The hidden worries behind the “sky price” NFT: Could the crash come more quickly?

Entering the second half of 2021, NFT can definitely be the leader in the crypto market. Many well-known companies have successively released NFT products, keeping up with the trend of the Internet era and attracting a large amount of traffic. First, Alibaba , NetEase, Tencent, etc. have entered the game; then Audi released a series of NFT works of art; Burberry cooperated with American game companies to launch limited edition game characters, players can collect and sell NFT in the game; LV launched NFT games… …At the same time, the concept of NFT in fields such as encrypted artwork, games, and digital certificates has exploded.

It is worth noting that since the end of July, the volume and price of CryptoPunks have reached new highs, and a “sky-priced” avatar once appeared. In addition, many digital art works have also seen transactions worth millions of dollars. With the fire of NFT, many works were sold at “sky prices”.

At the same time, many projects have appeared on the market. In the face of the complex NFT market, the first question mark that ordinary investors hang over their heads is why these NFTs are more expensive than Monet’s paintings? Is there a hype factor in this?

Why is NFT frequently auctioned at sky-high prices

NFT has seen explosive growth in recent months. Of the top ten most expensive NFT sales transactions, nine of them were conducted in the past six months, setting the largest sales record to date.

EVERYDAYS: THE FIRST 5000 DAYS is by far the most expensive NFT, priced at 69.3 million US dollars; CryptoPunk #7523, selling price: 11.8 million US dollars; CryptoPunk #7804, selling price: 7.56 million US dollars; CryptoPunk #3100, selling price: 751 Ten thousand US dollars; CROSSROAD, price: 6.66 million US dollars.

CryptoPunk creates NFT history with absolute popularity and price. At the same time, the avatar-like NFT track has exploded, and similar projects have emerged in large numbers. There was also a “sky price” avatar for a while. At the same time, many users in the circle have replaced their WeChat avatars with their own NFTs, and this trend has become a social business card for the encryption industry.

Ou Yi OKEx senior researcher Vincent pointed out that the frequent emergence of high-priced NFTs is mainly due to two aspects. One is the continuous popularity of the NFT market, which continuously attracts new players and influx of funds, which promotes the rise of NFT prices, and the second is the part of the head NFT. collection of works have meaning and social property, the basis of consensus is also growing, such as the recent fires NFT head CryptoPunks, which is an Ethernet Square, one of the first items on the NFT, is considered NFT in bitcoins , a user not only sought after venue , And even off-site institutions such as Visa have entered the game.

Hype and potential coexist

The technology maturity curve created by Gartner pointed out that any technology or new concept needs to go through five stages: budding period, bubble period, trough period, recovery period and mature period. Is there a bubble or hype factor in the current sky-high NFT? The answer is yes. Because the development of any new technology and new concept follows this objective law, the NFT, which is currently in the “bubble boom” period, is enthusiastically sought after by the market, the true value is exaggerated, and there is a bubble in it.

However, we should not just choke on food for this reason. Although there is a clear bubble in the NFT market, we should not deny the potential value of NFT. But fundamentally, the rise of NFT is the product of the development of the digital economy to a certain stage.

According to William Huobi Research Institute, in the digital economy era, digital art does not exist in the form of physical objects. How do we reflect the exclusive possession of it? Anyone can copy and use it indiscriminately. How can we ensure that our sanctions and the right to profit from digital art are not infringed? The modern property rights theory of the new institutional economics tells us that for a market with efficient resource allocation, its property rights must be clear, exclusive, transferable, and operable. The NFT in the digital economy era has brought perfect proof of property rights for these digital artworks.

First of all, NFT provides a unique copyright certificate for the works of creators. Although it is still presented in electronic form, it is different from other copies. Owning NFT also has exclusive possession rights, which effectively protects creators. The copyrights of NFTs are convenient and quick to circulate and transfer on the blockchain network, and the practical operation is convenient. These works can be sold at the most suitable price, which inspires creative enthusiasm.

