IOSG: What challenges will NFT-Fi face if it wants to become popular?

Original title: "IOSG Weekly Brief | Make NFT-Fi popular #115"

Original source: IOSG

Part. 1 Insight

Author: Ishanee, IOSG Ventures

This article is only for industry learning and communication, and does not constitute any investment reference

Making NFT-Fi popular

The financialization of NFT is a difficult journey, and so are we Understand all aspects of it. But it can be seen that the current primary and secondary markets for illiquid assets continue to grow, which is a positive signal for those assets that were originally illiquid.

(Source: IOSG Ventures)

Awaiting adoption of NFT- Fi1.0

As the size of the asset class grows, so does the risk for investors. The accompanying risks such as insufficient liquidity and volatility cannot be ignored. NFTs are inherently illiquid assets, but their ETH denominations make them volatile and subject to currency risk, as investors tend to measure profit/loss using a single accounting method — USD or local currency.

Although it is difficult to change the value measurement method of NFT, NFT enthusiasts have also created many alternative protocols for Aidan, such as NFTX, Unicly and Fractional et al. Although their mission is to bring liquidity to these markets, they have their own liquidity problems:

NFTX tracks its collection of ERC 20 tokens Floor price; this means that the protocol's treasury is more for attracting interest from holders of low-value NFTs. Most NFT investors will not use the protocol unless they want to speculate on the NFT floor price, which is actually driven by market sentiment.

Fractional and Unicly offer a more custom approach that doesn't require tracking floor prices, but relies heavily on large numbers of investors and whales to speculate on the price of NFTs . Acquiring an entire collection is also difficult (but not impossible) as it would require the involvement of a whale/investor with deep pockets to get the collection's ERC20 token holders out.

Most of the assets deposited in fungibility agreements are also PFPs that are considered non-productive assets and there seems to be no real reason to borrow them other than vanity .

Classification of NFT

1. Productive NFT< br>

The concept of productive NFTs arose with the rise of guilds such as YGG and the intellectual property rights of collection holders such as BAYC.

2. Royalty NFT

Royalty support Productive NFTs of , are gaining more and more attention, and this wave may be started by Yuga Labs and music NFTs. They earn income from commercially licensed NFTs and distribute the income to holders.

These royalty-based NFTs are unlikely to be lent/rented as there is no "trigger" for the holder – as long as the underlying IP is commercially available license, a royalty fee will be charged. Typically, the transaction process will be initiated by a centralized entity such as Yuga Labs or Recur Forever. As a holder, the royalties collected are passive income.

Game NFT

Game NFT provides its holders with a core Guilds and learners across the industry. Guilds that act as asset managers and resource allocators buy game NFTs in bulk and then rent them out to a group of players who use NFTs to play games like Axie. Rewards earned in P2E games are then distributed back to players, guilds and middlemen called managers. Currently, this entire process is conducted in a centralized manner, and a high level of trust needs to be established between managers and participants.

For game NFTs with scarce supply and unlimited demand (players), access issues arise. NFTs also don't generate passive income - they need to be used in-game to earn rewards, aka "triggers". In order for NFTs to be productive, owners now have an incentive to lend/lease NFTs. Lack of supply and earning potential are incentives for players to borrow/lease from landlords. Some players may buy directly from the market, but through Axie's case study, we know that most "scholars" or players are not crypto-native, don't own ETH, and are primarily motivated by $SLP income.

Currently, most crypto gamers are gold players. As "play to earn" and guilds become mainstream, it's clear that more "time" and "fame" players will enter the market. There will also inevitably be a new group of players in the future—star players, that is, e-sports teams in cryptocurrency games, who play high-stakes PvP games for high token rewards.

As the game matures, new players will join in. As a result, their player composition will change - from krypton players to time players. However, just like today's F2P games, most of the revenue is earned by a small group of players, with money and fame-oriented players who will dominate the trading activity in the marketplace and earn in-game rewards through the PvP circuit. As this happens, guilds and asset owners will need to distribute their NFTs to the appropriate players. We expect the decision-making process to become more data-driven than it is today, driven by the key metrics shown in the chart below.

