Why do we need better NFT protocol standards?
Original title: "IOSG Weekly Brief｜No Break, No Establishment, Why We Need Better NFT Protocol Standard #141"
Original Author: Chloe, IOSG VenturesThere was a momentary silence after the shock. On the secondary market, the price of BTC fell back to about 20,000 US dollars, which was basically the same as the high point of the 17-year bull market. The primary market has also calmed down, the number of projects and valuations have dropped significantly, and the frequency of fund sales has also slowed down.
Even the encrypted community on Telegram has been very lively, members They have also changed from sending hundreds of messages a minute to discuss the market to daily bragging and posting pictures of beautiful women. In this bear market, everyone has become "Buddhist".
NFT The market is no exception, and the floor price of blue-chip NFTs has increased significantly Decline. Meanwhile, OpenSea 's transaction volume in August was less than $500 million, a one-year low. Nevertheless, in the face of the sluggish market conditions, Paradigm and A16Z, the two major benchmarks of encryption funds, have not become "Buddhas", and have recently published articles on issues such as NFT pricing and copyright. On August 31, A16Z published "The Can't Be Evil NFT Licenses", which defined the six major copyright categories of NFT. Paradigm published VRGDAs and GOO on August 24 and September 6 respectively, discussing the innovative auction mechanism and community value of NFT. This article will focus on introducing readers to these three new standards and mechanisms built around NFT.
Image source: https://dune.com/PierreYves_Gendron/opensea---metrics
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Paradigm—VRGDAs
Concept: VRGDA is a new auction mechanism for NFT, suitable for non-linear release of illiquid assets
Logic: NFT issuers can use VRGDA to customize the auction schedule of NFT other than one-time release or linear release. And through the dynamic adjustment of the price to fit the schedule
Significance: Make creators, not miners Obtain more consumer surplus; smooth and extend the life cycle of NFT projects
VRGDAs, English full name It is Variable Rate Gradual Dutch Auctions, a new NFT auction mechanism proposed by Paradigm. Before discussing VRGDA, let's take a look at the concept of GDA. The Chinese of GDA is Progressive Dutch Auction. As the name suggests, its working principle is to decompose an auction into a series of Dutch Auctions (Note: Dutch Auction is a commonly used auction mechanism. The auction will start with a high asking price, and then gradually reduce the price until buyers are willing to accept). Because it is not dependent on market liquidity for sale, GDA is especially suitable for illiquid assets.
VRGDA is a derivative of GDA, which allows NFT issuers to set an auction schedule, such as every day Sell 100 NFTs, or sell ten NFTs less each day than the previous day, etc. The life cycle of NFT is very similar to the Gartner Hype Cycle (Technology Maturity Curve). The price of NFT was very low when there was not much noise in the early days. After gaining community and popularity, the price skyrocketed, and then the price fell wildly because of the craze. Most NFT projects will return to zero, while very few NFTs that have achieved consensus can survive and gradually stabilize at a market equilibrium price.
Image source: wikipedia-Gartner hype cycle
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So how does VRGDA extend the cycle of NFT through the auction mechanism? Paradigm gives such a function:
< img alt="IOSG Ventures: What can't be broken, why we need a better NFT protocol standard" src="https://image.blockbeats.cn/upload/2022-09-14/3f2cf8f1b7926ab576495df91847c9568e44aaa8.png?x-oss-process= image/quality,q_50/format,webp" \="">
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Where P0 is the NFT target price; k is the decay factor of the NFT price when the expected sales volume is not reached, f(t) is the timetable, and n NFTs are expected to be sold at time t. By substituting different f(t), we can get different sales mechanisms. Paradigm only discusses three situations in the article, but in theory any form of schedule can be implemented. If the issuer chooses to release NFTs linearly at a constant rate, say 10 per day, this is simply GDA. VRGDA is required if the issuer expects to adjust the number of issues issued over time. For example, the issuer wants to issue an unlimited supply of NFTs, and expects to generate more heat at the beginning of the issuance, so it plans to release more NFTs in the early stage. As time goes by, the number of released NFTs decreases, then you can choose to open square function substitution. If the issuer wants to release NFT more aggressively in the early stage, and does not want the infinite inflation of NFT, they can choose a logarithmic function to achieve it.
