Dialogue with NFTScan, exploring the development trends of the NFT track

Host: Sarah (@cysara111), Binary DAO

Guest: Shier | Cofounder of NFTScan

Sarah: The NFT analytics tool is already a very crowded space. As a professional multi-chain NFT browser and NFT data infrastructure, why did NFTScan choose to focus on the vertical of NFT data analysis?

Shier: From the company's positioning, NFTScan is an infrastructure service provider for underlying NFT data. We entered the space quite early; we noticed the large trading volume and good cash flow of Opensea in early 2021. Initially, we wanted to create an NFT trading protocol, but during the product implementation process, we found it difficult to obtain NFT asset data under user wallet addresses. There was no third-party infrastructure available to provide such services, like Infura and Alchemy, so we began to consider creating our own NFT underlying data tool, which was the impetus for founding NFTScan.

Sarah: I previously saw an introduction about NFTScan stating that it is the largest NFT data service provider in Asia. Why define it as being in Asia?**

Shier: First, let me introduce the overall shape of NFTScan.

The browser NFTScan is one of our tools aimed at the C-end, mainly used for querying NFT-related data. For example, you can search for an NFT contract address or a regular user's wallet address to query the specific on-chain information and data of each NFT under an NFT Collection, as well as the multi-chain NFT asset data held by each wallet address, including on-chain records, etc.

Our second business is the developer platform, mainly providing professional multi-chain NFT API data services for established blockchain companies. Currently, our developer platform has over 2,500 registered users, and more than 200 blockchain projects use our NFT API data services, including well-known blockchain projects like CoinMarketCap, imToken, Mask, CyberConnect, etc.

In addition, we have a B-end service called NFTScan as a Service. It is specifically aimed at blockchain developer teams or public chain projects. If you have developed a new Layer 2 and want an NFT data infrastructure similar to NFTScan, you can purchase our service. We will tailor a complete set of infrastructure for this public chain, including the C-end browser and B-end data services.

To summarize, our business is divided into three parts: one is the C-end browser, and the other two are B-end services.

Returning to the previous question, why do we call ourselves the largest data service provider in Asia? This is because our business has gradually developed around the Chinese blockchain community. Our services basically cover all crypto projects in the Chinese blockchain community, and the leading projects you see are mostly our clients, which is why we claim to be the largest NFT data service provider in Asia. We haven't invested much effort in overseas markets before. However, starting this year, we began recruiting professional business development personnel and tentatively trying some brand promotion overseas.

Sarah: Okay, you provided us with a very clear answer. Could you highlight the main features of NFTScan using a few keywords, especially in comparison to what you consider to be your competitors?**

Shier: First, multi-chain. We currently support 12 chains, including major ones like Ethereum, BSC, Polygon, Solana, Avalanche, and Arbitrum, and we will gradually support some chains in the MOVE and ZK categories in the future.

Second, business focus. NFTScan's brand is very distinct; we only analyze the underlying raw data of NFTs. There are several categories of on-chain data: the first category is Token-related, which includes various on-chain records of token assets; the second category is DeFi, such as the distribution of funds in various DeFi protocols across different chains that you see in DeBank; the third category is NFTs, which is what NFTScan focuses on; the fourth category includes various DAO data, and there are some marginal categories, such as MEV data or Layer 2 cross-chain data.

From the perspective of on-chain interaction and GAS costs, DeFi and NFTs account for 90% of the entire market, roughly 45% each.

We only do NFT data analysis and are very focused, so compared to other teams, we have a better level of expertise in NFT data. Teams like Infura or Alchemy originally started with RPC node services and later expanded into DeFi or NFT data; they do not have our level of expertise because our team of just over a dozen people focuses solely on this one thing, which allows us to do it better.

Third, we support customizable APIs. Currently, we have over 40 API interfaces available, which is the most in the market; Alchemy only has a dozen, and their offerings are relatively rough, requiring developers to do business combinations or secondary development themselves. Our 40+ API interfaces can basically meet over 90% of business scenarios' needs for NFT data. Even if new business scenarios emerge in the market, we will capture them from our clients and support them, then open them up.

Our support for customizable APIs is the most advanced. Infrastructure projects like Infura and Alchemy are slow to act in this regard unless you are a very important client to them.

