Go2Mars Weekly Group Member Open Mic is a live interactive column opened by Go2Mars for the Go2Mars reader group. The operator will collect topics of interest to group members every week for in-depth research and explain and discuss them in the open mic column. In the weekly open mic session, readers and listeners can directly ask questions and interact with analyst guests via microphone.
On July 2, Go2Mars held its first open mic content sharing session, providing an in-depth analysis of the recent NFT market. The following is the content shared by the guests:
Mars Weekly Readers Open Mic Episode 1 (20230702) 43:51
Topic 1: The development and challenges of the NFT market from the perspective of Azuiki
Arrow: Regarding the current NFT market, for example, Azuki has fallen sharply recently. Have you considered buying some more or holding on to your positions?
Jungle: I have no such plan recently. After all, the entire market is still in a bear market, and I have not seen any NFT narratives that are above the current.
Arrow: The current market is indeed like this, but I have seen several important things recently. For example, Blur recently launched a blend protocol, which is used for NFT lending. When it was first launched in early May, the market was still quite looking forward to the blend protocol. The project's tweet advertised that if you have punk, you will receive 42 ETH in a few seconds. And if you want to get Azuki, you only need to prepay 2 ETH to buy it. As a result, what everyone didn't expect was that if you buy Azuki's Elementals, now 2 ETH can buy two Elementals at full price. I guess if you want to buy an Azuki through a lending protocol now, the down payment may be less than 1 ETH. So when blend was first launched, everyone was still enthusiastic about this market, but after only two or three days, everyone found something wrong and began to realize that the blend protocol was not a good protocol.
We can review the NFT lending track, such as peer to peer, peer to pool and centralized models. Currently, lending is basically these three models. For example, FTFi is a P2P lending model. You only need to pledge your NFT on FTFi.com, and then list the price, term and interest rate, but this model is problematic. If you play DeFi, you will know that the order book model is problematic and its efficiency is not high. And once the matching is wrong or the communication is not smooth, people may not be able to accept the changes in the market easily.
Jungle: Yes, I remember we discussed it before, and its white paper showed that there were three safeguards.
Arrow: At that time, we did a study on the overall lending of FTFi. As a result, because the overall NFT market was not very good and the DeFi market was not very good, we did not pay much attention to it. However, we looked at several types at that time. At first, we looked at peer-to-peer, and then we saw peer-to-pool. Peer-to-pool actually has a liquidity pool (LP), and then everyone can match in the pool. This model has an advantage over the peer-to-peer model, that is, when users leave the order book and go to the liquidity pool, the matching transaction rate will be much higher. Because everyone can match freely, the market price is generated, and the time waiting for matching can be saved. For centralized lending, Azuki is still a relatively good project, because Azuki is a top blue chip after all. Projects like BAYC and MAYC can lend and borrow well on centralized platforms. But for very small projects, if there is no liquidity or hard-speculated NFTs, they may not be sold on centralized trading platforms.
Topic 2: Which is more important, community or IP?
Jungle: When you said this, I suddenly remembered that you posted a screenshot in our group a few days ago. The point of view in that screenshot was quite novel, suggesting that it is more important for project parties to build communities than IP when doing NFT projects. Then I am curious about what you think?
Arrow: Yes, I remember now. James had advised all PFP and NFT project owners not to think about IP and various so-called rights empowerment all the time. As long as the project owners have a community operation, they can be on par with the currently better private associations or Shengcaiyoudao communities in China. With the promotion of the community, it is very easy for the NFT price to reach one ETH.
The most important component of any NFT community is people. If the project party helps community members establish a link and value symbiosis based on cognition, it will be able to defeat 99% of NFT projects. Then James also said that the influence of an NFT team of dozens of people on IP will never be as good as the support influence of 10,000 people who can link and communicate with each other and make money together. The above are all James's views. I just forwarded it at the time. In fact, I don't agree with this view. Can you tell me how you view this issue?
Jungle: I feel like this question is a bit like a topic often discussed in marketing, which is more important, building a brand or building a product? According to James's point of view, it is similar to that as long as I make a good product, or as long as I build a good community, the popularity of our brand or IP will naturally rise. I feel that discussing this kind of question is meaningful, but to say who is right or wrong, I think it is a bit like discussing whether the chicken or the egg came first.