Image source: https://www.paradigm.xyz/2022/08/vrgda
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When you have the expected timetable, the second step is to fit the expected timetable through the dynamic adjustment of prices. The most basic theory of demand in economics is applied here: when the price of a commodity rises, the demand decreases; when the price of the commodity falls, the demand increases. Therefore, we can adjust the price of NFT by adjusting k. If the sales volume is higher than expected, then raise the price of NFT to control excess demand; if the sales volume is lower than expected, then lower the price of NFT to stimulate demand. Fit the expected schedule by intervening in the price.
What are the benefits of using VRGDA? The most direct is that creators, not miners, can make more profits. If the issuer can adjust the total amount of NFT issued every day, there will be no gas war caused by one-time issuance, and a large part of consumer surplus will go into the pockets of miners. Secondly, this issuance method can also make the life cycle of NFT more gentle, avoiding price surges and falls. At the same time, the life cycle of NFT is extended to a certain extent.
Paradigm—GOO
Concept: GOO is an optimization method for the ownership of the NFT community that issues tokens
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Logic: Realize the mandatory lock-up of assets through the high inflation of tokens, and bind NFT holders and token holders by binding the relationship between NFT and token issuance Two groups
Significance: Let the two groups of NFT holders and token holders try their best Maintaining overlap is of great significance to the project, but it is not very sustainable to achieve it through high inflation
GOO, the full name is Gradual Ownership Optimization, which means progressive ownership optimization, suitable for communities that issue NFT and token at the same time . The main problem GOO is targeting is that the NFT issuance and token issuance of many projects are independent and have no binding relationship, so as time goes by, token holders and NFT holders will be separated. For example, in the ENS community, the groups holding ENS domain names and the groups holding ENS Token do not overlap.
The way GOO solves the problem is to bind the additional issuance of tokens with NFT. To put it simply, users need to hold a certain proportion of NFT and tokens at the same time in order to maximize their own interests. The issuance of Token is highly inflationary. As time goes by, more and more tokens will be issued per unit time. At the same time, the distribution of Token is related to two conditions: 1. NFT must be held, 2. The number of Tokens held. The more tokens held, the more tokens will be issued accordingly.
The issuance of tokens based on NFT can also be understood as the ability of NFT to generate tokens. If the user only has tokens but no NFTs, it is equivalent to only eggs but no chickens, and the user does not have the ability to generate tokens. Then, as the token issuance becomes larger and larger, the value of tokens held by users will be diluted. Therefore, it is a very unwise decision to only hold tokens and not NFTs, and users will be more motivated to hold both assets at the same time. Then the more complicated question is when users hold NFT, what proportion of GOO can they hold to maximize their utility?
As mentioned above, the more tokens you hold, the more tokens you will receive . But in order to avoid the situation where there is only one NFT in an account (in order to obtain the right to issue additional tokens), and a large number of tokens (in order to obtain as many additional tokens as possible). Paradigm will make regulations based on the rate of NFT additional token issuance. The function of NFT producing token is:
where m is the multiplier for tokens generated by NFT, and g(t) is the number of tokens held at time t. Therefore, the efficiency of NFT generating tokens is related to two factors, one is the multiplier of NFT itself (initial endowment), and the other is the amount of tokens held (later adjustment). A square root function is used here, which means that the marginal efficiency of tokens generated by NFT in hands is decreasing for each additional unit of token held. Therefore, when the NFT and token in the hands of the holder have reached the optimal ratio, the utility of continuing to increase token holdings is lower than constructing a new NFT and token portfolio.
Then a new question arises, if there is an incentive to hold multiple NFTs, does the user need to Constantly adjust the ratio of tokens dynamically to achieve the best balance point? the answer is negative. Under Paradigm’s mechanism, once the token and NFT multiplier reach the optimal ratio, there is no need to adjust it. And under the optimal ratio, the tokens obtained by holding one NFT with a multiplier of 10 and holding two NFTs with a multiplier of 5 are the same. It means that there is no unfair situation between those who only hold one NFT and those who hold multiple NFTs, because the rate of token issuance is only related to the NFT multiplier, not the number of NFTs held. The detailed mathematical formula derivation will not be explained here, and interested readers can refer to the original text of Paradigm.
The meaning of GOO, in short, is to realize the assets through the high inflation of token Mandatory lockup. Secondly, bind NFT holders and token holders by binding the relationship between NFT and token issuance to avoid problems caused by inconsistent interests of the two communities. For example, holding NFT means agreeing with the cultural attributes brought by this NFT, and holding token is more for investment considerations. However, the distribution of governance rights in the community is generally based on the number of tokens held. These token holders may have no identity for the community itself and will not be interested in participating in governance. Therefore, it is very necessary to keep the two groups of NFT and token holders consistent, but the author believes that it is not sustainable to achieve mandatory lock-up through high inflation.
