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OKEx Research: DeFi+NFT hot, check out NFT hot projects

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This article describes NFT in detail and then explores this DeFi+NFT heat

Source: OKEx Research

MEME and WHALE combine DeFi's liquidity mining with NFT, making the slightly declining market suddenly hot. It seems that DeFi's mining fever has passed to NFT. Returning to the NFT itself, this article first introduces NFT in detail and then explores this DeFi+NFT heat.

I. Overview of NFT

1. NFT: Irreplaceable, indivisible

NFT (Non - Fungible Token) that is Non homogeneous tokens, also called type not swap tokens, is the only digital assets and cannot replace each other. On the contrary, the FT (Fungible Token) homogeneity tokens or interchangeable tokens can replace each other tokens. Ethereum ERC-20, as we know it, belongs to homogeneous token FT, while ERC-721 and ERC-1155 are generated by NFT.

The difference between NFT and FT is whether they can be substituted for each other and whether they can be split. If comparing physical assets, NFT is antique, while FT is currency such as US dollar, RMB and gold bar. Even though both are blue and white porcelain, they have different values due to their different history and soundness, while for homogeneous assets, even a dirty one dollar has the same purchasing power as a new one dollar. Second, like no one would ever tear a painting apart, NFT is unbreakable, bitcoin can buy very small units, FT can be split.

Table 1 NFT and FT differences

2. NFT market status

According to new data from NonFungible, NFT 4.854 million deal, had been a total turnover of $110 million. With the recent outbreak of MEME and other NFT+DeFi, THE NFT ecology has entered the spring. The number and amount of transactions reached the highest on September 23, with a daily turnover of $83,000 and 5,354 transactions.

NFT Ecology: Started with games, loyal to art collection

Began in 2017, NFT early is famous for its encryption CryptoKitties cat, and since 2018, the art collection in the ecology of NFT occupies a more and more important position, NFT officials also made the NFT art 2018-2019 report, or even other classification of products is also with the nature of the art collection, such as this is a game of encryption CryptoKitties cat has been divided to collect field.

NFT is naturally characterized by digitalization and uniqueness. Combined with the non-tamper - resistant and traceable features of blockchain, it fits well with digital art. NFT lowers the threshold of participation in digital art. For example, users can create and sell their OWN NFT works on Rarible, and the presence of digital artists in NFT also enables ordinary users to enjoy digital art works. It is easy to secure rights to digital art on the NFT. In the traditional Art market, collectors often make a lot of money in the secondary market, but the creators are still poor and poor. Platforms such as SuperRare, Async Art and RareArt enable the creators to get a cut of the profits from the secondary market sales, thus guaranteeing the creators' income.

Table 2 Collectors earn large profits in the secondary market

Source: NFT, OKEx Research

Art collection market: Traditional works of art force, the market share of the first grade

Abstract With the development of science and technology and the maturity of algorithms, the marginal cost of code-generated Works of Art was low, and it was easy to form economies of scale. The algorithm resulted in the one-click generation of many works of Art, which accounted for a large market share at first, but due to the increase in the number of NFT artists participating, the trading volume of traditional works of Art exceeded that of pan-art. As shown in the figure below, the proportion of traditional art transactions increased from 20% in 2018 to 60%, the number of artists increased from 102 in 2018 to 500 in 2019, and the number of art works increased by nearly 14 times.

FIG. 1 Expansion of the proportion of pan-art trading volume FIG. 2 Rapid growth of the number and trading volume of artworks

Source: NFT, OKEx Research

There is a split between the primary and secondary markets of art: there is no obvious correlation between the two data, nor is there a lag effect. In 2018, the secondary market took a larger share, reaching 82%, mainly due to the large share of AI pan-art market in the secondary market (79%). In 2019, the primary market took the lead (52%), mainly due to the increase of the traditional art market share in the primary market to 50%.

At the end of 2019, the art market grew rapidly. Thanks to the prosperity of star projects, the number of artists and artworks of SuperRare, MakersPlace and Known Origin increased rapidly. The trading volume of SuperRare and Known Origin increased rapidly, and the trading volume of Known Origin, MakersPlace and SuperRare also increased.

Figure 3 Segmentation of primary market and secondary market

Source: OKEx Research, 2018-2019 NFT Art Report

The NFT ecology is becoming increasingly diversified, and each project will come to the stage after the singing

The first project of NFT was CryptoPunks. Later, due to the CryptoKitties, THE CryptoPunks came into the public eye. Several projects appeared in NFT one after another, and their applications were gradually enriched. Also, due to the diversification of projects, participants have a wider range of choices. 80% of the top 10 NFT art buyers in 2019 participated in multiple projects, compared with only 10% in 2018. Currently, NFT has 123 projects, which can be roughly divided into 6 categories, among which collection, game and meta-universe projects account for the majority of transactions.

Table 3 NFT ecology gradually diversified

Source: NonFungible, OKEx Research

Figure 4 Changes of trading volume and trading volume of each item over time

Source: OKEx Research, NFT Passbook 2019 Annual Report

NFT assets are less liquid

The overall user activity of NFT project is not high. As shown in the figure below, in the top 12 projects in 2019, the majority of users only remained active for less than 3 months.

Figure 5. User activity difference

Source: OKEx Research, NFT Passbook 2019 Annual Report

NFT also has poor liquidity, with more than 87% of assets that did not have current transfer in both 18 and 19 years, only 12.3% of assets were traded in 2018, and only 12.39% of assets were traded in 2019.

