Maximizing the Value of NFTs: IOSG Analyzes Four Types of Financialization Practices for NFTs
Assets that can generate profits are often more valued. What kind of chemical reaction occurs when NFTs meet DeFi?Original Title: "IOSG Weekly Brief | The Financialization of NFTs #77", Author: IOSG Ventures
NFTs are a tokenized form of virtual goods, including digital art, virtual real estate, game assets, and more. NFTs can also be used in real-life product distribution mechanisms, such as inventory management, trade financing, ticketing, and other fields.
How to maximize the value of your NFTs?
In the seasoned crypto community, assets that can generate income are often more valued, so what kind of chemical reaction occurs when NFTs meet DeFi?
Increase the liquidity of NFTs
NFT assets can share ownership
NFTs can generate income
NFTs can be used as collateral
Image Source: Fractional
Liquidity of NFTs
Collectibles have always faced the problem of poor liquidity. However, with the tokenization of collectibles, rare assets have a greater potential to generate liquidity. Current NFT asset fragmentation platforms can convert ERC721 or ERC1155 into tradable homogeneous ERC20 tokens, bringing unprecedented liquidity to NFTs and other collectibles.
The fragmentation of high-value NFT assets began with the Metapurse fund, which purchased Beeple's Everydays 5000 (a $69.3 million NFT). The Metapurse fund fragmented the artwork, creating the B20 token and releasing it in two phases.
Coinmarketcap: B20 Token
The benefit of splitting NFTs into homogeneous tokens is that it provides a good evaluation mechanism for most NFTs as the market corrects token prices. Platforms like Fractional, NFT 20, and Unicly can help collectors fragment their NFTs and create communities around these NFTs.
Key considerations for collectors include the liquidity of NFTs after fragmentation, controlling the number of homogeneous tokens mined, preventing "whales" from buying out en masse, and the ability to create communities around NFTs. The main consideration for buyers is the risk exposure of acquiring certified NFTs and participating in governance processes.
Other interesting projects building or expanding in this direction include DODO NFT and DAOfi's Fraction.Art. The following image shows the liquidity situation of multiple fragmented tokens and ETH pools on the Unicly platform in less than a week.
Source: https://vbdex.vercel.app/unicly
Total Locked Value (TVL) of quality projects on Unicly and NFT20 platforms
Sharing Ownership of NFT Assets
Owning a rare punk is certainly good, but it would be even better to establish a punk community and share ownership of NFTs (or collectibles). Unicly is a fork of Uniswap V2 and has successfully built communities for some well-known NFT projects, such as Hashmasks, Cryptopunks, Autoglyphs, and Doki Doki.
The financialization of NFTs has given rise to a new type of community, namely NFT DAOs. The first generation of NFT DAOs provided management services for NFTs and artists. Jenny DAO is the next generation of NFT DAOs that curates the NFT collection process and focuses on the financialization of these assets. What makes Jenny DAO unique is that the uJenny token represents the NFT assets it holds and the DAO's social tokens.
uJenny is an ERC20 token issued by Jenny DAO on the Unicly platform, representing partial ownership of all NFTs purchased by the DAO. This will be the first truly asset-backed social token. Currently, uJenny can be used to mine UNIC tokens on the platform.
Jenny Token (uJenny)
NFT Games + Finance
Now, NFTs have also become income-generating assets, especially in the gaming sector. The concept of blockchain games became a hot topic in the industry after the explosive success of Cryptokitties in 2017-2018, but many projects in this space have long had monthly active users in the dozens to hundreds. The reasons include poor playability, poor performance (limited by blockchain performance), and certain demands being false demands (such as projects like Dmarket trying to build a trading market for game items connecting traditional games). However, NFT games represented by Axie Infinity have seen a qualitative leap in monthly active users, and we predict that the future development of blockchain games will have its own characteristics rather than simply replicating traditional games on the blockchain. Successful projects will certainly have stronger financial attributes, providing players with positive economic incentives to form an ecological closed loop.
Axie Infinity
The performance of Axie Infinity LP (as shown below) indicates that, overall, LPs in the Uniswap SLP-ETH pool have generated profits, with returns of about 16%.
F1 Delta Time
Delta Time's NFT staking allows users to increase their earnings by obtaining $REVV tokens. At a token price of $0.5034, Apex NFT stakers will receive $REVV tokens worth $60,000 for each NFT. The stakers of the most common NFTs will receive at least $125 worth of $REVV tokens.
NFT Lending
Splitting NFTs into ERC20 tokens is a natural process for the NFT community to achieve financialization of its assets and healthy price discovery. NFTX is the first project to create an ETF for NFTs. As new NFT index funds like MASK and PUNK appear on the platform, NFTX will gain increasing popularity.
At the same time, collectors will soon realize that NFT index funds in ERC721 form are inefficient. Depositing NFTs as collateral in these funds does not guarantee that depositors can receive their original deposits (i.e., the NFTs deposited) when withdrawal requests are made.
NFT20 has launched NFT20 flash loans based on Aave. Borrowers will borrow the 20 most valuable Hashmasks from the pool, obtain accumulated NCT (Name Changing Token), sell them for ETH (NFT20 DAO will charge a 10% fee), and return the borrowed NFTs.
The next step for NFT fragmentation platforms is to provide lending services for NFT initiators and ERC20 token holders.
In this exciting field of NFT lending, we predict that the next project to emerge will be a product that can design an effective pricing mechanism and liquidation mechanism to address the risk of depreciation of NFT collateral (as most high-value NFT assets appear in the fields of art and special collectibles, where asset price bubbles are relatively large). Besides serving as a pathway for familiar physical assets to go on-chain, the unique design of NFTs can also accurately express a large number of complex native on-chain assets. From current on-chain insurance policies and on-chain virtual game assets, we may see on-chain behavioral logic and credit information NFT assetization in the future, and even scenarios of on-chain NFT assets being applied off-chain. After experiencing a frenzy in the NFT market in the first half of the year, infrastructure builders/art creators and collectors will continue to explore the true value behind them.
In summary, we witnessed the heat of NFTs in the first quarter of 2021, not only seeing participants from the crypto field but also an increasing number of people from outside the crypto field getting involved. From Beeple's Everydays 5000 to Twitter founder Jack Dorsey's first tweet NFT, all involved high-value transactions. It seems that personal collectors, NFT funds, and DAOs owning exquisite NFT collections are now ready to unlock greater value: for example, enabling interactions between them (Alethea), fragmenting ownership and building communities around these NFTs (Unicly), using them for lending or continuing to collect (Jenny DAO), all of which are exciting directions.