Arrow: Today we are not going to discuss who is right or wrong, because you come from a brand management background. So what do you think if we now make a PFP, or make an NFT of a small picture, will you mainly focus on branding, or will you strongly build community links? Which of these two methods do you think is better?
Jungle: I think both are possible, but starting from the community may be more secure. I will first make our Go2Mars community more active, and then issue an NFT, and slowly rely on NFT to attract more people and form a growth flywheel. I think this is a more conventional way.
As for the other way, there are many cases in the market. For example, pepe, in the beginning, especially before the official promotion, did not have a so-called private community, or traffic pool. But it was able to hype up its IP value. I think both ways are OK, but I would prefer to start with the community first.
Arrow: But if we look at the cases of some big projects, your approach may also be problematic. For example, the Arabs, which were very popular before, actually everyone first set the atmosphere in place, and then everyone started crazy FOMO. Everyone felt that it was difficult to grab a whitelist, including the DODO that I was trapped in last year. I was trapped very badly at that time. In fact, when the news came out, everyone had decided that these 10,000 were not a problem at all. The project party is confident that as long as it is put on sale, everyone will scramble to buy it, even if the value will drop as soon as the picture is opened. Why is their brand influence so strong?
It can be said that as soon as they launched Mint, everyone went crazy for FOMO. In this case, I think the publicity might be just a tweet on the official website, and at most a group chat to attract traffic. They don’t actually have a very close organization, it’s not a DAO, nor a community. So why can everyone go crazy for Mint as soon as they launch the map? Is this view different from what you said before?
Jungle: If we follow your logic, for example, if they are crazy about hyping up the trend, then the community they belong to, even if it is not an official organization, can it be considered a so-called private traffic pool?
Arrow: Why is this a private traffic pool? For example, Black Cat, people spontaneously created some avatars, or spontaneously formed some communities.
Jungle: Yes, you mentioned the spontaneously formed communities.
Topic 3: About the blend protocol
Arrow: This is a question without an answer. From Azuki and Azuki Elementals, we can see that there is basically no difference between these two small pictures, so we are trapped in the dilemma of "if you defend me, you will die" in web3. Azuki is imitating itself, and as a result, not only the price of Elementals has dropped, but also the price of the original pictures has dropped. I think Azuki may think that its brand is too big, so it bullies customers.
Let's go back to the topic of blend protocol. Let's introduce the protocol first. How did the NFT market completely eat up liquidity step by step in 5 months? First of all, the blend project is the first step to eat up liquidity in the market. Blend initially used a more complex off-chain quotation protocol to match users who want to borrow with NFTs with any lender willing to provide the most competitive interest rate. But it has a tricky job. Blend's loans have a fixed interest rate and never expire. Borrowers can repay at any time and can also exit their positions by triggering a Dutch auction to find a new lender at a new interest rate. Of course, if the auction fails, the borrower will be liquidated and the lender (funding party) will obtain the collateral.
In fact, everyone thought it was pretty good at the beginning. Everyone felt that it was not so stressful to get NFTs through loans. There is no fixed time period for repayment. As long as you can find the next buyer to continue to borrow money, and once the NFT appreciates, you can continue to find the next buyer, so you can keep getting NFTs for free. This is a permanent loan. Blend does not say that there is a fixed term loan. And it can also realize refinancing auctions through refinancing. In the end, a form of permanent continuous loan is formed, and it is still buy first and pay later.
But the problem lies in the NFT market. After the blend airdrop, the NFT craze was not activated. On the contrary, liquidity gradually dried up. The market-based interest rate pricing method did not alleviate the lack of liquidity in the NFT market, but made the market worse. We think that although the lack of a fixed term seems to be a good thing, in fact, you may have to repay at any time. Once there is an error in the repayment, or when there is a huge fluctuation, you do not renew it, then both the NFT and the deposit will be lost. In fact, it is a relatively deceptive agreement.
