Non-fungible tokens (NFTs) have come a long way and have dominated the zeitgeist over the past few years. Mainstream focus has been on personal NFT avatar (PFP) projects, thanks to the growing interest (and value) of CryptoPunks and the Bored Ape Yacht Club (The Bored Ape Yacht Club).
The prices of CryptoPunks and BAYC are skyrocketing…
Triggered a craze for NFT avatars. . . .
These projects illustrate some of the emerging properties and behaviors enabled by NFTs. First, NFTs provide true digital ownership of unique assets
. Because people are confident that they actually own these assets, they can (and often do) use them as a representation of their digital identity.
Even Web2 platforms like Twitter have NFTs as profile pictures. And, just like in the physical world, these avatars generate social properties such as status signals, gated communities, social hierarchies, and other related behaviors, and ownership goes beyond the original document itself.
For example, members of the Boring Ape Yacht Club own Ape’s intellectual property, allowing them to use Ape to launch beer brands, comics, and even virtual bands.
Second, the programmable nature of these assets supports a wide range of use cases that are often unavailable in real-world objects.
NFTs can be programmed to respond to actions taken by the owner, to external triggers, or to change over time. They can embed royalties, enabling creators to participate in future earnings with their communities. And because all of this happens on the blockchain, creators can identify and reward owners with airdrops or early access to future projects.
All of these features combined can set off a virtuous cycle where community members create value from grassroots initiatives, driving demand for their assets, providing creators with higher income through sales royalties, which they can use to further expand the scope of their projects.
In fact, PFP (Picture Profile) has been at the forefront of NFT adoption and experimentation and is by far the largest NFT vertical.
But beyond them, there has been a Cambrian explosion of NFT experiments, including generative art, irreplaceable virtual worlds, interactive NFTs, different forms of media (such as NFTs), the financialization of NFTs, and more.
NFT market capitalization by category
At Amber, we believe that the metaverse — a loosely defined concept that refers to real-time, interoperable, and immersive digital experiences — is inevitable and that NFTs are a key primitive for these virtual worlds
. In this report, we touch on some interesting projects that have innovated in what NFTs can do, as well as the tools and frameworks readers can use to navigate the growing NFT space.
Due to the large and rapidly growing NFT projects across multiple blockchains, we mainly focus on Ethereum-based projects.
A key question in the emerging metaverse is: Where will the users be? Virtual land sales on many platforms have risen over the past year as people flock to have spaces where people congregate. Perhaps the two biggest beneficiaries of this virtual land craze are Decentraland and Sandbox, both free-to-play platforms with limited amounts of tokenized land.
digital land grab
One of the reasons behind buying the land is to host metaverse events and experiences, however, both Decentraland and Sandbox are relatively new platforms and haven’t built the infrastructure to accommodate high traffic loads.
For example, Samsung attempted to host a Galaxy smartphone launch event in Decentraland but ran into technical difficulties when people tried to gain access.
The Decentraland co-founder suggested that the platform’s maximum concurrency is only 1~2,500.
Even existing open-world platforms with mature server infrastructure still struggle to handle environments with hundreds of players –
Free Fire, a mobile-only battle royale game where every competitive Field can only hold up to 50 people, and Roblox can only handle up to 700 people in beta testing.
As a result, rather than rebuilding entire tech stacks, some projects have decided to iterate on the concept of an open metaverse on top of existing infrastructure, NFT Worlds is an example of one such project that is gaining more and more attention in the crypto community.
NFT Worlds is a community-driven metaverse platform built on Minecraft’s open-source ecosystem. By booting an open world on top of Minecraft, NFT Worlds can take advantage of cross-platform support and existing world-building tools.
With 10,000 unique worlds, the metaverse data covers 39 categories, including resources such as land area, water bodies, annual rainfall, wood, and metals.
These traits determine the rarity of each world and can be used for different game elements. Holders of these worlds can use the existing Minecraft launcher or the upcoming NFT Worlds Launcher to build and edit the worlds they own.
World owners can customize their land and host about 600 users simultaneously. Additionally, NFT Worlds aims to launch multiplayer voice chat, user-generated games, and support for custom avatars in the second quarter of 2022.
Due to these features, the project has attracted increasing interest from the broad NFT community looking to host Metaverse events. The total value of land sales in NFT Worlds has grown significantly since October 2021, surpassing even Decentraland and Sandbox in recent months.
NFT Worlds’ monthly trading volume over the past three months exceeds $20 million
So far, more than 100 NFT communities have publicly announced the acquisition of NFT Worlds, including RTFKT, Zipcy’s Supernormal, and WVRPS. Anyone can view a specific world in a web browser, such as World #9856, which has been customized.
NFT Worlds owners will receive two rounds of airdrops of WRLD tokens. They can also mortgage and/or rent out their land for additional tokens. WRLD has a maximum supply of 5 billion tokens, with approximately 85% of the tokens distributed over five years.
WRLD Distribution Schedule
The team recently launched a WLRD-centric payment layer that will serve as the primary medium of exchange within the ecosystem, including the upcoming game earning and rewarding mechanism.
