Arkstream Capital:Blur's cliff racing with OpenSea

原文标题：《 Arkstream Capital:Blur 与 OpenSea 的悬崖赛车 》

Source: ArkStream Capital

The current state of the NFT market

The second half of 2022 is winter for the NFT. The NFT market declared a speculative bust as the issuance of Otherdeed for Otherside drained the last vestiges of liquidity from the market.

OpenSea Monthly Volume (dune)

Blur is an excellent NFT Marketplace, and the anticipation of its coin launch has brought some increment to the market. After Blur issued $BLUR, the huge airdrop revenue brought more incremental gains to the market.

NFT Marketplace Daily Volume (dune)

Looking at the NFT Marketplace transaction data, several conclusions are clear.

1. NFT Marketplace for art has lagged behind the comprehensive NFT Marketplace (in fact, PFP).

2. Blur outtraded OpenSea before the 2-15 airdrop.

3. After the hype and disillusionment of 2022, the NFT market has returned to a healthy market in the first quarter of 2023.

Arkstream remains focused on NFTfi, and we believe that NFT has a long-term existence as a certificate of ownership function that will not be clouded by a downturn in the overall NFT market.

Before we begin our article, we'd like to have a few casual discussions about the value of NFT.

Discussion of the value of NFT

Consistency and inconsistency of NFT

As the name implies, the full name of NFT is Non-Fungible Token, which refers to a non-homogeneous token. In contrast to the simple consistency of FT(Fungible Token), NFT contains both consistency and non-consistency properties.

NFT According to the current trading activity of the market, there are mainly NFT art and NFT PFP two categories. As humans become more and more entangled with the Internet, PFPS are more appropriate as avatars of online identity. This explains why PFP is more important in NFT than NFT art.

NFT artwork, only inconsistency. NFT PFPS are usually composed of series, including consistency and disconsistency. NFT PFP is the Web3 expression of pop art, and the common logic behind it is repeated subject + random variable.

Industrial repetition forms commonness, commonness gathers community, is for consistency. The scarcity of variables creates artificial inequality and marks social status. For human beings who pursue "inequality" by nature, the contempt chain of class is the basic rigid need of human nature. The author believes that consistency takes precedence over inconsistency in order, and only consistency can produce the value hotbed of NFT PFP and the value of non-consistency social discrimination grow. The value of PFPS is directly proportional to community energy.

The combination of consistency and inconsistency of NFT has become the biggest problem that every NFTfi needs to face. In dealing with liquidity, it is split into two general directions: ***P2P (CLOB) and P2Pool (AMM). However, these two directions are only good at dealing with one kind of contradiction each, which becomes the underlying contradiction hindering the development of NFTfi.

NFT royalties

The issue of royalties, which is much debated in the industry, is much clearer when interpreted in the context of consistency versus inconsistency.

NFT works of art, bearing the artistic value of the artist, and its unique expression, it does not need a high turnover, more lies in the collection value. Over the life of an NFT artwork, it increases in value over time. Van Gogh was unmarried and poor all his life. He died in great sorrow. The high royalty rate of NFT can prevent this kind of tragedy from happening, so that the time value of NFT artworks can be returned to artists earlier. Therefore, high royalty is very suitable for the characteristics of NFT artworks.

NFT PFP followed the high royalties of NFT art in its early years. I think this industry inertia is a big problem. As discussed above, the value of PFPS is highly dependent on community energy, since consistency precedes inconsistency. Therefore, high circulation is more conducive to the growth of the value of PFP. PFPS need to capture greater community value through better mobility and lower friction. The author thought that the royalties of PFPS would be completed in the competition between PFPS. It was Blur's liquidity war with OpenSea that finally got the job done.

According to Proof research director NFTstatistics.eth, Blur's overall average royalty rate is only 0.65%, which has driven down royalties in the overall NFT market.

Many NFT projects complain about this. What I want to say is that these projects do not have the face to take the profits of the market dividend period for granted. Take Phantabear, a project that the author is familiar with, for example, the cumulative sales volume is 35,735ETH, the royalty rate is 7.5%, and the cumulative royalty income is 2680ETH. According to ETH=1700 USD, the discount is 4.5 million USD. These costs are not fed back into the project itself; they are shared out by the founders. Not to mention the Mint fees. Phantabear is just one of many NFT projects that have gone out of business.

by: Phantabear is the founder Mark and Will make use of Jay Chou's fame to do money project. Late Jay Chou because of personal reputation for Phantabear tired, there is a willingness to take over.

