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Fragmented NFT research Report: Exploration and practice of improving NFT mobility

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As the name suggests, nonhomogeneous tokens (NFTs) are unique digital assets.

原文标题：《碎片化 NFT 研究报告：提高 NFT 流动性的探索和实践》

Source: Lucius Fang, analyst at CoinGecko

BeepCrypto is the first Beep coin

Declaration: The following is for information purposes only and does not constitute any investment advice, legal advice or any other form of advice.

As the name suggests, nonhomogeneous tokens (NFTs) are unique digital assets. The problem, however, is that the unique nature of each NFTs makes them hard to swap with other assets, and therefore hard to price. The following sections take you through the various practices for NFTs fragmentation and increasing NFTs mobility.

What is NFT?

Nonhomogeneous tokens (NFT) are unique digital assets.

Why is it that so much of our identity, such as passports, identity cards and birth certificates, is still written down on paper instead of stored in digital copies? The reason is that there is no way to prove the authenticity of digital files, but NFT can solve this problem by proving the uniqueness of each digital item.

Supported by this technology, NFT has become a whole new digital asset class, including art, sports cards, collectibles, game items, domain names, and more.

Why do we need fragmented NFT?

NFT offers digital artists another way to make a living. Previously, digital art may not have captured much value because of the ease of digital copying. By making digital objects scarce, more collectors are becoming interested in the digital space, driving up the value of the NFT. The NFT market is profitable and investors are eager, but owning a hot NFT is not easy.

Like traditional art, the NFT suffers from poor liquidity. The lack of trading activity makes it difficult to determine market prices. Without real-time prices, it is difficult to use the entire NFT as collateral for borrowing.

Therefore, NFT as a competitive asset still has some disadvantages:

• 没有流动性导致买卖过程中的滑点过高

• 缺少市场定价，因此难以估值

• 不是一个好的抵押品，资金效率低

• 需要大量的资本支出才能有获得高价 NFT 的机会

Fragmentation aims to address these issues by making the NFT divisible, improving the ease of transaction. Below we will examine four NFT fragmentation solutions -- Unicly, Niftex, NFTX, and NFT20.

Unicly

Unicly is a new generation project in the NFT field.

Unicly allows users to lock into an NFT collection and obtain non-homogeneous shared tokens called "Utokens," which represent ownership of the NFT collection. The uToken has governance over the collection, such as deciding which NFT can be included in the collection. Unicly supports different types of NFTs, which are structured similar to NFT funds.

If you want to redeem the original NFT from the collection, you first need the uToken holders to vote together to unlock the collection. However, the buyer cannot bid for the entire collection and must bid separately for the relevant original NFT. Once the voting threshold is reached, the collection is unlocked and the highest bidder for each NFT can claim the corresponding NFT. The uToken holder can then receive the ETH paid by the winning bidder.

Unicly's governance token is UNIC, UNIC holders can pledge UNIC to get xUNIC, holding xUNIC can get dividends.

UTokens can trade within Unicswap, Unicly's self-created automated Market Maker (AMM), which is a forked version of Uniswap V2, with a transaction fee of 0.3%. 0.25% of the commission goes to the liquidity provider of uTokens, and the remaining 0.05% is used to repurchase UNIC tokens and distribute them to xUNIC holders.

Launched on April 7, 2021, Unicly currently has 44 collections, including Cryptopunks, Hashmasks, Aavegotchi and Axies, with a cumulative total lock-in value (TVL) of $45 million.

Niftex

Niftex was one of the first projects to do NFT fragmentation. It was launched in May 2020, before NFT exploded.

Like Unicly, it allows users to cast a fragmented NFT that can be called a "shard." It initially focused on individual NFT's, such as pricey Axies and CryptoPunks.

It also allows the user to cast shards for a range of NFTs, with the shard holder enjoying the governance rights of the original NFT. For example, if the original NFT is a block of land on Decentraland, the revenue generated from the land, such as rent, can be distributed to the fragmentation holder. Like Unicly, Niftex supports multiple types of NFTs.

Niftex started with Uniswap V1, but with the recent launch of Niftex V2, Niftex decided to set up its own exchange and add features such as royalty distribution. Some NFT art distribution platforms distribute royalties from each transaction to artists, a novel idea that could significantly increase artists' income, since in traditional art, artists only get the first sale of their work.

However, for fragmented NFT, since the entire original NFT is locked into the smart contract, any fragmented sale does not trigger royalties. Niftex pioneered a new feature called artist transaction royalties, some of which will go to the artist.

Niftex has introduced a buyout clause for fragmented NFTs, allowing the purchaser to purchase the relevant NFTs even if he or she has not collected all the fragments. Let's look at an example of how the buyout clause works in practice.