A16Z—Can't Be Evil NFT Licenses
Concept: Can』t be Evil NFT Licenses is the NFT commercial copyright guidelines issued by A16Z
Logic: The license divides six types of NFT commercial copyrights and defines five permissions. Which kind of license is adopted by the NFT issuer means that it has or gives up certain rights
Significance: The guidelines promulgated by A16Z provide a set of standards for the blank and chaotic copyright market of NFT, but we are still far away from the goal of "no evil" and a perfect licensing system, which requires the joint efforts of the entire industry
< p>The traditional copyright licensing system has a lot of rules and regulations for creators, which greatly restricts creators or more people Participate in cultural and knowledge production. Especially in the context of Web3.0 , the old rules can no longer solve new problems. Many NFT projects have caused many disputes and even legal issues due to unclear copyright definitions. In response to this phenomenon, A16Z issued "Can't be Evil NFT Licenses".
These licenses clearly stipulate the rights of buyers regarding their NFT artworks, mainly designed into three Aspects: 1. Whether these rights are exclusive (the creator waives all authorization rights, and only the buyer has the right to decide how to use the NFT); 2. Whether it includes commercial rights (the right to open the buyer to use for commercial purposes); 3. Whether the buyer’s secondary rights are allowed Change, second creation and other behaviors (modification or second creation of NFT and use). Other rights include whether the buyer has the right to copy, display and disseminate, and the right to delete hate speech, etc.
Image source: https://a16zcrypto.com/introducing-nft-licenses/
Based on the six NFT licenses, it is very clear which rights the creator has transferred to the buyer and which rights are retained. This set of rules can help the NFT community better obtain intellectual property protection and help build a more just, effective, and creative NFT ecosystem. It is worth noting that the A16Z set of guidelines has not been directly accepted by the community after its launch, and there have been many voices of opposition in the market.
For example, one of the rights related to hate speech has caused heated discussions. Because how to define the nature of "defamation, harassment, fraud, vulgarity, cruelty" and so on is entirely the creator's subjective judgment, and the absence of objective standards may lead to disputes, especially the "cancel culture" that is common in Europe and the United States. Nevertheless, regardless of whether the specific regulations are reasonable, the attitude and enthusiasm of the Web3.0 community discussion and research are very gratifying. A16Z also mentioned in the article that the above rights only involve the simplest and most basic rights, which may not apply to every project or resolve all copyright disputes. The author thinks this is a good starting point, and encourages more practitioners to contribute to industry standardization.
Why Always About NFT?
Today's NFT has derived a lot of gameplay, and many NFT-fi projects continue to emerge. We have introduced in detail in the previous article "NFT-Fi Summer led by Sudoswap is coming". However, NFT-fi has a basic premise - the underlying value of NFT is widely recognized. Based on this, a series of games such as NFT mortgage lending, derivatives, and fragmentation are meaningful. So where does the underlying value come from? The author believes that NFT has two basic attributes-content attribute and financial attribute. These two attributes reflect the two underlying values of NFT-cultural value and practical value.
First of all, cultural value, NFT can be used as text, pictures, audio, video and other cultural products carrier. But in reality, NFT is still accepted by the public at such a high price. "Isn't NFT just a JPEG, why is it so expensive?" Similar doubts abound. In fact, this question itself implies a value judgment: cultural products should be cheap, because the services and content of the Web2.0 platform are free. And this kind of thinking is a consumption habit cultivated by the business model of the attention economy for many years. Whether it is pictures, articles, music, or videos, consumers have become accustomed to cheap cultural products. Therefore, it has become an outrageous thing in the eyes of the public that a JPEG can be sold at a high price.
However, the value and price of a commodity are two attributes, and the price is the monetary expression of value. But this mapping is not always correct. The low pricing of cultural products leads consumers to mistakenly believe that cultural products have no value. Therefore, NFT as a cultural carrier has no value. Once consumers are cultivated with this concept, it will be extremely difficult for creators to monetize. The author wrote in the previous article "The Chronicle of Pop Music-How does the creator economy make the greatest works?" " also expounded such a point of view: the end of monopoly is not the monopoly of technology, but the absolute right to speak about the economic model. The attention economy deprives creators of their pricing power and cultivates consumers' wrong consumption concepts and habits. In order to change this status quo, Web3.0 is first of all a cultural movement, allowing the cultural value of NFT to be widely recognized and correctly priced.
