFT section to provide protection, trading, and rights protection services for musicians. In addition, the comprehensive trading platform NFT China was also launched in May, with the UGC ecosystem as the core, and its positioning is similar to OpenSea. We believe that, on the one hand, music copyright companies are the first to enter the game, which reflects that the domestic understanding of NFT is still concentrated on copyright protection, which is mostly used as a supplement to its own business line; The platform model refers to overseas experience; on the whole, the market tries on the basis of learning from overseas markets.

Development period: The trend is gradually attracting large manufacturers to enter the game. With the popularity of overseas markets and the deepening of domestic awareness of NFTs, major Internet platforms have begun to launch their own NFT trading platforms: Alibaba will organize NFT auctions through Alibaba Auctions in May 2021, and will issue joint NFTs on Ant Chain fans in June. In December, it was officially announced to upgrade the Ant Chain fan tablet to a digital collection platform “Whale Scout”; NetEase has used its entertainment IP to launch NFT commemorative coins and blind boxes from June to July, and will launch NetEase Planet Digital Collection in January 2022 Platform; Tencent launched the trading platform “Magic Core” in August, and released 300 audio “Thirteen Invitation” digital art collections in the first period, and then Tencent Music (TME) announced the launch of the first collections on QQ Music. After Vision China announced the use of NFT technology to empower the 500px community in August, it officially released the trading platform “Meta Vision” in December. In addition,, Baidu, ByteDance, etc. have all entered the NFT field.

At this stage, the layout of the big factories has accelerated, and the distribution content has expanded to various digital collections based on their own IP or copyright, differentiated into limited exchange, blind boxes and other forms, and most of them are positioned for social functions such as collection and display, which is different from the overseas model.

Figure 27: Big manufacturers have entered the domestic NFT market

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Official website of each platform, CICC Research

Figure 28: List of major NFT platforms launched in China

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Official website of each platform, CICC Research
Note: Data as of May 2022

Market comparison: limited openness, broad expansion space

The domestic policy environment strictly prohibits virtual currency transactions and illegal token financing. First of all, virtual currency trading speculation is strictly prohibited. As early as 2013, the central bank and other five departments have issued the “Notice on Preventing Bitcoin Risks”, prohibiting financial and payment institutions from engaging in Bitcoin-related business; “Mining” activity notice”, and “mining” activity is listed as a phase-out industry. In April 2022, the three associations jointly issued the “Initiative on Preventing Financial Risks Related to NFTs” to prevent potential risks such as speculation, money laundering, and illegal financial activities. Therefore, all major domestic NFT platforms use RMB as the transaction currency and do not support virtual currency settlement. Secondly, in 2017, the “Announcement on Preventing the Risk of Token Issuance and Financing” issued by the central bank and other seven departments identified token issuance and financing as illegal financing. As a token, NFT has a certain sensitivity. Most domestic platforms define it as a “digital collection” and prohibit secondary market transactions from the perspective of anti-hype. In summary, due to the strong domestic regulatory environment, the attributes of NFT as an investment product have been weakened.

Figure 29: Under the background of strict supervision, the domestic NFT market mainly emphasizes the concept of digital collections

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Official website of the Central People’s Government of the People’s Republic of China, CICC Research Department

Domestic multi-architecture own alliance chain. Unlike most overseas NFT platforms that rely on the public chain structure, the multi-structure of domestic NFT platforms runs on the alliance chain. The public chain allows anyone to read, send transactions and participate in the consensus, with a wider coverage, and all nodes on the chain are public, with the characteristics of complete decentralization, and the possibility of malicious tampering is low; the alliance chain consists of multiple Institutions jointly participate in management, each institution runs multiple or one node, and data is only transmitted between institutions. Due to the fixed number and identity of nodes, the data processing efficiency is higher than that of public chains such as Ethereum. However, the characteristics of non-complete decentralization make the alliance chain have the possibility of data modification. In addition, the alliance chain still lacks a unified industry standard, and the application solutions provided for different developers are also different, which is not convenient for NFT assets to flow across platforms.

