The Weekly Take
In the never ending search for yield, decentralized finance is beginning to eye the NFT market. With nearly $10 billion in NFTs traded already this year and marketplace fees in the hundreds of millions per month, new experiments in market making and liquidity provision are starting to come online in an effort to capture this lucrative revenue stream. While a number of basic tools for the financialization of NFT assets have been deployed in the last few years, including automated market makers (NFTX), borrowing and lending (NFTfi), fractionalizing (fractional.art), and group buying (partyDAO) we have not seen anything close to the full arsenal of tools brought to bear that decentralized finance has to offer.
The biggest challenge in NFT markets continues to be liquidity. Bid-ask spreads (when bids even exist) are typically very large, rendering floor prices an imperfect proxy for the market value of an asset. While definitely frustrating for an individual trader who wants to sell an NFT, illiquid markets with ill-defined prices also make the construction of financial derivatives based on NFT collections nearly impossible. New products like FloorDAO (creating “deep liquidity for … blue chip NFTs”) are beginning to enter as market makers but these efforts are still very early. Appraisal protocols like Abacus attempt to crowdsource NFT values. However, generalized price oracles still remain an unsolved problem.
This lack of progress to date, however, should not yet signal concern. These issues have plagued traditional art and collectibles markets forever and in many cases can be much worse. With traditional banks like JPMorgan and Goldman Sachs ramping up their services in this area - even leading to the creation of a secondary market for art-backed loans - it seems inevitable that the wild-west of decentralized finance will come up with even more interesting and creative ways to tap the deep well of NFT value.
Chart of the Week
There were only 15,852 monthly traders (number of accounts with at least one trade in the month) on Opensea in February last year. Last month there were 546,145 monthly traders - a 33x increase.
News
CVS, the large US drugstore chain, has filed trademarks for its logo and an online store for its use in the metaverse. While there are no concrete plans to expand operations to any particular world, it is just one more example of major companies positioning themselves for an increasingly digital world.
Metaverse gaming and blockchain company Immutable just announced completion of a $200 million raise at a $2.5 billion valuation. The company is known for its Gods Unchained card game and its Immutable X layer 2 scaling solution for the Ethereum blockchain. Funding for crypto startups is at record highs with January and February posting the two highest months on record for new crypto investments.
The Grammy Awards is launching its own collection of NFTs. While this collection just serves as memorabilia for the award show (and a chance to win access to future events) it comes at a time when music NFTs are just starting to find their footing.
Upcoming this week in Metanomics
Thursday, March 10th:
3pm EST - Metanomics Spaces #3: Tokenizing Real World Experiences with David Rodolitz (CEO/Founder of FlyFish Club)
Nameless makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in Metanomics. The information, opinions, and recommendations presented in Metanomics are for general information only and any reliance on the information provided in Metanomics is done at your own risk. The information provided by Metanomics should not be construed as financial, legal, or business advice, or professional advise of any kind.
The author may be an investor in one or more of the companies, investment products, or NFT projects mentioned in this article.