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How to break the boundary between NFT tool platform and NFT trading platform?

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When the traffic platform enters the NFT world in the future, the mode of traffic + trading agreement may be a better combination.

Original title: "Foresight Ventures: Decentralized NFT trading protocol will defeat OpenSea"

Original author: Alex @Foresight Ventures

Summary:

The decentralized NFT trading protocol is to the NFT Market, just like AMM is to DEX.

The core needs in NFT transactions are liquidity and price, so the real moat of the NFT trading platform should be built on the liquidity and price advantages when the goods are sold.

The aggregator that changed the pattern only solved the problem of scattered NFT pending orders as a front-end traffic entrance, but did not fundamentally solve the liquidity problem.

What is most likely to solve the liquidity monopoly is not the next trading platform or aggregator, but an agreement that can support shared pending orders, thus breaking the NFT tool platform and NFT The boundary between trading platforms enables each traffic front-end to become a trading platform and share its pending orders, forming a decentralized NFT trading ecology and solving the problems of decentralization and liquidity of NFT pending orders.

One day in the Crypto field, one year in the world, but in the picture circle, there may only be 1 hour after mint. The mania and FOMO of NFT are far crazier than any market, and the NFT trading platform as an infrastructure has also experienced several spring and autumn rotations, but there are few left, because most of the trading platforms None of them can meet the needs of all parties (as shown in the figure below) during NFT transactions in the secondary market, but are obsessed with pseudo-demand to seek a breakthrough. So I will try to analyze the needs of NFT transactions and the changes in trading venues to explore better solutions in the future.

1. Market environment and user needs:

Currently, NFTs in mainstream transactions can be divided into blue-chip and non-blue-chip, and non-blue-chip can be roughly divided into three categories: PFP, functional and other special types. (Individual blue chips are also functional or special)

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For blue chips, due to their high prices, and most blue chip holders prefer diamond hands, so the requirements for liquidity are not so High, but pay more attention to the price. Functional NFTs such as Pass cards and Gamefi, which have practical application scenarios, do not require much liquidity, so they are more price-oriented. However, more than 90% of the NFTs on the market are small pictures without empowerment, which are essentially a game of drumming and passing flowers, which requires extremely high liquidity. At this time, users will choose to use OpenSea, the most liquid trading platform, instead of others. For other special types of NFT, there are no application scenarios and requirements for the time being, and the market is still mainly around PFP for the time being, so it is not meaningful to discuss.

From this, we can get the demand of buyers and sellers and finally fall into two points: liquidity & price (as shown below)

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Second, NFT trading platform—— Build your own core competitive advantages to meet the needs

We need to explore what kind of trading platform is excellent, and discuss it from the following five dimensions:

Brand

Most of the trading platforms are homogeneous Seriously, the most core barrier is the traffic brought by the first-mover advantage, forming a brand effect and a positive cycle. OpenSea uses it to attract most of the NFT market liquidity and form a moat.

Number of Trading Users

In the case that the overall number of users in the NFT market is small (the total daily activity of Top10 platforms will not exceed 100K in May 2022), whoever has more users will be able to seize the market and the right to speak.

Trading Volume

Users are also divided into High-quality users and non-high-quality users, and the transaction volume contributed by high-quality users may be dozens or even hundreds of times that of ordinary users, so currently giant whales dominate the market.

New users and transaction growth rate

At present, the NFT market is still a market with obvious Matthew effect, so we can directly see the future development of the trading platform by paying attention to the growth rate of new users and transaction volume. The future NFT market is a huge incremental market rather than a stock market.

Benefit distribution

Through Token The media makes all participants and platforms in the two-sided market a community of interests, and uses Token to reasonably motivate holders, instead of cutting users and their own interests to earn more benefits as traditional platforms do. More able to win the trust and support of users. The platform will gradually evolve into a form that is more beneficial to users, and the speed of evolution will vary according to the industry in which it is located.

From the analysis of the above five points, we can get: At present, if the NFT trading platform wants to break through, it must take the vertical track and the wealth effect.

Brand SuperRare's first-mover advantage is huge, which also makes the OS enduring, but there are still rising stars who can vertically cut into the market

SuperRare At the very beginning, the entry point was the artist's NFT, whose strict invitation system created a high-end brand image, while the entry point of NBA Top Shot used a dedicated group such as the basketball NBA, which made it gain a lot of attention. exposure. But what we need to pay attention to is that if you choose a vertical track, you may only be able to establish your own core advantages on that track, which is not enough to compete with OS. In addition, the current NFT world is still in its early stages, and the number of users is too small , It is impossible to support an overly narrow vertical track at all, which is the main reason why some NFT trading platforms that will be popular in 2021 have disappeared.

In addition to cutting into the vertical track, another more feasible way is to use the wealth effect.