Figure 30: The consortium chain is jointly managed by multiple institutions

Metaverse Series: Exploring the Metaverse Pass NFT

Source: ChainNews, CICC Research

The domestic platform is mainly based on the PGC model, with strong commercial marketing functions. There are two main sources of NFTs sold on domestic platforms: first, derived from their own IP. For example,’s first batch of NFTs launched on “Lingxi” were designed with the mascot “Joy” as the prototype; and NetEase launched the Vicki Sansan commemorative coin, the “Eternal Calamity” NFT blind box, etc. Second, cooperate with artists or jointly name other IPs.For example, “Meta Vision” is the result of Vision China’s upgrade of the 500px image community based on the copyright content accumulated over the years. The first products include the well-known photographic work “I want to go to school”. We believe that the current application scenarios of domestic NFT platforms focus on commercial marketing services: on the one hand, through professional creators to issue digital content based on specific events or IPs, emphasizing the commemorative value of NFTs, and supporting the promotion of brands, commodities or IPs; On the one hand, it attracts user groups from other business lines to participate in the NFT community through non-sale acquisitions such as limited collection, blind box extraction, and exclusive use for specific users. Taking NetEase Planet Digital Collection Platform as an example, its platform application scenarios are positioned as brand marketing, product delivery, exhibition linkage and fan operation.

Figure 31: NetEase Planet Digital Collection Platform defines application scenarios as four directions: brand marketing, product delivery, exhibition linkage and fan operation

Metaverse Series: Exploring the Metaverse Pass NFT

Source: NetEase Planet Digital Collection Platform, CICC Research

Future prospects: supervision or further regulation, continuous improvement of application scenarios

The domestic NFT market is still in its infancy, and there is still a lot of potential space to be explored. Drawing on relatively mature overseas experience, we believe that future advancements in the four directions of market environment, circulation process, creators and buyers may give birth to a new ecosystem of the industry:

Market environment: regulatory environment or further regulation. Due to the need to maintain the economic and financial market order, the policy environment is highly sensitive to virtual currency and token transactions. The NFT market is in full swing, but there is no clear and standardized regulatory system to constrain it, and potential money laundering, financing and other risks cannot be ignored. We believe that the healthy and long-term development of the NFT market is inseparable from the further regulation of supervision. Since 2021, relevant departments and organizations have formulated industry standards and put forward relevant policy proposals. Specifically, there may be deepening supervision in three aspects:

Strengthening copyright protection: NFT can become a starting point for blockchain applications in the copyright field.If the copyright registration and rights protection mechanism of NFT is improved, and the copyright protection of production, distribution, sales and other links is implemented, under the premise of compliance, NFT may be able to play an in-depth role in copyright certification and combating piracy.

Strengthen distribution management: Similar to the distribution of traditional publications, the illegal and inappropriate content in NFT distribution needs to be supervised and managed, cultivate a healthy and upward digital content creation atmosphere, promote the dissemination of excellent culture, and consolidate a benign production foundation for the entertainment industry.

Strengthen transaction supervision: Relevant departments are to introduce an NFT trading platform access system, raise the administrative approval threshold, strengthen the supervision and management of transaction data, and strengthen the crackdown on illegal speculation. We believe that the promotion of digital renminbi may promote the implementation of NFT transaction supervision. According to official statistics, as of December 31, 2021, there have been more than 8.09 million digital renminbi pilot scenarios, covering major regions of the country, with a total of 261 million personal wallets opened and a transaction amount of 87.6 billion yuan. The digital renminbi has the characteristics of centralized supervision and government credit endorsement. Combining it with NFT applications can not only avoid the risk of fluctuations in the value of quoted currencies such as ether in the overseas NFT market, but also facilitate background supervision by relevant departments.