But the project failed because the two founders could not agree on a new demarcation of responsibilities.

The NFT project can only earn money through the operation of the community, which is the biggest respect for the NFT healthy market.

NFT Marketplace competition status

Strictly speaking, NFT Marketplace can be subdivided into three categories, CLOB Marketplace/AMM Protocol/Aggregator.

Aggregator's earliest players were Gem and Genie, which were acquired by OpenSea and Uniswap respectively. They are not so much Aggregators as bulk operations tools for OpenSea.

Aggregator started with Genie, and Gem came to market with a better, more convenient product that was more customer friendly and had better marketing and capital backing. Gem won the initial competition for the NFT Aggregator platform based on all of these. However, Gem didn't stay happy for long, as the challengers to OpenSea gradually emerged and the stronger Aggregator Blur appeared, but Blur was more like a drain on their Marketplace. An Aggregator that doesn't want to be a Marketplace is not a good Aggregator.

By: X2Y2 also has Aggregator capabilities, but X2Y2's aggregator is not so much an aggregator as a LooksRare/OpenSea bulk transaction capability.

At present, strictly speaking, Aggregator only Resevior is more focused on Aggregator. However, its shadow is relatively lonely under the backlog of Blur and OpenSea. Aggregator may not have its space until the market becomes more warlords.

Trading experience and liquidity wars

One competitive dimension of the NFT Marketplace is the ease of trading. From the transaction interface, it can be clearly perceived that Blur's transaction experience is biased towards professional traders and wholesale market, while OpenSea's transaction experience is biased towards ordinary users and retail market. Most of the rest of the Marketplace is based on OpenSea's design.

Blur transaction interface

OpenSea Transaction interface

Blur's great transactional experience is one reason why Blur has been able to rally some early adopters. That's why so many Aridrop Hunter were willing to invest their resources and time in Blur before issuing a token.

But for the discussion of COLB Marketplace, I want to focus this topic on liquidity. As a market, the greatest value lies in providing the best liquidity to users. The earliest LP scheme designed by Uni on DeFi, and the 0 slip point bet and GLP design of GMX rising suddenly in Arbitrum, all try their best to exert force on fluidity.

OpenSea, as the earliest NFT Marketplace, provides the function of offering payment in addition to the List of NFT sales orders. However, the convenience and batch performance of the Offer's purchase function are not good, which limits the liquidity of the purchase order. When I had a large number of single-series NFT, shipping was a headache. I have wondered if OpenSea is deliberately trying to maintain the price performance of the overall NFT market. Because of better order book functionality, it's theoretically not that hard.

When LooksRare launched, we talked about its token economy model. It started with the logic of trading mining. The history of trade mining dates back to 2018, and liquidity mining was not widely adopted until after the DeFi frenzy.

In our observations of the liquidity mining that Compound started in 2020, we analyzed what differentiates it from the 2019 Dapp frenzy and the earlier Fcoin/Longcoin transaction mining.

The problem with trade mining is that it creates idling, and no matter how the trading wash is done, it creates junk trading for token incentives. These junk deals generate no retained value and do not contribute to the growth of liquidity. For players who don't have the skills to mine at low cost and have to take the initiative to do so, their transactions are instantaneous and there is no "inertia". When the coin incentive starts to halve, liquidity will quickly decline. This means that mining subsidies are costly and inefficient.

The advantages of liquidity mining are that, first, it provides real liquidity, and LP takes risks. Second, it has inertia. Most LP's do not switch their LP's frequently. In DeFi, we have even seen dead projects with hundreds of thousands of U of Farm funds remaining. Besides the mining bonus, LP also has the dividend of transaction commission. This increased their retention.

In Arkstream's tokenomics thinking, we believe that good tokenomics design must satisfy:

1. The project side is deeply aware that token incentive is a kind of debt behavior, and carefully designs emissions.

2. Token incentives must encourage behavior that positively promotes the long-term value of the agreement.

3. Token incentives must be applied to protocols with network effects.

All three are indispensable.

LooksRare's subsequent coin performance and trading volume performance proved the failure of transaction mining.