With the deepening of the digital economy today, it is not so surprising that the sudden outbreak of NFTs is surprising, but why we have not had NFTs to protect the digital property rights of these artists until today. So we can see that more and more artists are trying to create works in the form of NFT. It can be said that the recent prosperity of NFT is the product of the contradiction between the rapid development of digital art and the protection of backward property rights in recent years.

Lack of a fair price system

It is worth noting that in addition to the well-known NFT projects, some “spoof” projects have also appeared on the market. Of course, the NFT market is still in its early stages, and there are many irregular and opaque operations. The recent continuous enthusiasm has also attracted the influx of some speculative teams. They seized the users’ Fomo psychology and used various packaging and hype techniques to attract users. Entering the market, this will undoubtedly amplify market risks and is not conducive to the healthy development of NFT.

Ouyi OKEx senior researcher Vincent reminded that NFT works are based on blockchain creation, and blockchain technology itself is borderless and decentralized. This will inevitably give criminals an opportunity to use NFT for money laundering.

In addition, due to the profitability of the NFT market, infringement incidents have occurred frequently. These are all inevitable phenomena in the early stage of the NFT market.

In addition, the sky-high NFT reflects the hidden dangers of the current market: the lack of a fair pricing system. To put it simply, the current NFT works lack a unified valuation standard and cannot be open and fair. In most cases, they are supported by consensus. However, the NFT itself is relatively liquid. Once the consensus disappears, the NFT may collapse faster than Other virtual currencies are even faster.

Barbaric growth to be regulated

Of course, in the face of frequently transacted “sky-priced” NFTs, investors in the market cannot bear it. More and more investors are investing in decentralized autonomous organizations (DAOs) to raise funds to buy NFTs.

Generally speaking, one NFT token is converted into ERC-20 tokens, so that when users trade a certain NFT token, they can trade the ERC-20 tokens converted from the NFT token on the DEX. The industry usually refers to this method of converting NFT to ERC-20 as fragmentation. It should be noted that NFT fragmentation does not break the work into many pieces, but divides the ownership of the work.

According to Vincent, a senior researcher at OKEx, the splitting of NFTs is regarded as the main way to solve NFT liquidity. On the one hand, it reduces the threshold for investors to participate and allows more people to participate in and contribute to the development of the NFT ecosystem. On the other hand, it increases To improve the liquidity of NFT works, so that creators can get more benefits.

However, it should be noted that the current NFT market is still in a stage of barbaric growth, and there is no regulatory agency for NFT supervision and regulation, and the practice of splitting NFTs can easily be regarded as securities issuance, which will inevitably face the supervision of relevant agencies.

In addition, if the actors use the split NFT to raise funds and transfer the risk to more investors, this may be regarded as a Ponzi scheme. Once it is regarded as a Ponzi scheme, the NFT market may usher in very strict supervision.

Deposit money laundering risk

In addition, William Huobi Research further analyzed that the fragmentation of NFT has certain characteristics of “securities” in finance, and there is indeed a risk of financial supervision. For example, in recent years, regulators usually use the “Howe Test” to determine whether a Token is a security. There are four conditions as follows:

This is an investment of money (the concept can be expanded to explain); this investment is expected to generate profits in the future; these profits come from the efforts of the issuer or a third person; this investment is for a specific enterprise (common enterprise) , Can be expanded to explain as a project).

If the purchase of a single NFT is usually the “product of the work that has been done”, then the purchase of a fragmented NFT is likely to “generate profits in the future”, and these profits are also likely to be obtained by a third party (entry of new investors) of. Of course, some market participants may find all kinds of excuses to deny the above two points, but the regulators, based on the principle of “substance over form”, are likely to make unfavorable judgments on these fragmented NFTs.

At the same time, Huobi Research Institute William pointed out that the NFT market currently has the risks of money laundering and infringement. Although the current NFT market is very hot, it may take a very difficult period of squeezing the bubble for NFT to develop more healthily in the future.

The development of NFT has its two sides. Although technological innovation will always give new inspiration to art creators, it is more pros and cons to the development of human art history. For NFTs, their long-term value can only be confirmed after the test of time. However, in the early days of NFT development, when it is impossible to be open and fair, for ordinary people, preventing risks should be the first priority.


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Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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