Fourth, high cost-performance ratio. Our principle is to solve the fundamental problem of a project/team obtaining NFT data sources for the salary of an ordinary engineer, which is about $3,000 a month. We aim to resolve all the data you need for your product/project; this is our service principle.

Sarah: We see that the NFTScan platform has currently indexed over 20 NFT marketplaces, covering various sectors such as order books, AMMs, and aggregators. We also noticed that NFTScan has a content section displaying the daily trading volume of major marketplaces, presenting the intense competitive landscape with clear and intuitive data. In this fiercely competitive environment, major marketplaces are struggling to find ways to survive. The emergence of Blur has also reshaped this space. From your perspective, what models do you think represent the ultimate competition among NFT marketplaces, and why?

Shier: I find this question quite interesting, and I would like to share my personal views for discussion. I don't have objective data to support this; it's just based on my understanding of the industry.

NFTScan currently supports 12 chains and has indexed and analyzed 115 NFT trading markets. Our criteria for indexing are that each must have its corresponding trading protocol, as we index by protocol and contract address, so we have analyzed 115 trading protocols.

I believe the current landscape is only temporary. Although Blur has captured a large trading volume, it is distorted; by "distorted," I mean it is supported by incentives. When incentives are insufficient, no one will engage, and when incentives are excessive, most trades are aimed at grabbing airdrops. It is difficult to solidify genuine trading demand, which is a drawback of trading mining; it is hard to achieve sustainable development.

From my personal perspective on the ultimate fate of the NFT trading market, it may seem quite extreme.

First, transaction fees will definitely be zero. From the perspective of verification protocols, smart contracts themselves cannot capture value because they are just cold code, which is difficult to bring additional information. In this case, they cannot capture value. For example, if you create a very standard and secure smart contract and set a fee of 1%, others can fork the identical contract and set the fee to 0.5%, so ultimately, transaction fees will definitely be zero.

Second, royalties must be supported and respected. The issuance of NFT assets is quite special; compared to other crypto assets, it has an additional royalty aspect. I believe royalties must receive support and respect because without royalty income, project parties will not maintain the project. Project parties primarily aim to earn royalties; if they lose copyright, they have no motivation to market or build a brand, leading to a dead end. If the market operates this way, the secondary trading market loses its significance, as everyone will focus on primary sales and see who can sell faster.

Third, NFT order data must be shared across the entire market. This premise requires that all order data be on-chain. For example, if a BAYC is listed for 60 ETH on Opensea, that listing's order data is actually based on a centralized server's signed price, which is not on-chain and does not display the price data or order data on the blockchain; it exists on Opensea's centralized server. Thus, many entrepreneurs need to rely on Opensea's order book data when creating NFT trading markets, and Opensea will certainly not allow you to access its order data unconditionally to create your own trading market.

This is why I believe that in the future, all order data needs to be open and shared across the entire market. Sharing also means co-building; everyone can put all orders on a protocol and share them, while new listings will also be co-built. This creates a network effect, where the snowball keeps rolling, orders increase, and traffic grows. For instance, recently Opensea launched a zero transaction fee promotion, which was originally 2.5%, now directly set to zero because of Blur's zero fee. I believe that the future openness of order data will also drive this change.

Fourth, with transaction fees at zero, most trading platforms may shift to capturing value from traffic, focusing on primary sales. The secondary trading market may not be profitable unless it can provide some secondary trading strategies or auxiliary tools to capture some value, but it will no longer be able to earn transaction fees.

These four points represent my predictions for the ultimate fate of the trading market, but they only reflect my personal thoughts.

Sarah: Okay, the next question. From MarketPlace/DEX to lending, and now NFT index contracts, projects like Bendao, Paraspace, and NFTperp have explored various aspects of NFTFi. What is your view on the current development and future prospects of the NFTFi space?

Shier: I may not have much to elaborate on this topic because NFTFi has a prerequisite: the existence of some high-quality or stable-value NFT assets. If NFT assets cannot survive a bull and bear market, then NFTFi may not have much significance.

Looking back now, over 200,000 NFT Collections have been issued on the Ethereum chain, but in the past two years, the NFTs that people can remember are at most two or three dozen. This means that out of over 200,000 projects, only two or three dozen have emerged, which is a very low probability of one in ten thousand.