Guild operation (centralized governance)

guild operation management Centralization pathways are increasing all the time. The following case study shows how a guild manages its Axie assets. Curator Ronin Wallet has teamed up with Axies to natively distribute NFTs to scholars via QR codes. These codes are assigned to scholars. Sub-accounts can use NFT to play games, but cannot move assets. They do their daily paychecks, and the guild managers will manually transfer these earnings.

Key issues highlighted here include:

a) Excessive management issues - managing QR distribution and paying salaries 

b) Scholars must trust and rely on managers/guilds to pay them on time  

This has inspired guilds and founders to create their own smart contract solutions. Once implemented, the guild took on the primary role of being asset managers. Their main responsibility is to allocate the right resources to the right players based on their past performance in order to maximize their returns on NFT assets.

Large guilds such as YGG and Merit Circle may create their own custom solutions, but micro guilds (defined as players with <100 players and funds <10,000 USD Guild) will use more common SaaS platforms, such as GuildFi, GuildOS, 0xAdventure, Blockchain Space, etc.

Assuming that data becomes the next key, all guilds will try their best to gain more advantages over other guilds, and subscribe to some services to track players' land links Download the data. Platforms like GuildFi enable this through their guild IDs and leaderboards -- features that are prominent in mobile games like Clash of Clans. While centralized platforms are efficient, they require players to have a provable record, or allow the platform to collect the required information. While this is common practice among internet companies these days, tracking player data to cryptocurrency natives may not be a viable solution.

The way forward

While centralized solutions have changed the game for most guilds Rules, but the centralized nature of tracking player data and services creates a single point of failure, which becomes critical as the platform evolves from a SaaS platform to a DeFi hub for NFT lending, leasing, staking solutions.

The player data once used by the guild to make allocation decisions will be used as a credit score for those players who want to use their future earnings as loans/mortgages to borrow ERC20 or NFTs.

Renting NFTs is done in escrow, so any hacking or restrictions on players by the platform will result in the loss of players' funds and assets. This can especially become a high-risk situation for players from sanctioned countries.

Heavy reliance on platforms as gateways to exchanges or fiat currencies.

The road to decentralization

People hope that lending, leasing, mortgage solutions will be in Available on-chain with minimal human intervention. The outer framework of most of these solutions has already been established and will continue to evolve as the industry becomes scalable infrastructure through the use of L2 and faster L1.  

As more and more games embrace on-chain functions such as blockchain Monster Hunter or DeHorizon, most players' data will be able to use Dune, Graph or CyberConnect for access.

NFT lending and leasing can be accessed using vaults such as ReNFT or the IQ protocol. Pegaxy, a game on Polygon, already has internal borrowing capabilities, removing the huge need for guilds as asset managers.

NFT mortgage agreement, allowing players and guilds to buy NFTs, earn rewards through them, and use the generated income to repay debts (Alchemix model).

Next, let’s deconstruct some of the main challenges of DeFi currently holding back guilds/gaming:

1. Third party NFT loan/lease agreement

These solutions, like ReNFT and IQ Protocol, take on the role of middleman, charging a small publicity fee. The P2P leasing/lending protocol would allow asset owners to deposit and lock NFTs in a vault, and then lease them out to interested parties in exchange for a small rental fee. The actual NFT never leaves the vault, but the NFT's game rights (utility) are forwarded to the renter's address.

The key challenge with third-party agreements is that they require games to integrate with their agreements. The game does not gain any material benefit from enabling third parties to do so. Due to the open-source nature of cryptocurrencies, games can easily fork their Vault versions of Ronin QR codes/reNFTs. Ronin's recipe is currently completely closed-source, and a key hurdle for the game to develop its own version is a lack of resources and effort to build ancillary modules that don't directly contribute to gameplay.

However, some games such as Pegaxy already have this functionality built in. They technically don't need guilds, but continue to work with them to ensure community engagement and as a means of acquiring customers. We can expect many more games to continue on this path in the future.  

2. Mortgage plan

The mortgage scheme of game NFT has a unique position in the market. As free-to-play business models continue to prevail, premium NFTs will remain paid services. Premium NFTs = enhanced game rewards, so guilds and asset owners will continue to buy NFTs.

Using debt to fund NFT purchases as opposed to cash or revenue-sharing models (guilds) would be for some star players (aka esports teams) first choice. Esports teams are very sensitive about the ownership of their assets when playing MMO or TCG games due to the different play styles of players. Potential looting of these assets by owners of assets on guilds or centralized guild platforms or ReNFTs is a threat to their income, so owning these assets makes the most sense.

