Creating NFT Market Structure 2.0
The size of the NFT market is soaring. Research from Nonfungible shows that the entire market capitalization of NFTs increased from roughly $40 million in 2019 to over $380 million by the end of 2020.
With record-breaking deals taking place in 2021, the market capitalization has quickly surpassed its 2020 year-end levels. On Valentine’s day alone, more than $6 million of NFT value traded hands, and that’s only accounting for Layer 1 of the Ethereum blockchain.
NFTs have also taken on a new level of legitimacy with renowned individuals and businesses interacting with this nascent asset class. From December 11th to 13th 2020, digital artist Beeple, whose Instagram account has over 1.8 million followers, sold over $3.5 million worth of his artworks, with provenance and authentication embedded through NFTs, on the NFT marketplace Nifty. Beeple is following this up with the first NFT sale at a major auction house. The auction house Christie’s has been auctioning a collection of 5,000 Beeple artworks between February 25th and March 11th. Bids quickly crossed $2 million within the initial days of listing.
On top of this, several prominent figures have voiced their interest in NFTs, with Mark Cuban, Mesut Özil, and Linsay Logan ranking among advocates. Businesses have also been active with brands like Turner Sports and Breitling coordinating NFT sales. Globally recognized enterprises like Nike, Louis Vuitton, and Formula 1 are also considering NFT activities that will be linked to their business operations.
Decentralized Finance (DeFi) recorded phenomenal growth in 2020. The total value locked (TVL) in DeFi protocols increased from under $700 million at the start of 2020 to over $15 billion at year-end. DeFi was the asset class of 2020. Data and developments suggest that NFTs will be the asset class of 2021. Interest has been piquing with Google search volume for the term “NFT” showing record highs.
(Source: Google Trends)
Despite the rapidly growing interest and activity in the NFT market, the market structures underpinning NFT trading and speculation remain rudimentary. Marketplaces are largely illiquid and widely fragmented. NFT Tech, an emerging NFT infrastructure provider, will launch the first liquid matching engine that can be used throughout the NFT market.
Introducing the World’s First NFT Matching Engine
In its current form, the NFT marketplace presents a myriad of challenges to NFT owners. Lack of liquidity ranks chief among these challenges. NFT owners can experience significant devaluations in their holdings and may be unable to sell their assets. Moreover, with fragmented marketplaces, NFT traders can struggle to secure a counterparty among the widely dispersed marketplace. With different marketplaces offering varying infrastructures for storing and sending NFTs, the imperative of securing a counterparty becomes complex.
NFT.Tech has designed the NFT Tech Liquidity Engine to address these challenges. The NFT Tech Liquidity Engine is the first matching engine infrastructure for NFT marketplaces, allowing a bid-order book to be formed and incentivizing market makers to allocate liquidity to the lower tail of NFT value distributions. The NFT Tech Liquidity Engine can be adopted by any NFT marketplace, allowing such marketplaces to implement previously untapped liquidity. A sophisticated NFT evaluation algorithm assigns a valuation and valuation distribution to NFT assets. Market makers are incentivized through a rewards program to provide liquidity to the lower tail of the valuation distribution. The evaluation algorithm is powered by years of historical NFT data, weighing up key variables to determine NFT prices.
Market Maker Activity and Yield Farming
Liquidity providers, market makers, can interact with the NFT Tech Liquidity Engine by providing liquidity at the lowest possible price of the NFT value distribution. By engaging in this activity, market makers have the possibility of buying the NFT asset for the lowest possible price. Following this, the NFT Tech Liquidity Engine can set the asset for sale at the average NFT price for this niche of NFTs among all major marketplaces. If this price is reached for the asset, the liquidity provider earns a return on the allocated capital.
Market makers can also participate in a staking program. Liquidity allocated to the staking program is dedicated to the Engine Fuel Pool, a liquidity pool which earns a lucrative return by facilitating NFT sales. The APY earned by allocating to the Engine Fuel Pool dynamically adjusts based on the demand (i.e. facilitating trades) and supply (i.e. liquidity providers) of capital within the pool.
NFT Valuation Calculator
NFT.Tech will also provide an NFT Valuation Calculator for those interested in getting a market-based valuation of NFT assets. The NFT Valuation Calculator will be particularly useful for prospective NFT buyers who wish to receive a data-based valuation before committing to a purchase. The NFT Valuation Calculator derives valuations from historical sales and the current market dynamics among the most well-known NFT marketplaces. By using the NFT Valuation Calculator, the risk of purchasing a worthless NFT approaches zero.
NFT Tech — Creating NFT Market Structure 2.0
NFT.Tech is committed to advancing the marketplace infrastructure for NFT trading. In its current form, NFT trading is fragmented among a myriad of marketplaces while lacking market makers and liquid bid-orders books. This presents countless challenges for NFT traders, raising the risk of their assets approaching zero and subjecting them to significant depreciation. The NFT Tech Liquidity Engine will be the first matching engine designed specifically for the NFT marketplace. By incorporating a sophisticated NFT evaluation algorithm and incentivizing market makers to allocate liquidity to the lowest possible values for NFT assets, the NFT Tech Liquidity Engine will advance the market structure for NFT trading.