However, consumption concept is cultivated for a long time, and the change of consumption concept cannot be achieved overnight. Under the background that the cultural value of NFT is not recognized, the second attribute of NFT-financial attribute is particularly important. If an NFT has practical value, then consumers will naturally pay for the NFT. For example, NFT is used as tickets, memberships, identities, game props, investment targets, etc., and the use cases of NFT continue to innovate. If NFT is widely used in various fields, and its practical value is continuously verified and promoted, consumers' perception of NFT will not stay at the JPEG level.
Only when the underlying value of NFT becomes a consensus, can NFT derivative play be meaningful and NFT-fi Potential to become a new narrative. At present, there are many NFT-fi projects on the market, but there are very few discussions around the underlying value of NFT. A16Z and Paradigm, as "Web3.0 beacons", have recently conducted many studies around the value of NFT. VRGDA proposes a better auction mechanism to allow the value of NFT to be more effectively reflected in the price. Can’t be Evil License clears the obstacles for NFT as a copyright carrier of cultural products. In contrast, the author believes that the most popular GOO in the near future has no such far-reaching significance-the motivation for NFT holding should ultimately come from value, rather than mandatory lock-up. However, before the underlying value of NFT has not become a consensus, GOO can be used as a delay.
In this bear market, we hope to see more and more discussions about the underlying value of NFT . Let NFT really play its role, not just stay at the speculative level.
Part.2 Investment and financing events
Forward completes USD 5 million seed round financing led by Primestreet Capital
* DeFi
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Forward, a decentralized derivatives trading protocol, completed a $5 million seed round of financing, led by Primestreet Capital, with participation from Ratanakorn Technology Group, GBV Capital and Varys Capital, as well as the venture capital department of Bank of Thailand Kasikornbank, the venture capital department of Bank of Ayudhya, etc.
Forward founder and CEO Chanon Charatsuttikul said that Forward is focused on developing a decentralized A derivative platform, the platform is non-custodial, and the system prohibits transactions from sanctioned countries and addresses.
Sentiment completes $2.4 million in seed round financing led by Archetype Ventures
* DeFi
Sentiment, a DeFi lending agreement, announced the completion of a US$2.4 million seed round of financing, led by Archetype Ventures, with participation from Castle Island Ventures, Matrixport Ventures, etc.
Sentiment allows borrowers to create leveraged debt positions against their interact with other applications on the system. Lenders provide liquidity to the protocol.
Revolving Games Closes $13.2 Million Funding Led by Pantera Capital
* Games
Game publisher Revolving Games has completed $13.2 million in financing, led by Pantera Capital. Participating parties include Animoca Brands, Polygon, Dapper Labs and Rockstar Games founder Dan Houser. Revolving Games' current games in development include Battlestar Galactica, a strategy MMO in partnership with Gala Games and NBCUniversal, and Skyborne Legacy, an RPG based on Polygon.
KNN3 Network completed $2.4 million in financing
* Data Management
Web3 Data The management protocol KNN3 Network completed a US$2.4 million seed round of financing, led by HashGlobal and Fosun International co-founder Liang Xinjun, with participation from Mask Network, MetaWeb Venture, Eniac Venture, Tess Venture, Stratified Capital, Fundamental lab, Incuba Alpha, Zeuth Venture, Cogitent Venture, Atlas Capital, ETHSign, Impossible Finance, RSS3, ShowMe, etc. KNN3 Network aims to provide a visualization solution for multi-chain data.
Rated Labs completes $2.5 million in seed round financing, led by 1confirmation
* Web3
Community Labs completed $30 million in financing, the founder is only 19 years old
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* Arweave Ecology
Community Labs, a software company and venture capital studio aimed at supporting the Arweave ecological project, has completed a $30 million financing, led by Lightspeed Venture Partners, and participating investors include Arweave, Bain Capital Crypto, and Blockchain Capital. The company was founded by Tate Berenbaum, a 19-year-old high school student building software and development tools on the Arweave platform.
Slide completes $12.3 million financing
* DApp
InfraDApp user experience infrastructure Slide completes $12.3 million in financing led by Polychain Capital and Framework Ventures, with participation from Coinbase’s venture capital arm, Circle and Outlander Ventures, individual investors including former Coinbase CTO Balaji Srinivasan, Dragonfly Capital partner Ani Pai and Polymarket CEO Shayne Coplan. Slide provides a one-stop solution for users to use DApps, including purchasing cryptocurrencies directly through credit cards and logging in through email addresses.