Transaction fees are also paid in WLRD, allowing players to manage costs without using other tokens.
Despite the recent hype surrounding NFT Worlds, the implied value of its land and fully diluted valuation of the WLRD token is still orders of magnitude lower than the previous two crypto-native open-world platforms.
NFT Worlds and other metaverse platforms
Of course, NFT World’s approach also has some drawbacks.
For example, Microsoft (the owner of Minecraft) could close the project. While the NFT Worlds team says they have been in close contact with Microsoft’s IP team and have had no issues so far, open worlds often run the risk of misconduct beyond the founding team’s control.
Nonetheless, we are closely following the project as an indicator of our thesis that the future of web3 must be built and iterated on in the short term web2 rails (Rails is a web application development framework written in the Ruby language).
While we believe that an open metaverse platform will eventually have a more decentralized technology stack (e.g., content distribution, servers, and storage), these parts are not yet fully built.
At the same time, projects like NFT Worlds can better reflect what a real-time, interactive, and community-driven open metaverse could look like.
DAOs that support NFTs
Decentralized Autonomous Organizations (DAOs) are groups organized by a shared mission and values, typically, these DAOs are formed through fungible tokens such as BitDAO (BIT), ConstitutionDAO (PEOPLE), and Friends with Benefits DAO (FWB ).
NounsDAO is a case study of DAO formation in the context of NFTs.
The nouns that are randomly generated and auctioned each day are a 32×32 pixel character of people, places, and objects. The main defining features of the noun are colored square glasses and pixelated artwork.
Stupid Nouns Gallery
NounsDAO is an open-source project – the code that creates the noun and the artwork itself is in the public domain. 100% of the auction proceeds go directly to the NounDAO treasury, and each Noun NFT owner has a vote on the use of treasury funds.
The first noun NFT was sold for 613.37 ETH on August 9, 2021, which was about $1.9 million at the time.
Since then, the price has fluctuated from 24.2 to 313.69 ETH, and has stabilized at around 80 ETH per Nouns since the beginning of the year
. The treasury currently holds over 20k ETH (about $60 million at the time of writing), which the DAO uses to fund creative (and sometimes crazy) proposals to further cement Nouns’ cultural relevance, including being featured in a Superbowl commercial Noun glasses and send the noun of the International Space Station.
Nouns price-stable after the initial hype
Since the license is available in the public domain, a wide range of community-driven initiatives and derivative artworks have sprung up in the ecosystem, including an app that “notifies” your existing profile picture and an attempt to generate what could be the next Nouns.
NounsDAO is an exciting community-driven brand-building experiment that reflects the social impact that NFTs can bring.
With a lot of funding and a highly engaged, connected community, the Nouns project is a project to watch.
NFTs as utilities
Mainstream NFT discourse revolves around community (BAYC), art (Fidenza collectibles), or gaming (Axie Infinity) projects. However, we see countless teams looking to leverage the unique properties of NFTs to provide users with useful applications.
Chris Cassano (blockchain hacker) demonstrated interesting uses for NFTs by connecting his Tesla Model 3 to NFTs, using the Lit protocol – allowing anyone to grant access to content, software, and data via blockchain objects
– Chris allows anyone with specific NFTs to control his Tesla, including flashing lights, locking and unlocking the car, and starting the engine.
Control Tesla with NFTs
The pros and cons of using NFTs as car keys can be debated, but this experiment illustrates what NFTs can actually do.
For example, a platform like Airbnb could grant guests access to a host’s home by using expired NFTs—guests can secure access, and hosts save the trouble of changing their passwords after each guest’s check-in.
Superfluid (Mobile Payment)
Superfluid supports programmable funding streams such as subscriptions, salaries, and recurring rewards.
One of its latest applications is to stream tokens to NFTs instead of Ethereum addresses.
Therefore, if the NFT changes hands, the new owner automatically receives a flow of funds (over a certain thread of time, funds are automatically and gradually transferred to your account).
This feature opens up wide design space for programmable cash flow, for example, the Superfluid team proposes that rent can be charged (in the stream) on a Metaverse property, and if the property is sold, the cash flow from the rent automatically flows to the new owner.
People can also take out loans backed by these NFTs and automatically repay the loans over time through the underlying cash flow.
Membership and Access
Some organizations are trying to use NFTs as gated access for membership passes. LinksDAO, whose members include NBA players Stephen Curry and JJ Redick, are trying to create a golf and leisure club with NFT-certified memberships.
Flyfish Club also aims to create a private dining club exclusively for NFT holders. Coachella’s 10 NFT keys grant lifetime access to Coachella events, and the auction price is $55,000.
Authenticating and gating membership through NFTs offers some advantages over traditional approaches.
First , compared to most private club models, members can easily find and identify other members (or wallet addresses, if some members choose to remain anonymous).
Second , existing members can resell their NFTs on the secondary market, a feat most traditional members cannot. Because of the resale value, people may be willing to pay more for these passes.
These passes can even be rented out on the secondary market, turning ordinary consumption into cash-generating assets. Finally, because it all happens on the blockchain, membership verification and authentication are transparent.