One of the characteristics of Web3 is that it can change the distribution of profits, and this is also a controversial point of the OS. users share results. LooksRare launched a "vampire attack" and transaction mining model, and joined the giant whales and KOLs to start a top-down journey. Although it was criticized by false transactions, it eventually took advantage of it; and X2Y2 also passed Launched the "vampire attack" and pending order mining mode, and joined the community to make bottom-up efforts. Although there were several twists and turns in the code, it finally succeeded in achieving good results, and even surpassed Looks recently to become the second largest transaction in the world. platform.

From two challengers From the successful cases of rookies, we can know that the incentives for C-end users in the early stage are essential, either to attract upper-level KOLs and whales to the platform, or to attract lower-level people to use the community to publicize. Their respective fields have formed a certain influence, rather than being limited to a certain group and small circle, and eventually they have gained a lot of trading volume and new users, and then slowly enlarged the cake of the entire NFT market. In this process, they are willing to transfer their cakes to supporters and participants in the ecosystem, and link everyone through web3 Token, so that they can finally attract supporters. Human nature is profit-seeking. If there is no reasonable incentive mechanism, no one is willing to try a new trading platform, which is one of the key factors why they can challenge success.

Third, NFT tools - the inflection point that changes the competitive landscape

With more With the emergence of NFT trading platforms, NFT pending orders are scattered on various trading platforms. The core demand of users is to buy the cheapest NFT. At this time, the aggregator was born and became an unexpected winner in the battle of NFT trading platforms. , changing the market structure.

It may not be another desktop that beats the desktop, but more convenient and faster laptops and phones.

The launch of Genie and Gem meets the needs of players for multi-market shopping, making it easier for users to find the cheapest NFT faster, and forms a positive to the cycle (as shown in the figure below). At this time, the trading platform has become the backend for providing orders, and the aggregator is the frontend for interaction, and both sides have added users. When users buy cheaper NFTs on the aggregator, more users will come to the aggregator; users of small platforms will be more willing to use small platforms because of the increased liquidity of NFTs because they save money. With aggregators and other The number of platform users increases, and the liquidity advantage brought by OS as a leading monopoly is gradually broken, which will further accelerate the development of other platforms and aggregators. This is why 4 platforms, X2Y2 and Looks and Gem and Genie, were able to achieve results.

But other established platforms are not so lucky, such as Rarible and Foundation. Because the timing of its birth was wrong, there was no aggregator platform that could occupy the market at that time, making most trading platforms short-lived or even dead, and there was no way to gather the strength of everyone to fight against OS; The development of all categories, the speed of product change is too slow, and users cannot be retained. In the end, it will only gradually lose market share due to liquidity problems, and fall into the "flywheel effect" of OS. (As shown below)

so , the aggregator, a tool platform for NFT transactions, has become the new favorite of NFT users, breaking the liquidity monopoly and reshaping the competitive landscape. Under the positive cycle of aggregators, Top3 trading platforms and 2 aggregators have occupied 99.7 % of the market share (assuming that the Top10's transaction volume is the total market), while OS only accounts for 63.5% of the market share, breaking the myth of invincibility. (Note: The impact of brush volume transactions in Looks and X2Y2 has not been excluded)

Source

(Note: The above data lists the data of Gem and Genie separately, not its Included in the data of the trading platform)

Fourth, imagine the future - the possible breakthrough plan of NFT transactions: the real decentralized NFT transaction protocol

After analyzing the real pain point in NFT transactions is the brand effect brought about by liquidity monopoly, we might as well imagine what is the solution that may subvert the future competition pattern? One of the thoughts I give here is: instead of being an upstream traffic port, it is more feasible to be an underlying protocol.

Make the NFT trading market more decentralized, its main features are shown in the following figure:

Essentially, Seaport just lowers the threshold of NFT trading platform, so that most platforms can easily build NFT trading platform, and it will not be used by OpenSea Waiting for the original trading platform to coerce, but it does not solve the problem of NFT transaction liquidity, so the core demand still exists.

Its barter function will not make the already poorly liquid NFT become more liquid, but it just gives users one more choice. In fact, a platform has already implemented this function: NFT Protocol (https://app.nft.org/ethereum) (as shown in the figure below), but its usage rate is extremely low and it has almost no market share, which proves that this demand is just a good idea. false demand.

Use ERC-20 Token instead of just Limited to ETH payment, there are quite a few supporters in the market, which is closer to the shopping habits of traditional users and benefits NFT newcomers. I think this is indeed an innovation, but at the technical level, the threshold is not high, and it does not have core competitiveness.

The existing NFT trading platform can be iteratively updated quickly, but the reason for not changing is more because this demand has not been verified by the market. (NFT Protocol also has this function, but the performance is still not good) And this also explains why the traditional encrypted trading platform has not entered the picture circle smoothly-the people in the picture circle are ETH currency-based thinking, while the standard in the Crypto field is mostly It is a stablecoin such as USDT, which is also one of the moats of the NFT trading platform itself. However, we look at NFT as an incremental market from a changing perspective. Assuming that a large number of people in the Crypto field will enter the graph circle, then a trading platform without such a step of converting ETH will definitely be more favored by the market; plus At present, ETH is in a state of bear market decline, so NFT will also fall accordingly. The demand for using Stablecoin for settlement is getting higher and higher, so we have a positive attitude towards this function.