A decentralized staking scheme will continue to have several factors requiring significant governance/human oversight due to the nature of NFTs and game economies. Creating smart price tokens for NFTs of different price tiers is an open problem and a bottleneck for all DeFi projects looking to use NFTs in the system.

Conclusion

We see GameFi and Guilds being born in 2021. Many new primitives, ideas, and incentive structures are being experimented with, and although the field is relatively early, it is ripe for the financialization of NFTs.

A few things worth noting:

On-Chain Gameplay 

On-Chain Player Identity System 

Trustless NFT Delegation 

Provide transparent credit scoring for gamers  ;

GuildFi may start with a centralized system until we solve some structural problems: price oracles such as NFT, smarter evaluation and analysis, And a better risk model for the game and its economy. Once these three issues are resolved, the GuildFi industry will begin its path to decentralization. Of course, it may be several years before we see mass adoption.

Part.2 Investment and financing event

EthSign completes $12 million seed round financing, Sequoia Capital 3 Funds Participate

*Infrastructure

Web3 infrastructure company, electronic agreement signing platform EthSign completes $12 million seed The round of financing was led by Sequoia Capital India (Sequoia Capital India) and Mirana Ventures, with participation from Amber Group, Circle Ventures, NGC Ventures, HashKey Group, IOSG Ventures, Mask Network, and Matrixport. Angel investors Balaji Srinivasan, Tegan Kline (The Graph), Sandeep Nailwal (Polygon), Sid Powell (Maple Finance) and Thomas Vu (Riot Games) all participated in the round.

Swim Protocol completed $4 million in financing, led by Pantera Capital

* DeFi

Swim Protocol completes $4 million financing, led by Pantera Capital, FTX, Alameda Research, Coinbase Ventures, Solana Ventures, Jump Capital, Social Capital, IOSG Ventures, Rok Capital, GBV Capital, Mantis VC, Panony, Bonfida participated in the investment. In addition, angel investors also participated in the round: Brandon Millman, co-founder and CEO of Phantom Wallet, Dean Thomas, global head of Institutional Capital at Polygon, and Phillip Liu, head of strategy at Avalanche.

Immutable completed a $200 million financing at a valuation of $2.5 billion, led by Temasek

*GameFi< /p>

Australian NFT start-up company Immutable completed $200 million in financing at a valuation of $2.5 billion, led by Temasek, Mirae Asset, ParaFi Capital, Declaration Partners, Tencent Holdings and other participation. Robbie Ferguson, co-founder and president of Immutable, said that this round of financing will be used for investment and acquisitions.

Espresso Systems Completes $32 Million Financing Led by Greylock Partners and Electric Capital

* Privacy Public Chain

Web 3 application extension and privacy system Espresso Systems completed $ 32 million in financing, Greylock Partners and Electric Capital led the investment, Sequoia Capital (Sequoia Capital), Blockchain Capital, Slow Ventures and others participated in the investment. Funds from this round of financing will be used to expand the team, product development and bring products to market.

Space Runners completes $10 million in financing led by Polychain and Pantera Capital

*Metaverse

*Metaverse

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Metaverse fashion brand Space Runners completes $10 million in seed round financing, led by Polychain and Pantera Capital, Yat, executive chairman and co-founder of Accel, Jump Crypto, and Animoca Brands Siu, Twitch co-founder Justin Kan and others participated in the investment.

WalletConnect closes $11M Series A round led by Union Square Ventures and 1kx

* Encryption Wallet

Encryption wallet application WalletConnect completes $11 million in Series A financing, co-led by Union Square Ventures and 1kx, Coinbase Ventures, Semantic Ventures, Zerion Angel investors including Alex Svanevik, Eric Conner, Arjun Bhuptani, Viktor Bunin, Mara Schmiedt, Anna Rose and Ajit Tripathi also participated in the round. Funds raised will be used to help WalletConnect become the decentralized Web3 information layer. To this end, WalletConnect is building two new protocols - a direct messaging protocol and a push notification protocol.

Richverse Web3 completed $3.75 million in financing, AKG Ventures and others participated

* SocialFi