Blue Ocean and Open sea
Most users’ first forays into NFTs are through OpenSea, which has over 95% market share based on transaction volume. However, many new platforms have entered the market, targeting specific sub-industries (e.g. generative art), different use cases (e.g. NFT exchange), or just a fraction of OpenSea’s market share.
When OpenSea launched its platform in January, LooksRare “vampire” OpenSea by airdropping native tokens to OpenSea users.
LooksRare has managed to gain a broad audience in crypto, capitalizing on the disappointment that OpenSea may have an initial public offering (IPO) rather than generating tokens for users.
At first glance, the new marketplace appears to be taking market share away from OpenSea, but LooksRare has launched an aggressive staking and reward program that rewards users with tokens for swiping trading volume on the platform.
After filtering out most of the trading volume activities, it is difficult to appear full of activity on its platform. Also, after the reward halving for LooksRare on February 9, transaction volume contracted significantly.
LooksRare’s volume is driven by limited organic activity on the platform
OpenSea continues to dominate
LooksRare Filtered minus “back and forth” transaction activity between the two wallets and unusually high price transactions.
OpenSea, despite occasional transaction suspensions, phishing attacks, and censorship, continues to dominate NFT transaction volume due to its network effects – where users will congregate where other users are.
But NFT adoption is still in its infancy, and new markets will inevitably emerge, challenging OpenSea’s stronghold in the market. Just this month, another NFT platform, X2Y2, launched a vampire attack on
OpenSea by airdropping tokens to users and offering a reward system that encourages high-quality new projects to list and trade instead of boosting trading volume.
Cosmos, a DAO-powered NFT marketplace, is also expected to launch sometime in the next few months. Coinbase’s NFT trading platform is also expected to launch later this year, with about 3.8 million people currently waiting to list.
OpenSea’s dominance will continue to be tested in the coming years.
NFT transaction aggregator
We are keeping a close eye on NFT transaction aggregators in this space as new marketplace platforms roll out.
These aggregators have a variety of features, including finding the best deals and listing NFTs for sale seamlessly across multiple platforms.
They also allow bulk buying, allowing users to easily “sweep the floor” (increase the floor price of a collection by buying the cheapest collection listed) and shop across multiple collections.
There are currently two major NFT aggregators: Genie and Gem. Genie was first launched in July last year, allowing users to easily trade on OpenSea and Raible, and has seen trading volumes approaching 109k ETH since its launch at the time of writing.
Launched earlier this year, Gem outsold Genie in just a few weeks thanks to more gas savings and faster product iterations (eg, integration with LooksRare, introduction of Sweep Mode).
Gem surpasses Genie in just a few weeks
Gem saves more fees for users
Both deal aggregators are primarily targeting JPG Flipper, but we expect their use cases to expand much wider.
For example, we are seeing transaction aggregators play an important role in the context of NFT game assets, which can be listed both on the game’s proprietary marketplaces and on open platforms
. In this case, aggregators can help players easily find the items they want across multiple marketplaces, or discover assets that can be interoperable across multiple games.
Financialization of NFTs
With the price of some NFT collectibles rising, a new pain point for some owners is the tokenization of their assets.
Some platforms now offer loans backed by NFT collateral, mimicking collateral-backed loans for real-world non-fungible commodities such as homes, cars, and luxury goods.
NFT is the largest peer-to-peer platform for NFT decentralized lending. Borrowers can list and stake selected NFTs on the platform to solicit loan terms from lenders.
These WITH or DAI-based loans can last up to 90 days and have an average annual interest rate of around 70%. If the borrower defaults on the loan, the lender can seize the underlying NFT collateral.
Launched in May 2020, NFTfi has seen increasing adoption, facilitating approximately $72 million in loans to date. Bored Ape Yacht Club, Art Blocks, and CryptoPunks accounted for nearly 50% of the total loan amount.
Currently, the maximum loan-to-value ratio for blue-chip assets by a large lender like Metastreet is 45%.
NFTfi expects to launch “NFTfi V2” this quarter, which includes several new features, including indefinite loans, loan deferrals, and loan renegotiations. The team also plans to reward previous users by airdropping the final NFTfi tokens.
NFTfi successfully capitalizes on the growing demand for NFT collateralized loans.
However, its peer-to-peer model also has some drawbacks. Borrowers do not have immediate access to liquidity; they must wait for lenders to provide acceptable terms.
On the other hand, lenders have to manually provide loan terms for each asset listed on the platform. Lenders must also hold sufficient WITH/DAI in their wallets until the loan is accepted, at risk of idle, unproductive capital.
We see similarities between NFT finance and the early stages of Defi, with EtherDelta (OpenDAO founder Qu Jiawei, who later ran to the UK and was defended) offering peer-to-peer exchange transactions.
Uniswap is gaining market adoption through its peer-to-peer pool model, similarly, in the NFT vertical, we are closely watching platforms that seek to use liquidity pools to provide instant liquidity for NFT-backed collateral, one platform that stands out to us is Pine.