Inspired by Seaport, I personally think that only the truly decentralized NFT trading protocol (Decentralized NFT Protocol) can fundamentally solve the liquidity problem. It enables the traffic front-end of each market, whether it is a trading platform, a tool platform or even a project party, to become a trading platform by itself, and then share the pending orders of each subject, so that they together form the front-end of this decentralized trading ecosystem. Every order can have an equal opportunity to be seen and purchased.

Its main core is as follows:

Order sharing mode

The ecology of order sharing enables each pending order to Be present on multiple platforms at the same time. OpenSea has monopolized most of the orders by taking advantage of its first-mover advantage, while other platforms have not formed their own ecology to fight vertically and horizontally. The liquidity of pending orders is not what users want to see. So if it is possible to share the NFT order itself on multiple platforms from the technical level, such as from the protocol layer (Protocol), then I believe that users will be more willing to try these small platforms, because the accumulation of a small amount can also form enough liquidity sex.

A realistic example is the emergence of Gem and Genie, which has changed the competitive landscape. People are more willing to use such an aggregator than a single platform, because the pending orders of multiple platforms have value, but the platforms do not communicate with each other, so there are many needs to be able to view NFT pending orders on different platforms at the same time. And Gem and Genie put forward a solution to this point, solved the pain point, and gained users. However, the solutions of Gem and Genie still rely on traditional NFT trading platforms such as OpenSea. The API interface may be coerced by the platform, and the refresh rate of orders will also be restricted by others, making it difficult to achieve real-time updates.

In order to further improve the aggregator model, it is better to be the underlying protocol of the trading platform than to be the upstream of the trading platform, so that multiple platforms can be shared when placing orders, so that Users do not need to switch back and forth, any platform has the same pending order, and the liquidity of NFT will also increase. And it solves the risk of being coerced by large platforms, and can unite small platforms to jointly resist large platforms; at the same time, it also solves a considerable part of the long-tail asset liquidity problem hanging on small platforms, which is quite the possibility of Uniswap back then.

Co-constructing ecological composability - breaking the boundaries

Current NFT transactions are still It is also limited to NFT trading platforms. There are many excellent NFT tool platforms, but there is no way to realize them, and there are no users. However, when customers find an NFT Alpha through tools, in most cases, they can only jump to a certain trading platform with one click for trading. The tool platform can only be used as a free traffic import interface to make wedding dresses for others, but if the NFT tool platform can also directly trade NFT and share profits from it, the efficiency of NFT transactions will be greatly improved. The NFT tool platform itself no longer needs to find a new monetization model, and can realize traffic through transaction fees, so that the ecology forms a complete closed loop, which is conducive to the healthy development of the tool platform.

Combined with the first point "order sharing model", because most users of the tool platform are also NFT users, then the liquidity of these traffic orders can also be combined It will greatly increase, thereby enriching the ecology. Instead of separating the trading platform and the tool platform, this is unfair to the tool platform. They should get a share of income after diverting the trading platform, but the current trading platform does not target this Part of the credit for the traffic is rewarded to the tool platform, so this also solves the needs of the tool platform. It can also be seen from the acquisition of Genie by Uniswap that when the traffic platform enters the NFT world in the future, the model of traffic + trading agreement may be a better combination.

Low price

There is still room for price reduction. OpenSea’s handling fee is 2.5% , and from the path of rising stars, it can be seen that lower handling fees will be sought after by the market. For example, X2Y2 currently only has a handling fee of 0.5%, and this is one of the reasons why many short-term PFP speculation players firmly choose this platform. Therefore, future solutions are more likely to start with a lower handling fee, giving players more profits, which will motivate people to try new solutions.

Protection of royalties

The current royalty settings are delegated to the platform layer, so if the project party wants to collect full copyright fees, it needs to go to each platform in person It is obviously troublesome to set your own royalties. But through the shared pending order mode, the royalties set by the project party will be directly synchronized to multiple platforms, so you don’t have to worry about missing royalties, which is a huge benefit for the project party. This will also urge them to switch from the original platform to a new platform to set up and encourage their users to place orders.

I believe that after doing the above points, There will be new players that subvert the existing competitive landscape, we will wait and see.

V. Conclusion:

For the NFT trading platform, people are always envious of its vast market and the market share of a single trading platform, so countless people rose up, one after another with the help of pseudo-demand shells to draw big pies one after another .In the end, when the tide recedes, you will know who is swimming naked. If 2021 is the first year of the NFT market boom, then 2022 will be the year when the competition in the NFT market will be turbulent. Only by grasping the core needs in the current environment, In order to go upstream in the bear market and wait for the bull market to bloom. What makes OpenSea afraid is not the next trading platform, but the aggregator Gem that solves the liquidity needs; and the next subversion of Gem and trading platform may not be the next aggregation It may be a solution that solves the liquidity problem at a deeper level at the protocol layer - the decentralized NFT trading protocol.