Jungle: Regarding this topic, from our observation, this project has been gradually declining from May to now. Its specific market performance is different from what is described in the white paper. At which step did the problem arise in reality?
Arrow: I think the main problem is the so-called non-fixed term. People think that non-fixed term lending is not a good thing because you can do unlimited peer-to-peer perpetual lending. The borrower and the fund provider reach an agreement on the interest rate, loan amount and NFT collateral through a matching mechanism, and then create a blockchain transaction to deposit the NFT into the collateral vault and transfer the principal to the mortgagee. If both parties agree that the contract can continue to be executed when the loan agreement expires, there is no need to start the auction process and the loan period can be extended directly. At the same time, a refinancing auction can also be triggered. When the expiration date is approaching and the borrower has not repaid the debt, the refinancing auction will start at 0% interest and gradually increase the interest rate.
Once the auction reaches the interest rate level that the new funder is interested in, the new funder can submit a bid on the chain to accept the transaction. However, in actual operation, everyone found that it is not so good in practice. It seems that the agreement has no fixed term and can be renewed forever, but in fact, no fixed term means it is not a good thing. Because the repayment time may be very long, or it may be very short. The funder asks you to repay the loan the next second after the loan. NFT may not be hot yet, and then you have to keep raising the interest rate.
Maybe in the end you will lose all your principal, and since the NFT is kept in a vault, it does not belong to you. After all, you have not repaid the loan, and your right to use the NFT is subject to certain restrictions.
Topic 4: Derivative discussion on the Azuki issue
Arrow: Let’s not talk about blend, because the overall NFT market has cooled down in several ways, and we can’t blame the blend protocol entirely. The main reason is that the overall market is relatively bad now. The advantage of a relatively bad market is that the price has fallen relatively low, which is actually an opportunity to buy at a low price.
So I have been looking at NFT recently. Maybe the price will get better when the bull market comes back one day. But let's look at Azuki again. The Azuki incident is actually a bit embarrassing. Its price has fallen a lot now. You can see its market trend very clearly. It first pulled the main disk, and then smashed the disk when it issued Elementals. Finally, Azuki cashed out 20,000 ETH through the purple disk. Although it did not run away, the matter itself was very unauthentic, and there were identical pictures in the pictures of Elementals, which means that Elementals is a shoddy project.
There is even a weird operation that the project party actually wants to replace the same picture. This is actually an even more embarrassing thing. How could such a thing as replacing the picture happen? This is too shameless.
Jungle: The key is that their IP is recognized by people.
Arrow: Yes, so the 20,000 ETH they sold through Elementals was directly transferred to Coinbase. They just cut the leeks directly. Then later we also saw Azuki modify the picture. To put it bluntly, it is in its own contract, and it only needs to change its URI link. After the URI link is changed, it can replace all the NFT images. This is what we said at the beginning that the NFT you bought is what.
In fact, if you buy domestic digital collections, you can say that you buy pictures. But if you buy NFF, all its rights and interests belong to you. What you buy is actually a string of code, but the URI corresponds to the picture. So the project party only needs to enter a new URI link to replace the pattern. This shows that Azuki's contract itself is unreliable. Everyone may not have paid attention to this matter at all, especially those who are looking for small pictures. He may not care about what is written in this smart contract. But we think that if you are a decentralized project party, you go to issue NFT. You certainly can't change it as you want. For example, I bought an Azuki, and then changed it to a DODO or a black cat, then I will lose a lot of money.
Topic 5: The value of NFT and traditional luxury goods
Jungle: I am quite familiar with his so-called outrageous operations, because in the traditional track, there are many luxury brands that rely on the brand value or brand advantages they have accumulated in the past, and often release some old bags in the past, or even directly copy some classic models of other brands, and then sell them as new models.
I think the so-called NFT products are still similar to the logic of luxury goods. If we discuss the encryption value of NFT itself, I don't think it is very meaningful. It's like we bought an LV bag, and then we discuss the manufacturing value of this bag, and then discuss what kind of use it has for us. I think its value is not in this, but in its brand, just like Azuki's own IP image.