Circulation process: On the basis of compliance, develop secondary markets and domestic public chains. The re-creation and re-trading of the secondary market can inject higher liquidity into the NFT industry. At present, platforms do not open secondary transactions due to the purpose of preventing speculation, but platforms such as “Whale Scout” now support conditional transfers. We believe that if the platform regulations are increasingly improved, it is expected to gradually release functions such as secondary transactions, creation, and gifts in a limited manner while meeting compliance requirements, and explore more diverse ways to play. Domestic public chains can complement the industry ecology. Previously, domestic public chains such as Conflux, TRON, and NEO emerged in the heat of the blockchain market, but were limited by domestic Environmental and technical constraints have not caused much repercussions. We believe that with the maturity of domestic blockchain application technology, carrying a domestic public chain may become an important choice for expanding the scope of platform transactions.

Creators: Content sources are more abundant. In terms of creator identity, the overseas NFT market includes UGC mode and PGC mode, taking into account the breadth and depth of the user circle. The development of the UGC model can give users more freedom of creation, and expand the number and types of NFT products on the platform, which is an important way to attract ordinary users to enter the platform and participate in the ecology. Taking the cooperation model between TopHolder and Weibo, the digital collection platform of Tianxiaxiu as an example, Weibo users can access TopHolder on their personal homepage. . Relying on Weibo’s huge content creator resources, TopHolder has expanded the source of works on the platform; Weibo creators have more diversified monetization methods. Through content production, fan interaction, and communication with other creators and collectors about digital collections, social value is gained. confirm. In terms of creative content, major platforms now cover major materials such as existing copyright resources, self-owned and co-branded IPs, and competition between platforms in the future may continue to focus on contracted artist resources, in-depth development of their IPs, and blockbuster co-branding. We believe that there is room for in-depth exploration in these three ways: first, the selection of artists or co-branding partners is now mostly art and culture and museum teams, and the content of games, sports, music and other fields needs to be enriched. Secondly, the most popular overseas virtual image NFT projects are still lacking in the domestic market. It is expected that domestic platforms will use their own IP or develop original IP to create similar projects and enhance the community attributes of the platform.

Buyers: The application scenarios are gradually implemented. Looking back at overseas markets, NFT products can be divided into three categories according to their uses: 1) Practical NFTs such as copyright confirmation; 2) Consumer NFTs such as digital collections; 3) Games, Metaverse, financial derivatives, etc. are closer to Web3.0 NFTs of the world. At present, only the first two scenarios have been implemented in China. We expect the industry to launch more in-depth applications in the future:

NFT + Reality Confirmation: With the characteristics of permanent preservation and immutability, the functionality of NFT can be extended to the confirmation of personal identities and physical assets, and has natural utilization value in digital management. In terms of personal identity, personal information certificates such as ID cards and academic certificates are uploaded to the chain to integrate multi-regional information and improve the management efficiency of relevant departments. In terms of physical assets, putting physical asset warrants on the chain can facilitate traceability, circulation transactions, and promote cross-regional circulation of assets. For example, Hainan International Cultural Artwork Trading Center owns the first compliant NFT digital property rights trading center in China. It has begun to trial digital certificates and property rights transactions for physical works of art, through full payment, one-to-one real-name transaction, and T+5 transfer mechanism. , to eliminate the design of mechanisms such as electronic matching, and avoid the pain points of traditional digital copyright transactions or “short selling”. We believe that in the future, the scope of physical assets on the chain can also be extended to real estate, car properties and other types, and combined with ARVR technology to create a new experience of viewing and buying homes in different places.

Figure 32: Schematic diagram of the process of Hainan International Cultural Artwork Trading Center (authorized) NFT Development Center

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Haiwenjiao official website, CICC Research

NFT+Additional rights: Given specific rights and interests to the holder, NFT can become the link between the issuer and the user, and provide the original user group for the platform to build a comprehensive community in the future. For example, the Phantom Bear NFT (PhantaBear) jointly launched by digital platform Ezek and Jay Chou’s trendy brand PHANTACi also serves as a membership card for Ezek Club, and holders can enjoy different levels of benefits. According to Ezek’s official website information, future members are also expected to use the NFT they hold to enter virtual concerts or virtual real estate organized by the platform to explore more possibilities.

