Delphi Digital researchers discuss new trends in the NFT space for 2023: the explosion of NFT-Fi + more "cake-sharing" participants

Author: Teng Yan

Compiled by: The Way of DeFi

Sharing my predictions for NFTs in 2023.

I mentioned some of these in my report for Delphi, and here are more of my personal thoughts.

There is a lot to discuss, so let's get started:

Prediction #1: We will witness a Cambrian explosion in NFT finance. There will be an "NFT-Fi summer" sometime next year.

Here are some highlights:

A greater degree of financialization will elevate the utility of NFTs to a new level. It will bring new participants into the space (market makers, lending institutions, etc.).

This is a necessary condition for NFTs to truly become a mature asset class.

2022 laid the groundwork for the soaring of NFT finance.

From January to November, the cumulative lending amount using NFTs as collateral increased more than tenfold, reaching over $500 million.

@NFTfi‌, @BendDAO‌, @the_x2y2‌ are several major players at this stage.

NFTs have gone through the entire cycle without any leverage primitives, which is an impressive feat.

Leverage is a "hellish drug," and the NFT ecosystem has yet to truly experience this. When users can easily use leverage tools, we can expect sparks to fly.

Things I am watching:

1) NFT Derivatives (Perpetuals, Options)

Imagine having direct exposure to the Bored Ape Yacht Club (BAYC) without spending over 80 ETH to purchase an NFT.

The ability to hedge NFT risk exposure will reduce the risk for investors holding NFT assets and attract large, mature investors. The market will see greater volatility and liquidity, evolving into a more efficient market.

Protocols I am watching include @nftperp‌ and @HookProtocol‌.

@nftperp's trading volume has been steadily increasing. With NFTperp, you can trade perpetual contracts on platforms like Punks, Azuki, BAYC, etc.

Since launching its closed beta a few weeks ago, it has completed $28 million in trading volume, showing clear user interest.

2) NFT AMMs Gain Traction

sudoswap‌ for NFTs is like Uniswap for ERC-20 tokens. User retention has been very good.

With the rise of GameFi and other "interchangeable" NFTs in the coming years, I expect more trading volume to flow through AMMs.

There will be a battle among NFT AMMs for users, as more products are set to launch. For example: @EZ_swap‌ and @CollectionWeb3‌. May the best product win!

Here are some super cool people doing NFT-Fi: @hemicsodium‌, @spenceryang‌, @0xtamagoyaki‌, @alexpengfei‌, @chadsgarrett‌, @Restuta‌.

3) NFT Lending v2: It's All About Capital Efficiency

Peer-to-pool protocols with new experimental designs will launch. For example: @AstariaXYZ‌.

Lending aggregators like @metastreetxyz‌ make it easier for lenders to participate while managing risk.

4) NFT Pricing Gets Solved

We need a robust pricing mechanism that is hard to manipulate while providing fine data beyond just floor prices.

Protocols like @UpshotHQ ‌ use ML algorithms to provide accurate, low-latency price feedback. They will see broader applications.

Prediction #2: The great unbundling of the NFT market will begin in 2023.

Here are the reasons:

The NFT market is the crown jewel of the crypto industry. The market it occupies is continuously growing and could one day expand to trillions of dollars.

Despite being in a bear market, opensea‌ still generated over $500 million in revenue in 2022 (with a total fee of $1.8 billion).

In January 2022, over 90% of NFT transactions were completed through OpenSea.

Today, this dominance has significantly shrunk, with several important competitors emerging: @LooksRare‌, @thex2y2‌, @MagicEden‌, and @blurio‌. Fee competition is real.

So what will happen next?

If we study the history of successful markets (Craigslist, eBay, Amazon), we see a similar pattern emerge— a large company with a bundled platform is challenged by startups offering unbundled products that consumers prefer.

"A successful market is one where both buyers and sellers can have a better experience than with competing products." (This is a very insightful point made by @sarahtavel‌ in her 2020 article)

The fee competition among NFT markets will continue as it creates more happiness for both buyers and sellers.

The history of markets provides many insights into the future fate of the cryptocurrency market.

What will happen next?

1) Vertical Markets Will Become Prominent

Markets focusing on specific NFT verticals (such as PFP, art, virtual land, music, and fashion) will gain traction. The buyer journey for art collectors is vastly different from that of PFP (profile picture) traders.

Vertical markets can provide a better user experience and business models tailored to specific vertical industries.

For example, @SuperRare‌'s membership pass gifts members a unique new piece from one of its top artists every month.

Currently, the gross merchandise value (GMV) of vertical markets is small. They are still optimizing customer satisfaction.

At the right moment, they may reach a tipping point where, as long as the product is good enough, the market will start to tilt in their favor.

2) More NFT Teams Will Choose to Launch Their Own White-Label Markets Where They Can Set Fees and Royalties

NFT creators (artists, brands, talents, etc.) can capture more of the economic value they create and share it with their supporter community.

For example: @apecoin‌ DAO and @Snag_Solutions‌/@ZHeerwagen‌ launched a market as part of the Bored Ape ecosystem, allowing $APE to be used for trading with fees lower than OpenSea.

It utilizes @reservoir0x‌ to aggregate liquidity and order books across markets and provides this service via API.

IMO, Reservoir will become very important infrastructure for NFTs in the future.

Service providers like @rarible‌ and @ourZORA‌ are also helpful.

3) Thematic Market Aggregators Will Bring Order to Chaos

The aggregation function in Web3 is very powerful and scalable. Blockchain-supported composability and on-chain sourcing reduce the friction often encountered by Web2 aggregators (legitimate knockoffs).

Thematic market aggregators will emerge to match buyers and sellers of specific types of NFTs.

For example, a gaming market aggregator that pulls information from all top gaming markets is very interesting (@0xKepler‌).

TL;DR: The trend of vertical markets does not mean OpenSea is dead. It is still a very good (and potentially profitable) business.

But it does provide an opportunity for more specialized markets to thrive—even potentially surpass it.

For more content, see the full report from Delphi Digital:

https://members.delphidigital.io/reports/the-great-reset-navigating-crypto-in-2023?utmcampaign=yearahead