DeFi+NFT brings limited growth to NFT

Due to the popularity of DeFi+NFT projects such as MEME, it seems that the baton of DeFi's popularity has passed to NFT, but the increase in NFT's daily turnover and trading volume has been limited, not even as much as the popularity that Cryptocat brought to NFT in 2017. NFT is still a niche market and on September 28 NFT's total trading volume was $470,000, less than 2% of that of DeFi's head project UniSwap on the same day.

Figure 6. DeFi+NFT brings limited growth to NFT

Source: OKEx Research, NFT Passbook 2019 Annual Report

Ii. Introduction of NFT project

This section will introduce representative projects in the pure NFT field.

A CryptoKitties cat

Referring to NFT, it had to mention the CryptoKitties project. The popularity of the CryptoKitties project at the end of 2017 made NFT known to the public for the first time. Cryptokitty is a digital cat based on Ethereum. Like cats in the real world, two cryptocats can breed a new cryptokitty. Users can breed cryptic cats with rare characteristics and sell cryptic cats for profit. The most expensive crypto cat in history costs $173,311.7,

After the craze passed, the volume of transactions and the number of active users of encrypted cats gradually decreased. In 2019, the market penetration of encrypted cats in NFT was 10.96%, and 75% of assets of encrypted cats were not traded. While the volume and community activity of Crypto cats is still good in the NFT space, the asset value and community size are at the end of the road.

The recent DeFi+NFT craze has brought crypto cats a bit of heat, but the total number of trades and transaction volumes have not changed much. The heat is only reflected in the average price, but most cats sell for a little more than $1 and only a few crypto cats sell for more.

2. SuperRare

SuperRare is a representative project in the art field of NFT, where users can create and trade digital artworks. The traditional art market is worth $65 billion, according to Messari, but most of the wealth is in the hands of collectors. In the 1970s, a collector named Robert Scull bought art for $600 to $10,000, sold it for multiple times, and sold it for $2.2 million, or $14.7 million today, considering inflation. Scull bought "Thaw" for $900 from the artist Robert Rauschenberg, but it sold for $85,000. Examples abound of collectors making huge differentials on the secondary market, while real artists are getting nothing. Therefore, THE art market of NFT represented by SuperRare has designed a system that is friendly to art creators. No matter what the initial price is, 10% of the subsequent sales in the secondary market will go into the creators' wallets.

The heat from DeFi+NFT is also not reflected in the volume or volume of SuperRare, with a slight increase in the average price, but negligible compared to historical changes.

3. Axie Infinity

Axie Infinity is NFT's most popular game project today, where users can collect, train, nurture and battle the digital creature Axie in Axie Infinity, each unique in its own right. Axie sold as much as $53,242.50.

Axie Infinity's recent trading volume, trading volume and other data have not significantly increased, DeFi+NFT's heat has no significant impact on Axie Infinity.

Iii. Introduction to NFT+DeFi Project

1. Meme

Meme is the first NFT introduced to DeFi Liquidity mining. Its token Meme (pineapple coin) peaked at $1962.98 on September 23, triggering the DeFi+NFT craze. The original source of Meme was interesting enough that Jordan Lyall, the developer of Talsys, ridiculed the notion of "food COINS" and invented a project called Meme, which, to my surprise, actually appeared a few hours later.

The gameplay of liquidity mining of Meme is to earn pineapple credits for Pledge Meme, which can be exchanged for NFT collection CARDS that can be sold on OpenSea. NFT prices vary according to rarity level, such as drawing the fabled NFT rare card by YFI founder Andre Cronje for 48 ETH.

2. Whale

Founded by NFT senior collector WhaleShark, Whale at one point reached $14.41 in tokens. The game of Whale liquidity mining is to mortgage NFT works to get Whale tokens in The Vault. Therefore, Whale has NFT works as The value support. WHALE holders have The privilege of buying or renting NFT works in The Vault.

3. Aavegotchi

Aave is a lending platform for DeFi, and mortgage assets can earn aToken interest payments. And pawn such aToken can get Aavegotchi, Aavegotchi is ERC-721 standard NFT collectible, with scarcity. The Aavegotchi token is GHST. GHST can purchase Portal (Portal) and then choose Aavegotchi. GHST can also be used to purchase equipment and consumables to enhance the scarcity of Aavegotchi.

At a time when the DeFi+NFT concept was hot, GHST peaked on 23 September.

Four, conclusion

NFT is still a niche market centered around art collections and games, with less than 2% of UniSwap's daily turnover for the entire NFT ecosystem. Since its development in 2017, NFT has been gradually enriched in applications and improved in ecological diversity. However, there are still some problems such as low user activity and low mobility. The popularity of DeFi+NFT has brought NFT only a limited amount of heat, not even as much as cryptocat at the end of 2017, and the heat has brought little change to the pure NFT project, with no significant change in volume or trading volume.

On the contrary, DeFi's project combining mobile mining and NFT is very popular. MEME, WHALE and GHST have the highest currency prices around September 23. These projects have been well publicized and designed a liquidity mining mechanism that can obtain high returns. Therefore, the market's current enthusiasm for NFT is only limited to the concept of NFT, and its essence is still the pursuit of high yield, rather than the NFT project itself.