Assuming an NFT has 100 available shards, the minimum condition to trigger a buyout is to hold at least 10% of the shards. If the buyer wants to buy the entire NFT at the price of 100 ETH, the condition to trigger the buyout is that the buyer needs to prepare 10 fragments and 90 ETH. To cancel the buyout, the shard holder needs to buy the 10 shards at the price of 10 ETH. This system is designed to prevent invalid transactions.

According to DappRadar, Niftex currently has 25 different fragment species, including projects such as Cryptopunks, Axie Infinity and Bored Ape Yacht Club, with a cumulative total lock-in value (TVL) of $3.7 million.

NFTX

Unlike Unicly and Niftex, NFTX does not support sharding of a single NFT. NFTX focuses on creating funds for NFT of equal value, thereby helping to establish a price floor for NFT projects.

NFTX has two types of funds:

1. D1 funds

Each D1 fund token is 1:1 to the relevant NFT. For example, if a user has 2 punk-females, this means that the user can redeem two random FEMALE CryptoPunks at any time.

2. D2 fund

Each D2 fund token is an LP token in the Balancer flow pool, which aggregates tokens from multiple D1 funds. For example, PUNK is a D2 fund that aggregates five different D1 CryptoPunks: punk-zombie, punk-female, punk-basic, punk-attr-4, and punk-attr-5.

These funds are constructed by users depositing their NFT into pools, a process known as minting. For example, users who deposit five CryptoPunk receive five punk-basic tokens in return. The user can redeem the NFT at any time, but please note that the NFT redeemed will be random. Therefore, users should not store high-value NFT's or NFT's that they want to treasure and love.

Each CryptoPunks has its own unique properties. Certain rare properties and combinations will determine the price of CryptoPunks. As a result, NFTX has created five different funds to meet different price points.

The fund token is based on the ERC-20 standard and, as such, is fungible. Users can choose to provide liquidity on decentralized exchanges such as Sushiswap, and the default trading pair is ETH. If the trading pair is liquid enough, it will both help create a price floor for the NFT and increase the liquidity of the NFT. Liquidity providers also earn transaction fees, of course.

If the fund token punk-Basic is worth $40,000, then the bottom line for each CryptoPunks is $40,000.

Expect the NFTX team to introduce NFT lending and random gift cards in the future. Currently NFTX does not charge any fees, but in the NFTX V2 notebook, the team plans to increase seigniorage and redemption fees, with additional fees for the redemption of specific NFT from the fund.

As of June 2021, NFTX has supported up to 35 projects such as CryptoPunks, Hashmasks, Bored Ape Yacht Club, CryptoKitties and Axie Infinity, The number of successful NFT lock-ins was 2,675, with a cumulative total lock-in value (TVL) of $2.2 million.

NFT20

NFT20 is also an NFT index fund project with a governance token called MUSE. Like NFTX, the NFT20 fund only supports NFT from the same project at a similar price.

There are two ways to sell NFT through NFT20:

Common coin; Users can deposit their NFT into the corresponding project capital pool and mint 100 NFT20 tokens. Of this, 5% (5) will be given to MUSE holders as a commission, and users can receive 95 NFT20 tokens.

Dutch auction; If users think their NFT is worth more than 100 NFT20 tokens, they can create a Dutch auction to set their own price. The Dutch auction is an auction in which the price is gradually lowered until it is completely sold.

Currently, the Dutch auction is only used as an intermediary to use NFT20 tokens to facilitate the sale of high-priced NFT. So the transactions that take place are peer-to-peer, and the NFT sales do not go into the fund.

Unlike NFTX, which redeems random NFT, NFT20 allows redemption of specified NFT, which allows for greater arbitrage. If the NFT Collector discovers that the NFT in the pool is worth more than 100 NFT20 tokens, they can immediately buy and redeem the NFT for 100 NFT20 tokens.

As of June 2021, NFT20 has supported 34 NFT projects with working capital on Uniswap, including high-profile projects such as Hashmasks, Wrapped Moon Cats and Gan Punks. The number of successful NFT lock-ins now stands at 1 million, with a cumulative total lock-in value (TVL) of $1.8 million.

In keeping with the principle of decentralization, any NFT project can create its own pool of funds in NFT20.

In order to attract more users, NFT20 also introduced several unique features, such as a card game called "NFT Royal" and NFT Flash lending. Recently, NFT20 launched the Polygon network.

Project contrast

* indicates that only working capital is counted > $0 fund

** indicates that the cost of selling at a fixed price (fragments sold at a fixed price within 6 days) is 0. Self-publishing (releasing all shards to yourself, you can self-distribute as you see fit) will cost 1%,

From the table, we can see that there are two ways to fragment NFT:

• 捆绑法/集合法

• 指数化

We'll look at the pros and cons of each approach below.