Currently, it is still too early to do NFTFi in a stage where blue-chip assets are relatively scarce and the overall market value is low. However, there are great opportunities in this field in the future because as the entire industry develops, the scale of NFT assets will definitely increase, and in this case, the scale of NFTFi services will also grow.

To give you some data, we currently support 12 chains and add about 4,000 to 5,000 new NFT contracts daily. You can understand that one NFT contract represents one NFT project, meaning that 4,000 to 5,000 projects are issued on-chain every day, totaling about 2 million NFT assets. You can feel this growth trend.

Sarah: Okay, the next question. NFTScan has supported 12 chains. From your perspective, what are the unique characteristics of NFT development on each chain? Which chains do you see as having more promising NFT development?

Shier: Indeed, many chains have their distinct characteristics. For example, the Ethereum network, due to its highest market value in the entire ecosystem, is relatively more decentralized and secure than other chains, making it suitable for issuing NFT projects with strong financial attributes, such as NFT artworks, PFP avatars, NFT synthetic assets, or equity certificates.

The characteristic of the Ethereum network is that it is suitable for issuing collections with strong financial attributes, while networks like Polygon and BSC, which are scaling chains, have higher TPS and lower Gas Fees, making them suitable for issuing more usable NFT projects.

Usability refers to NFTs that are not just for trading but are meant to be used. Usage involves interaction with the chain, which relates to efficiency and cost. Therefore, they hope that costs can be kept low and efficiency high, so NFT Poap, NFT Pass, or game NFTs and social NFTs are often issued on these scaling chains.

Among the 12 chains we support, all except Solana are EVM-compatible. Essentially, there are two types: one with strong financial attributes and the other with strong usability. Currently, the overall growth is certainly in the projects with stronger usability, while PFP avatar NFTs have been decreasing in proportion over the past six months to a year, with most being NFT Passes and game NFTs.

Overall, the NFT space is transitioning from speculative bubbles around PFP images in the past two years to a current pursuit of usability and the practical application of NFT technology, which is a positive shift.

As long-term developers, we hope the industry can diversify. Having a group of investors and some intrinsic value support will definitely be better, making the industry more stable.

Sarah: Okay, that's a very positive perspective. This month, Yuga Labs and DeGods launched their NFT series on BTC, and the trading market Magic Eden also announced its entry. What do you think about the explosion of Ordinals BTC NFTs (Inscription)?

Shier: First, the Bitcoin network gives the impression of being a distributed ledger, a ledger for recording transactions, and it cannot execute smart contracts. Therefore, when people hear about NFTs on the Bitcoin network, the first impression is that this is something new, possibly with some innovative aspects, suggesting there might be opportunities.

Second, the Bitcoin network itself has the highest degree of decentralization in the entire crypto industry and also has the highest market value. If the Bitcoin network can issue NFT assets, then NFTs with strong financial attributes are also suitable for the Bitcoin network. Moreover, the degree of decentralization of the Bitcoin network far exceeds that of Ethereum, and its market value is much higher, emphasizing the uniqueness of non-fungible assets. In fact, inscriptions have existed for many years; from a technical perspective, it's like putting new wine in an old bottle. However, because it combines with NFTs, which are inherently rare, it creates a perfect combination, giving a strong sense of impact.

Third, the Bitcoin network itself does not have a highly scalable ecosystem. Therefore, with the emergence of NFTs, some developer communities related to the Bitcoin network will rise, possibly leading to more peripheral sectors derived from NFTs. Previous discussions about solutions like the Lightning Network and other Layer 2 solutions may reignite or seek new technical architectures to do interesting things.

Based on these three points, we are also paying attention to this ecosystem. NFTScan plans to launch an NFT browser and data service for the BTC network by the end of April. The rise of this new ecosystem often breeds new opportunities, which is worth monitoring and investing in. People enter this field to invest in new opportunities and embrace uncertainties.

Sarah: Okay, let's discuss this further. Based on your data analysis, what kind of project parties are valuable, and what characteristics do projects need to have to most likely become blue-chip projects?