Looks at the price of the currency (Coinmarketcap)

LooksRare Transaction Volume Ranking (LooksRare website)

LooksRare then added the Listing bonus. X2Y2 adds Listing's reward at the beginning. Updating Token Economy 2.0 after March 30 2022 to switch to transaction mining would be a step backwards.

X2Y2 wash trading (dune)

Liquidity is a two-way street, and the biggest problem in the NFT market is not the lack of seller List, but that there are not enough counterparties to accept the selling pressure of NFT when you want to ship. So Blur is more fluid thinking than either LooksRare or X2Y2.

Blur adopted Listitng mining in Airdrop2, followed by BID mining in Airdrop3, corresponding to both ends of the flow.

Prior to $BLUR's official offering, this two-way liquidity scheme had already provided a significant positive stimulus to Blur's trading volumes. It was clearly a successful airdrop.

This is why I paid a lot of attention to Blur. Blur was one of the first NFT Marketpalce players to take a very active approach to solving NFT liquidity, including BID product design and token incentives.

Shortcomings of Blur mobility solution

But Blur's liquidity solution, I think, is still not the best solution. Blur's BID looks inert compared to Uniswap's LP fluid design.

At present, I have heard several bids, perceptual cognition, more than half of the Chinese people in the top 20 list of volume scores, and large households/scientists/studios with famous names. Most of the money in the BID has no loyalty.

Blur BID points standings

BAYC and MAYC's BID wall is a good example of this.

BAYC BID wall

MAYC BID wall

Because of MACHI's position is too strong, BAYC is afraid of MACHI's offer and has no large funds to BID 1/2/3.

And MAYC 2/3 has a lot of money on the BID. These obvious pay walls are all about BID points, and aside from these obvious pay walls, there are not many real liquid market makers.

Blur's ETH BID pool had a lot of withdrawals on the day of the Silicon Valley banking crisis. In addition to the market slump on the day, NFT prices also received a huge squeeze, most of the Collection of BID funds from 30,000 ETH, down to 10,000 ETH.

Blur BID Pool Balance (dune)

And because Blur is now a zero-fee mechanic, it can't incentivize LP through fees like Uni can, minus the token incentive itself. A benign system is one where the token incentive itself is removed and there is still an incentive for LP providers to provide liquidity. When $BLUR launched Uniswap, there were so many players willing to go in and do LP. In order to earn LP transaction fees, the first friend to go in would get 50% of the cost back on the same day.

Once Blur's liquidity incentives are removed, it is conceivable that these BID walls will soon collapse.

Liquidity brought about a huge collapse of the NFT

When we talk about the liquidity injected into the NFT market by Blur's liquidity mining, we are also faced with the problem that Blur accelerated the collapse of the NFT market. Previously, due to the liquidity problem, the big players in the NFT market could not quickly liquidate. Through Blur's BID wall, whales can now ship at will.

Many small NFT projects take advantage. Blur's mechanics are dumping. In Blur's early days, when the mechanics weren't perfect, these projects would start by trading on OpenSea, and then, once they had a backstop price on OpenSea, they would slowly start bidding up with Blur and earning points. In this process, some project parties choose to List part of the NFT at the same time, so that even if their Bid is completed, the sold NFT can realize partial recovery. Some project parties own most of the NFT of the collection, so they can raise the price at will to gain points, and will not ship to others if they bid.

If there is no competitor to the BID, the project may settle for Blur points, but if there is a retail or robot BID, they will withdraw their BID as soon as they have accumulated enough Bid depth and sell their NFT to those retail or robot bidders.

In this orgy, the NFT project parties and the whales get precious liquidity, and the liquidity market makers get "precious" $BLUR.

So I think Blur's token economy needs to be upgraded to increase the costs for these arbitrageurs. Arbitrageurs are a disservice to the system.

Although this liquidity has become a double-edged sword in the NFT market in the short term, it is still a good thing in the long term. If we accept the long-term value of the NFT, then the collapse under the rich liquidity, only helps the rapid price discovery.

Future outlook

The author believes that since Blur's current token economy design does not take into account the inconsistencies of NFT, it is perfectly appropriate to consider Uni's LP pairing mode for mining, in order to improve the inertia and wear of liquidity market makers.

This is essentially an AMM idea, with a front end approach to aggregating rare and floor deals. It's not like Blur has done something similar before. When it was blocked by the Seaport contract, Blur used a front-end approach to bypass the OpenSea mask.

