NFT is not yet able to carry all the imagination of the Metaverse, so let’s start with these urgent problems.
2021, in the field of encryption assets hotspot known for fast change of speed, NFT from Ethernet Square 2.0 Bitcoin Taproot upgrade, Layer 2, EIP-1559, slot auctions and other heavy events emerged as the industry’s most watched Of the plate.
There are too many data that have broken through market awareness, as well as the well-known out-of-circle events, showing us the impressive results that NFT has achieved in its strong rise:
Beeple’s NFT work “Everydays: The First 5000 Days” was sold at a sky-high price of US$69.3 million; FeistyDoge NFT set the industry’s highest price of nearly US$130 million due to the split of ownership; CryptoPunks’ daily trading volume exceeded US$142 million; NFT trading platform OpenSea In August, the transaction volume exceeded US$3.4 billion, an increase of over 1100% from the previous month…Visa, Coca-Cola, Porsche, LV, Audi, Marvel, Burberry and other well-known companies and brands have also entered the NFT market in various forms.
However, behind the excitement of giants grabbing beaches and capital turmoil, it is not difficult for us to discover some of the problems exposed by NFT.
A number of data went down, and the NFT market’s enthusiasm has declined
The prosperity in a certain period of time must decline, and it seems that it has become an unbreakable law in the industry, and the NFT market is also the same. After the explosive growth driven by multi-party takeovers, the NFT market has experienced a comprehensive cooling down of many data since mid-September. According to OKLink data, the two data of the number of daily transactions and daily transaction volume in the NFT market reached their peaks simultaneously at the end of August: the daily transaction volume was as high as 297 million US dollars, and the number of transactions was 21,700. Then began to gradually decline. As of September 29, the daily trading volume of the NFT market was 40.61 million U.S. dollars, down 80.1% from the higher point, and 4377 daily transactions, and nearly 80% from the higher point.
NFT market transactions, picture source OKLink
Along with the decline of the overall market, the data of the NFT head project has also declined in different ranges:
Let’s first look at Bored Ape Yacht Club (abbreviated as BAYC), which is an NFT collectible project that went online around late April this year. The series is composed of 10,000 unique apes and contains 170 attributes with different rarities. On August 28, well-known NBA star Stephen Curry bought BAYC’s NFT works for 55 ETH (about 180,000 U.S. dollars) and set it as his social media profile picture. This move has brought a lot of attention and capital inflow to BAYC. On that day, BAYC Ape’s turnover reached about 56 million US dollars, an increase of over 400% from the previous month. According to cryptoslam data, BAYC data began to decline significantly since then, with a low transaction volume of less than 1.5 million US dollars.
Bored Ape Yacht Club transaction volume trend, photo source cryptoslam
The data of CryptoPunks, another leading NFT project, has also fallen sharply. According to OKLink data, on September 29, the daily trading volume of CryptoPunks was 10.13 million U.S. dollars, and the higher level of 142 million U.S. dollars (August 28) dropped by 92.9%. The number of active users and transactions were 76 and 21, respectively, and the higher points dropped by 90% and 94%, respectively. Well-known NFT projects such as Meebits, Loot, CoolCats, etc. have also experienced varying degrees of heat attenuation and data shrinkage.
The changing trend of CryptoPunks daily trading volume, picture source OKlink
The sudden emergence of NFT can be attributed to three points:
First, after long-term development and precipitation, the encryption industry’s infrastructure, capital volume, overall environment, and user maturity have all been greatly improved. Progress in all aspects has provided a good foundation for the outbreak of NFT.
Second, compared with traditional homogenized assets, NFT’s irreplaceable and indivisible characteristics make it easier to create provable scarcity and seamlessly integrate with art, music, collections and other fields to obtain institutions, Favored by brands and stars. Continued capital entry and celebrity participation have promoted the continuous growth of NFT at the speed of refreshing cognition.
Third, this year, the meta universe has once again become a hot concept. The NFT is an indispensable basic module for the creation of the meta universe, which carries people’s yearning for a parallel world. If meta-universe is the inevitable trend of digital development, then NFT will surely rise accordingly.
But for now, Metaverse still has a long way to go, and NFT is not perfect. Behind its explosive growth, there are several hidden worries.
How to break the shackles of liquidity?