Shier: Just looking at data may not be enough. Data can only determine whether a project can grow from 1 to 100 or from 50 to 100, but it cannot assess whether it can grow from 0 to 1, which is crucial. If you cannot move from 0 to 1, there will be no subsequent story; perhaps after the primary sale, there will be no follow-up.

First, I think innovation is very important. It could be technological innovation, such as the CryptoKitties team proposing the ERC721 standard for the first NFT asset protocol. While no one may play CryptoKitties anymore, the term "CryptoKitties" will forever be remembered in this industry, and its brand value is very high. This includes their team later developing Flow, and the Doodles team also has high brand value behind them. Therefore, innovation is crucial, including both technological and model innovation. A typical example is Loot, which can also be seen as a marketing innovation; Yuga Labs excels in its marketing strategies.

Second, the ability to operate capital is significant. This is not limited to NFT assets; the entire crypto market is engaged in investment and financing, resource networking, and brand building. This implies how well you can operate capital. Can you secure funding for something that cannot be disproven in the next 3-5 years and then use that money for marketing or investment to grow your funds? After acquiring more funds, you can further build resources and empower the project. Therefore, capital operation ability is particularly important.

Many entrepreneurs come in thinking they want to establish their business model and earn money through services. However, this approach seems less effective in the blockchain industry because you cannot outpace the bull and bear markets; a bear market might wipe you out. For example, NFTScan has performed quite well, with major clients, but we have only achieved a break-even point and have not made much profit because relying on services for income is quite challenging unless you are an exchange.

The third point is the real, tangible strength of developers. For instance, how good is what you create, or can you continuously tell stories and create new things based on those stories?

Sarah: Compared to ordinary NFT holders, your team and many of the project parties you currently collaborate with likely have deeper exchanges. When discussing the discourse power of NFTs, we must acknowledge that the current cultural dominance of NFTs is in the West, particularly in the United States. Based on NFTScan's data, do you think NFT projects have regional characteristics? What differences exist between Eastern and Western NFT projects (including blue-chip projects and new entrepreneurial projects)?

Shier: Our perception aligns with this; indeed, the West is better at creating projects with strong financial attributes or investment characteristics. In contrast, the East or Southeast Asia primarily focuses on application-oriented or game-related NFTs, especially in Southeast Asia, where game NFTs are prevalent. It resembles the internet era, where the West focuses more on finance and technology, while the East emphasizes products and applications.

For the entire NFT space, infrastructure service providers like NFTScan may find that the West is more adept at creating protocols, such as various new EIP protocol standards and NFT trading protocols. They excel at protocol-level projects because protocol-level initiatives require consensus. Without sufficient innovation and resources, no one will recognize your protocol, meaning that creating a protocol equates to establishing a standard. The East, on the other hand, builds products, applications, and infrastructure based on these protocols and standards. It seems we are doing the hardest and most laborious work, while the West focuses on setting standards.

Larry: Where exactly is the current NFT market positioned, and what are its future development trends? Could you provide us with an overview based on your perspective?

Shier: I believe we are currently only in the first stage of NFT development. The NFT assets we see now are all static. In fact, static NFTs can only convey very limited information on-chain. This might be a bit lengthy to explain, but the core point of Bitcoin is that it has a clean transaction ledger, which is dynamic and changes.

Ethereum, on the other hand, builds on Bitcoin by adding the EVM virtual machine, which can execute logic operations of any complexity. Thus, smart contracts can carry a large amount of off-chain information. This is why oracles are crucial; they can transmit dynamic off-chain information to the chain, creating significant value.

NFTs are similar; if you package static information or content into an NFT asset, it remains static, carrying only a portion of the data. I believe a significant breakthrough will come with the development of dynamic NFTs. As the NFT field evolves, many new innovations based on algorithms and game theory will emerge, allowing more people to participate in group games, creating a certain equilibrium that represents value. This kind of value cannot be created in the real world; it can only be derived from on-chain games. This value is what our industry pursues.

The dynamic nature of NFTs may just be our most intuitive form of expression. It can be understood as inherently dynamic, but I cannot directly and accurately express what this dynamic NFT should look like; I don't know and cannot define it. I can only say that when it appears, people will recognize it. I cannot directly predict what it will be or its form, but I believe it will definitely come in the future.