In addition, the direction of competition in CLOB Marketplace should be toward more and more specialization. You have Tensor.Trade for example.

Tensor trading interface

Tensor is a part of Tensor Trade (Aggregator) and Tensor Swap (AMM Protocol), and it's going in a similar direction to Blur in terms of user experience, in terms of providing much more information (NFT floor price K line), And additional transaction experience (richer order function) to the user.

I would also like to see more BID functions in Blur, such as the function of stop profit and stop loss, and the Offer function of batch order management.

Blur with OpenSea Cliff Racer

In response to competitive pressure from Blur, OpenSea launched a zero processing fee on February 22nd to counter Blur, but this did not significantly improve OpenSea's transaction volume, more like a passive defensive informer.

Nearly 3 months of visits to OpenSea (Similarweb)

Blur Visits in nearly 3 months (Similarweb)

In terms of traffic, OpenSea was hit hard by Blur's launch.

Blur, on the other hand, is under pressure. After 22 years of layoffs, the media reported that OpenSea had about 230 employees. The last round of funding was $300 million, and the blood line was still relatively thick. Blur, which has raised $14 million so far, has fewer expenses but fewer bullets. No matter in law (SEC regulation) or in the market, Blur has no way to increase its income by collecting commission fees, nor can it give any ability to $BLUR. It can be said that Blur has pulled it and OpenSea into a cliff jam and played a game in which death is the end.

In the process, second-tier NFT marketplaces such as X2Y2 and LooksRare are being squeezed harder and may fall faster.

Status of the AMM Protocol

In the AMM direction, there was not only Sudoswap, but also early NFT20/Unicly, but early schemes often had fragmentation, or ERC20, attached to them.

This process does not do much for the liquidity of the NFT itself. I think Sudoswap's approach is relatively straightforward.

The standard AMM can only deal with NFT conformance. Sudoswap deals with inconsistencies by using the multi-pool mode, allowing users and the market to adjust to different rarity levels and match them to pools of different pricing levels. Then integrate through the front end. The design is clever, but in practice, this layer is not enough to deal with the complex rarity problem, and does not actually solve the problem.

The author had high hopes for Sudoswap early on, and paid special attention to the Sudoswap airdrop process. In front of the powerful competitor OpenSea, the competition of the whole NFTfi is not like that of DeFi. Uniswap's growth was largely due to the 2018-2019 bear market, which gave it time to build up its audience.

The time does not wait for Sudoswap. Web3 is somewhat of a beefed-up version of Web2, especially with the Matthew effect, which comes with a turbocharged version of Web3. Those who pay attention to DeFi for a long time will find that, from 2022 to now, the Dexes on the ETH chain and the capturing ability of long-tail tokens are basically on Uni side. In addition to 1inch and curve having their own positioning, other Dexes have been greatly squeezed in market value and trading volume.

However, Sudoswap's airdrop plan has left the Wool Party, Pool 1 and Pool 2 players feeling cold. The author even suspected that the project side did not intend to run the project properly. Sudoswap's airdrop was solely to deliver benefits to Xmon holders, or to the project side itself. After all, most of Xmon was in the hands of the project side, without considering the long-term positive incentives for Sudoswap.

Sudoswap dune

In stark contrast to Blur, Sudoswap airdropped it to death. There is also no coherent token incentive plan to provide liquidity support for its own AMMs after the airdrop.

However, as mentioned above, we still believe that AMM still has its huge life space in terms of the processing logic of floor products by CLOB Marketpalce at present. Based on the contradiction between consistency and inconsistency of NFT, neither P2P (CLOB) nor P2Pool (AMM) model can solve the liquidity problem of NFT well, so the author believes that the integration of the two, with one as the main, may be a good direction.

summarize

Although Blur still has a lot of defects, the currency price of $BLUR has been depressed since its launch, and the community has criticized the enabling problem of $BLUR, the author believes that Blur is committed to improving the liquidity of the NFT market, making it stand in a very important ecological niche at the current time node. The second chapter of NFTfi is based on sufficient liquidity. After Uniswap, AAVe, T1 DeFi, YFI, 1inch, T2 DeFi had room to grow.

The Blur/OpenSea cliff-jam is just the first chapter in NFTfi's infinite war, so let's keep an eye on NFTfi.

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