If we discuss this topic, I feel that whether it is our own research or the direction of the entire market, I think it may follow the route of traditional luxury brand creation. Similar luxury brand starting logic may appear more and more in NFT or other crypto art markets.
Arrow: I think this is a good point of view. I just met a few luxury brands a while ago, including LV, which actually has a joint venture with NFT. The NFT brand gives money to LV, and then NFT is used to put a name. Or you can go to the luxury brands to sign up, and some luxury brands will also make some NFTs themselves, which is equivalent to luxury brands creating their own sub-brands. I think this point of view is actually quite good.
Just now I saw Jason say that the last time a technical failure occurred, the image was changed and the project was removed from Opensea. It was also a rugged domestic project called Adi. Looking at NFT as a whole, we start from the underlying logic. Adi and Piepie are quite similar. We still have to look at the fundamentals of the industry. Only with fundamental sentiment can corresponding products or trends be generated. The rise of NFT must be after the token. If BTC does not rise and ETH does not rise, the entire crypto market will not be good. In this case, it is impossible for NFT to appreciate. If you compare it with the price index of Bitcoin and then compare it with the overall market, you can also find that it is still relatively relevant.
Jungle: I feel like I understand what you said. NFT itself has no so-called use value. If you force yourself to say that it has, it may be like BAYC. After I bought this NFT, I can show it off, or it is similar to a club ticket. I think if we follow this logic and build a community around NFT, it makes sense. Because for outsiders who don’t understand or agree with this IP, they think the real value of NFT may be in the community.
Topic 6: Starting from NFT, let’s talk about real-world assets
Arrow: Indeed, if you look at it from the perspective of value or macroeconomic environment, the entire web3 track is like this now. There is no external funding in the entire crypto track now. The existing funds in the circle are cutting leeks from each other. So when I talked to a friend yesterday, he felt that the traditional industry was not doing well, and he thought that the web3 market might have opportunities in the future. Then I told him that you think too much, and it might be more promising for you to engage in the traditional market than web3.
Anyway, we just talked about blend, one of its core is to make this small picture more financialized. NFT is a financial asset, and Azuki is a core financial asset, so elementals is a financial derivative with Azuki as the core.
In fact, it is done according to this idea. Then we can talk about another development direction of NFT, which is the RWA, real-world assets that everyone has been talking about recently. Recently, everyone feels that there are no incremental users. If we combine it with the real world, how can we really introduce new money? Or in order to introduce new money, what should we do now?
Jungle: If it is really related to RWA, the first thing that comes to my mind now is Nayuki’s Tea and the NFT ticket system.
Arrow: I am more familiar with Nayuki’s Tea, because its logic is a bit like Starbucks, combining NFT with some of their coffee shop entities, and then making a more sexy narrative. So what is the ticket system like?
Jungle: The ticket system is a bit like the Isotope we worked with before. When selling tickets, in order to prevent scalpers from reselling tickets, every time a ticket is sold, the buyer's identity information is entered into the ticket, and then the information is uploaded to the blockchain. This ensures the uniqueness of the ticket, which is done using DID technology.
Arrow: If we are to get in touch with RWA, the concept is to tokenize the value of real-world assets, such as converting real estate, precious metals, and club tickets into a digital token. Through this process, the digital ownership of the asset is transferred and stored, and without the need for an intermediary, the value can be directly mapped to the blockchain for trading. Of course, RWA can be a tangible asset or an intangible asset. For example, the tangible real estate mentioned earlier, and the intangible ones are stocks or bonds.
For example, if I want to buy stocks now, I have to go to a brokerage to open an account and then buy them. In the future, it is possible that I can buy a stock by buying a coin. In fact, this is a more interesting concept of RWA.
Jungle: I think if we build this, unless it is a truly extreme situation, such as a war situation, then I believe this system has its value. If it is in a relatively peaceful stage, what value do you think this system has?
Arrow: I think it’s mainly about liquidity, which is the same as when I looked at the African market before. For example, in a country like Nigeria, their fiat currency is inflated very seriously. They actually can’t do their own value storage very well, and the technical service facilities are not in place. Their wages can be settled by U. So several countries in Africa have done a good job in crypto infrastructure.