The relative lack of liquidity is an unavoidable problem in the current NFT market:
First of all, NFTs are non-homogeneous assets, which means that a single NFT work in the same series is often the smallest trading unit. And the price of hundreds of thousands of millions of dollars at every turn has discouraged many users who want to participate. The high floor price and gas fee, the relatively more difficult interaction process, and the lack of a relatively fair and scientific pricing mechanism make it impossible for NFTs to conduct low-loss and fast transactions like traditional digital assets such as Bitcoin. There is a situation where there is no market for prices. The pain points of these market transactions are also the main reason for limiting the growth of the NFT user base, because for most users, the capital utilization rate and the certainty of earning income through the spread are important reference indicators when selecting the target. The status quo of the NFT market obviously cannot meet their trading demands. Liquidity defects have caused the NFT market to become weak after reaching a certain height.
In order to solve the liquidity problem of NFT, some teams and communities have made a lot of attempts, such as the fragmentation of NFT similar to the “share split” mechanism. At present, the more mainstream splitting agreements on the market include Fractional, NFTX, etc., and the more famous splitting cases include: Metapurse packaged and split the 20 works in “Everydays: The 2020 Collection”, plus multiple virtual real estates. (Issue ERC20 token B.20); and the ownership split of Feisty Doge NFT.
Although the current NFT splitting plan can lower the threshold of the NFT market to a certain extent, and can participate in DeFi activities after the NFT is fragmented, it uses capital precipitation and user growth to promote the large-scale development of the market. However, there are also some problems, such as risk transfer, the high correlation between the integrity and value of the artwork, and whether the reserve price and governance parameters are reasonable; in addition to the NFT fragmentation agreement, some NFTs themselves are made of disassembled components. Composition, or leave a lot of expandable space in the mechanism design, so that participants can create flow entrances when making ecological supplements.
At present, there is no relatively complete solution to the liquidity problem of the NFT market. Solving this shackles of development is a long way to go.
How to expand the application scenarios?
As mentioned above, NFT is regarded as an indispensable basic component for constructing the meta-universe. Because in order to achieve a complete digital society, it is necessary to build its economic system and model through the uniqueness and indivisibility of NFT. But at present, it is too early to talk about the concept of meta-universe.
Currently, the application scenarios of NFT are mainly concentrated in relatively niche areas such as copyright, collection, GameFi, and social networking. The limited application scenarios not only limit the possibility of players and NFTs intersecting, but also make many onlookers unable to believe in the value support of NFTs. Insiders believe that NFT is the only way for digital development and a transformative combination of blockchain technology and art. Some outsiders think: NFT is just a marketing that is more hype than meaning. For example: Blockchain company Injective Protocol bought the painting “Idiot” for US$95,000, then burned it in the live broadcast, and sold the corresponding NFT work at 4 times the price. This series of operations made many people call “unintelligible.”
NFT’s large-scale landing requires long-term accumulation and precipitation, which is by no means an overnight task. Then, how to find more landing directions and develop more universal application scenarios before the real arrival of the meta-universe era has become an important proposition for the promoters of the NFT market development.
How to make the NFT market more sound and transparent?
Compared with homogenized assets, in addition to its own attributes, NFT also has the characteristics of relatively small capital, relatively fixed trading units, lack of a sound price discovery mechanism, short development time for trading platforms, and imperfect rules. In short, the speed of improving the rules of the NFT market is obviously lagging behind the current development speed, and there are a lot of deficiencies that can be exploited. This means that for people with ulterior motives, greater operating space can be created at a lower cost. For example: The price of a certain NFT work can be increased by placing an order and buying it yourself, thereby creating an unreal prosperity. Recently, the product manager of OpenSea, a well-known NFT trading platform, used his position to conduct improper profits, which has triggered a lot of discussions about the “trust crisis”.
For NFT participants, there is an urgent need for a more diverse, inclusive and transparent trading environment under the protection of a sound system.
If a market or industry wants to achieve long-term and healthy development, it cannot avoid problems or rely too much on temporary solutions because of short-term benefits. It is undeniable that the NFT market has a lot of room for development, and one day it will even become the key to open the door to the meta universe. However, if the current problems are not solved, the development of the NFT market will be greatly restricted. The teams and platforms that are committed to solving the above problems and effectively promoting the implementation of the plan will also receive greater development dividends.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/nft-is-not-yet-able-to-carry-all-the-imagination-of-the-metaverse-so-lets-start-with-these-urgent-problems/
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