Hubble Protocol completes $5 million financing
* DeFi
Solana on Stablecoin Lending Protocol Hubble Protocol completed a strategic financing of US$5 million, led by Multicoin Capital, with participation from DeFiance Capital, Delphi Digital, Digital Currency Group, Crypto.com Capital, ParaFi, Jump Capital, Decentral Park Capital, CMS, Spartan Group, DeFi Alliance and Mechanism Capital. This round of financing will be used to promote the use of its stablecoin USDH by launching new DeFi services and products.
Sui development team Mysten Labs completes $300 million in financing, led by FTX Ventures< /b>
* public chain
Mysten Labs completed a $300 million financing led by FTX Ventures, with participation from a16z Crypto, Jump Crypto, Apollo, Binance Labs, Franklin Templeton, Coinbase Ventures, Circle Ventures and Lightspeed Venture Partners, and A&T Capital.
In July, citing sources, it was reported that Mysten Labs had previously been led by FTX Ventures Negotiations for at least $200 million in Series B financing, with a target valuation of $2 billion.
Magpie Protocol completes $3 million financing
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* Cross-chain
Magpie Protocol, a cross-chain trading infrastructure, completed a $3 million seed round of financing, led by Jump Crypto, Parafi Capital, Big Brain Holdings, Sandeep Nailwal, and Republic Capital. Participating investors include GSR Markets, Serafund, Faculty Group, and MH Ventures , D1 Ventures, Arkstream, Apollo Capital, etc.
Magpie Protocol establishes a stable currency liquidity pool on multiple chains, when the user initiates a cross-chain During the transaction, the assets on the source chain are traded as stable coins, and the message is transmitted through Wormhole. After the target chain accepts and confirms the message, the target chain trades the corresponding value of stable coins on the target chain as the target Token to complete the cross-chain transaction. Magpie Protocol currently supports Ethereum, Polygon, BNB Chain, and Avalanche, and will support Fantom, Solana, etc. in the future.
Gameplay Galaxy has completed financing of 12.8 million US dollars and will expand the blockchain game ecosystem
* Games
Chain game company Gameplay Galaxy completed a $12.8 million seed round of financing, led by Blockchain Capital, with participation from Merit Circle, Com2uS, Mysten Labs, Solana Ventures, Yield Guild Games, and Hustle Fund. This round of financing will be used to expand its blockchain-based game ecosystem and expand its team. Gameplay Galaxy's competitive gaming ecosystem will allow users to own racing-related game assets, such as race tracks and characters, as NFTs that can be bought and sold on a decentralized marketplace, with players earning money by winning racing races.
Tesseract completes $78 million financing
* Web3 Energy
by former Revolut Chief Camp Finally, Tesseract, a Web3 energy start-up company founded by Alan Chang, completed a financing of 78 million US dollars, of which 30 million US dollars was equity financing, and the remaining financing was completed through Token sales. Participating investors in the round include Balderton, Lakestar, Accel, Low Carbon, Ribit Capital, Box Group and former Formula 1 driver Nico Rosberg.
Tesseract is a vertically integrated renewable energy company that buys energy from power plants at a fixed price , and then provided to consumers. Tesseract plans to tokenize the power purchase agreement (PPA), and one token corresponds to one watt of electricity in the network.
Fuel Labs completed $80 million in financing, led by Blockchain Capital and others
* Expansion
Fuel Labs, the developer of Fuel, an Ethereum scaling solution, announced the completion of $80 million in financing, led by Blockchain Capital and Stratos Technologies, with participation from Alameda Research, CoinFund, Bain Capital Crypto, TRGC, Maven 11 Capital, Blockwall, Spartan, Dialectic and ZMT. cast.
Fuel is the first Optimistic Rollup deployed on the Ethereum mainnet. At the end of the year, the V1 version will be launched on Ethereum, which is mainly suitable for payment-centric applications. Fuel Labs previously completed a $1.5 million financing led by CoinFund in September 2021, aiming to provide the best experience for developers in the blockchain space through its Modular Execution Layer (MEL).
Crypto KOL Cooper Turley Launches $10M Web3 Music Fund
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* Fund Financing
Cryptocurrency influencer and NFT music collector Cooper Turley launches Coop Records Fund I, a $10M Web3 music fund. Cooper Turley said, "Coop Records invests in Web3 platforms, artists and Tokens. It can be regarded as a mixture of venture funds, record companies and incubators. We work with founders to create new revenue streams for music." Cooper Turley is also Co-founder of Friends with Benefits (FWB).
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