Bundling/set (used by Unicly and NIFTEX)

Bundling involves creating a fund that accepts different NFT's and then tokenizing the fund so that users can buy fund tokens to access the original NFT collection.

Advantages:

• 支持单个 NFT 的碎片化

• 小投资者能够接触到多样化的高价位 NFTs

• 代币持有人可以拥有对原始资产的治理权，使得有效用的 NFTs 价值最大化，比如创收型 NFTs（游戏地块）。

Disadvantages:

• 很难赎回原始 NFTs。几乎没有办法赎回单个 NFT，需要买断整个捆绑资产以释放相关资产。

• 没有价格底线可以参考。每一个 NFTs 都必须被单独估值，才能得出整个捆绑资产的估值。

Indexation (used by NFTX and NFT20)

The indexation approach aims to create a price floor by creating NFT funds with similar prices.

Advantages:

• 为 NFT 系列创建价格底线

• 易于赎回原始 NFT 资产

Disadvantages:

• 每个基金只接受相同系列的 NFT

• 不区分常见和罕见的 NFT

By looking at the TVL (total locked-in value) of these four projects, we can draw a strong conclusion that the bundling approach has been successful in attracting higher AUM. This is mainly because bundling allows for more flexibility in the inclusion of higher-priced NFT assets.

Although Unicly has only been online for 3 months, it currently has the highest TVL. One reason for Unicly's success is driven by its mobile mining project, which allocates UNIC tokens to liquidity providers of uTokens; Another was the creation of uJENNY, the first decentralized autonomous organization (DAO) built on Unicly. UJenny single-handedly contributes nearly 40% of Unicly's TVL. In the sense that Jenny DAO's goal is to acquire valuable NFT, it acts like an NFT hedge fund.

There are a number of NFT DaOs that have been created to secure rare NFT assets, including PleasrDAO, FlamingoDAO, and Yield Guild Games, which are noteworthy NFT DaOs. Investors can gain access to the NFT of these DAOs by obtaining their governance tokens. From this perspective, we can look at Unicly and NFTX as platforms that can create more NFT DaOs.

Even if bundling seems to be more widely used, that does not mean indexation has failed. NFTX has approached multiple DeFi index providers to include their fund tokens in the NFT index. PieDao, for example, has included two NFTX funds - Punk-Basic and MASK - in its NFT index "PLAY". Cross-border collaboration with different DeFi projects is likely to prove key to future applications.

The price floor is a metric used extensively by the NFT community to define the success of a particular NFT project. For example, Bored Ape Yacht Club's bottom line has surpassed The Meebits' bottom line, and The NFT community is celebrating The big turnaround.

Setting a price floor is certainly valuable because it can be used to arrive at a minimum estimate for NFT projects. However, if most of the value belongs only to the rarest NFT, then bundling will be the way to capture most of the value.

NFT platform token valuation

Across project governance tokens, the value of UNics may be relatively undervalued. But after the hype of the first quarter of 2021, the NFT market has cooled considerably. In addition, even with these attempts at fragmentation, the NFT market is still considered illiquid and its due rate is not ideal.

Unicly's main source of revenue is a 0.05% fee on trading volumes. For the past month, UnicSwap's daily trading volume has hovered around $500,000 to $1 million.

Let's assume that the average daily trading volume is $750,000. That's about $274 million a year. With a 0.05% fee, Unicly's annual income is a meager $137,000. That said, the NFT market is still in its early stages.

Pay special attention to

•

• DAOFi

DaoFi launched Fraction. Art, a primary art market that launched NFT fragmentation. After selling in the primary market, users can purchase NFT in the secondary market facilitated by DaoFi.

•

• Fractional

Fractional allows users to cast fragments of NFT. The product is still in beta mode. You can try the beta on their website.

conclusion

The NFT received unprecedented attention in the first quarter of 2021, with impressive sales, such as the $69 million sale of Beeple artwork. But most ordinary people have no good way to access these high-priced NFTs. NFT fragmentation is intended to democratize the NFT market and allow retail traders to enjoy the benefits of rising prices for these NFT's.

The FRAGMENTED NFT market is still in its early stages, but it has great potential to disrupt markets for illiquid asset classes. The housing market alone is expected to grow to $2.8 trillion by 2021. The art market is another market waiting to be disrupted, with sales reaching $50 billion during 2020, and there are already cryptocurrency projects addressing these issues, such as RealT.

The use of NFT fragmentation remains lackadismwith the top four projects in the field collectively accounting for less than $100 million in TVL, a very manageable figure for DeFi protocols. NFT as an asset class has a long way to go to prove its profitability and sustainability. But with the rise of digital natives and the growing need for alternative investments, NFT fragmentation could be the investment dark horse of the next decade.