Figure 33: PhantaBear NFT holders can enjoy various benefits in the four-stage layout of Ezek

Metaverse Series: Exploring the Metaverse Pass NFT

Source: Ezek official website, CICC Research

NFT + interactive application: highly interactive NFT represented by blockchain games and virtual real estate can be expected in the future. Judging from the current situation in China, many platforms have set up exhibition halls for users’ collections in their apps, but they are mainly limited to functions such as collection display and friends visiting, and the interactivity is slightly insufficient. According to a Reuters report, in March 2022, Tencent participated in the investment in Immutable, an overseas blockchain game company, and took the lead in publicly entering the NFT field of non-digital collections. It can be seen that major domestic manufacturers have begun a new stage of layout attempts. From overseas, the chain game Axie Infinity and the virtual world Decentraland are both leading projects in their respective fields. The former is a card strategy battle game. Players collect, train, cultivate, and breed elf Axies. They can not only trade Axies and game land to benefit, but also get token rewards through daily tasks and player battles. Now it has become a ranking of transaction volume. The first NFT project. The latter is an Ethereum-based virtual world where users can use the token MANA to buy, rent or sell virtual land (with a cap) and create 3D scenes on the land; design, wear or sell clothing, accessories and physical features and other virtual image elements NFT, “live” in the virtual world with a new image.

We believe that NFT is not only a product, but also a community experience. Whether it is copyright confirmation, collection display or interactive application, in the ideal picture described behind NFT, users will enter a specific community based on the NFT they hold, and participate in community communication, game entertainment, space construction and other interactions with a new virtual identity. Complete the construction of a new type of Internet identity, which is the only way to build the underlying construction of the “Metaverse”.

risk warning

Industry policy risks: At present, policies that explicitly target the NFT industry have not yet been issued. If relevant regulatory policies are improved in the future and the industry develops or becomes more standardized, the promotion and application of NFT may be affected. In addition, the country is cautious about the field of encrypted assets. Combined with the recent tightening of supervision on the Internet and the entertainment industry, NFT may be limited in application scenarios such as games and the Metaverse.

The progress of NFT technology is less than expected: NFT emphasizes the uniqueness and authenticity of works. If the anti-counterfeiting technology fails to be effectively iteratively upgraded, resulting in a large number of unauthorized products being released on the chain, it will be difficult for the platform or creator to trace and authenticate, which will reduce the purchase of NFT assets for users. Appeal.

The liquidity of NFT transactions is less than expected: NFTs are mainly realized through the transaction and circulation of digital content. In terms of content supply, if the review mechanism is not perfect, a large number of works with uneven content flood the market, or it is difficult to form continuous attraction to users; in terms of circulation mechanism, if the secondary circulation channels are always limited, the liquidity of NFT will decrease. , users can only collect NFT by themselves, which may lead to insufficient NFT realization ability.

The security of the NFT platform is lower than expected: The application of NFT in the copyright field depends on the characteristic that it cannot be easily tampered with, but the accounts of trading platforms such as OpenSea still have the risk of account theft, thereby transferring account assets. If the platform’s anti-theft technology and back-end transaction traceability are insufficient, the user’s NFT assets cannot be recovered after being stolen, which will affect the actual landing value of NFT.

Legal certification issues: The legal certification specifications for NFT assets are yet to be implemented. On the one hand, the transfer of copyrights, commercial rights and other rights of digital content is relatively ambiguous, and once disputes arise or cannot be effectively guaranteed; on the other hand, whether pirated NFT assets are subject to relevant legal constraints, and how platforms or creators protect their rights, is still unclear. A legal solution to be perfected.

[1] Data source: Nonfungible

Article Source

This article is excerpted from: “Metaverse Series: Exploring the Metaverse Pass – NFT” released on May 9, 2022

Zhang Xueqing, CFA SAC Certificate No.: S0080517090001 SFC CE Ref: BNC281

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