NFT notes: My investment logic for encrypted art

Whenever friends around me learn that I am a poor boy who bought some NFT artworks at a high price, they are often confused. The frequently asked questions include: “Why is this NFT (or some people say JPEG, GIF) worth so much? “

To answer this question, I can choose to say emotionally and willfully: “Because I am a fan, I like it.” But from the rational side, this question is actually an attempt to answer:

“From the perspective of an investor in the crypto field, how to understand the logic of buying NFT artworks for collection or investment?”

I hope to discuss this issue with you in an easy-to-understand manner. Of course, the views in the article only represent the views of the author.

(Thanks to LeftOfCenter, Alen, Shirley, Blair, Johnson, Rex, Felicia and other friends for their discussion and inspiration, and teacher Cao Yin’s article reference)

Because I was shy in my pocket, it took me about two years from my first contact with NFT artwork to the first time I was touched by NFT artwork and convinced myself to buy it into the collection. Although I learned to appreciate the works of many big-name artists such as Beeple, I really started the journey of collecting because of a pair of Hashmasks works I couldn’t help but want to own.

Recalling my experience of falling into the “rabbit hole” of the cryptocurrency field a few years ago, I seem to have seen myself confused when I first started. Art needs the transmission of emotions. I am very happy to have such a feeling in the impetuous and cold encrypted world, but what is art?

The British art theorist Gombrich wrote at the beginning of his book “The Story of Art”: “There is no such thing as capitalized art, there are only artists.”

Why are there only artists? Different people have different understandings. But no matter what, this tone makes it easier for ordinary people to understand the artist’s introduction to art history, and it also emphasizes the importance of the role of “artist”.

In today’s prevalence of technicalism, people prefer to call an artist “Creator” or “Maker”-an artist is a “person who makes things.”

With the entry of non-homogeneous tokens (NFT) technology into the art field, the role of the “stuff maker” in the crypto art field has become more abundant, and crypto artists, curators, critics, distribution platforms, etc. have also been derived Wait for the role.

If we believe this argument, it will be difficult for us to talk about the “NFT art” itself without the scene where each NFT is located and the various characters behind it. Regarding the encryption art discussed in this article, we can even boldly imitate the sentence-“There is no such thing as encryption art, there are only people who do things and those who own them.”

Why not “NFT artwork”?

If you put aside the so-called art, compared with traditional art, the field of encrypted art not only has a richer role as a person who makes things, but also expands the scope of a person who owns art. What is behind it is a more potential capital market.

At the same time, from the perspective of technical attributes, the unique ownership “voucher” attribute brought by NFT non-homogeneous tokens makes it naturally suitable for use in the field of art NFT with unique value, and it is more and more suitable for carrying or transferring large amounts of art. The value carrier of funds.

Owning an NFT artwork is equivalent to owning an on-chain certificate of artwork assets, but NFT is a long way from large-scale application. One of the core questions includes, why is the current NFT artwork still not generally considered to be able to store value?

First of all, the value consensus of NFT is still controversial. Some people think that NFT artworks are more of a digital certificate for collectibles, but this does not mean that NFT artworks are inherently valuable; while other people have a strong interest in collecting specific NFT artworks. Even the crypto communities that are most receptive to new things have polarized attitudes towards the value of NFTs.

Second, the asset liquidity of NFT artworks is poor, and pricing is extremely subjective and difficult. Under normal circumstances, it may take a few days for investors to buy an ordinary NFT artwork before it can be sold again, while a higher-priced NFT artwork may take several weeks or even longer to change hands.

Although there are more and more big coffees in traditional fields trying to issue NFTs, judging by indicators such as active buyers, NFT artworks are still spread in a relatively small circle.

In addition, the infrastructure in the NFT field is still incomplete, and most projects are still in the exploratory and trial stage.

Although the infrastructure and industry standards in the NFT field are in urgent need of improvement, fortunately, we are still in the midst of an era of rapid updates and opportunities in the field of NFT technology and encryption art.

Relying on the innovation of more NFT projects and the improvement of infrastructure construction, NFT artworks are also realizing more and more capital flows under different construction scenarios. I believe that relying on the promotion of these key projects, the entire NFT field will rise.

Although it is a bit risky, why not take part in a fantasy journey of the capitalization of crypto art?

My exploration journey of investing in NFT artworks and projects

Why would anyone buy NFT?

“Money can rug, but fun can not rug (money can be cut, fun can’t be cut)”

——Excerpt from the self-introduction of a member of a NFT community project

For people who spend a lot of money on NFT art, my first instinct is to think that these people are either too rich or stupid, but are they really like this? If you want to start the investment journey of investing in NFT art, you must first think: What drives people to acquire or buy NFT?

If you consider from the needs theory, the famous Maslow’s hierarchy of needs theory summarizes that human needs have five levels, from the bottom to the top of the structure: physiological (food and clothing), safety (job security), social needs (friendship) ), self-realization. Combined with the NFT summarized above, there are always two parties “creator” and “buyers”, we can guess the role of the two parties in terms of demand:

“Buyer” also has five levels of demand for NFT artworks. From the bottom to the top of the structure, they are: obtaining short-term speculative income, obtaining long-term investment income, obtaining fans or ecological rights, and obtaining social attributes (on-chain). A status symbol, an interactive social certificate), and the joy of collecting.

It can be found that the news that we often see, including the high price of a certain number of Cryptopunk being sold for millions of dollars, may be a type of collector with a higher level of demand for NFT art. But in fact, as time goes by, we cannot ignore the pursuit of more ordinary people entering the game for investment in NFT and fan rights or social proof.

We see that more and more new participants have begun to tend to collect some valuable NFT artworks. It is conceivable that as the base of people participating in the field of NFT art increases, the collecting crowd and the investing crowd will change. More, and more likely to appear more expensive artworks.

Thinking from another perspective, if you really believe that there are small circles that spend money to collect NFT art purely for hobbies and happiness, the more loyal the circle, the easier it is to attract more smart money outside the circle to enter speculation. Of course, you should also be aware of the formation of bubbles and side effects.

From the perspective of business model, how to choose NFT artworks and projects?

First of all, encrypted art projects do not necessarily require a so-called business model, and the standards of various art works are also closely related to the preferences of the audience. However, NFT’s own cryptocurrency attributes and the success of cryptographic art projects such as Cryptopunk and Hashmasks have virtually established a set of project design and issuance standards for exploring the main collection of NFT cryptographic art projects.

Up to now, projects such as Cryptopunk and Hashmasks are still at the forefront of crypto art project transaction volume and transaction prices. But more importantly, these NFT art projects all have a fan community with a strong consensus.

From the perspective of a collector, the common characteristics of these high-quality projects in project art and theme design include:

The artwork itself is attractive and the total amount of circulation is fixed

The distribution model has a high degree of community participation (fair distribution or blind box purchase and distribution)

Attractive collection rarity design (for example, Cryptopunk’s alien or zombie characters, etc.)

Others: embedding threads or colored eggs that are conducive to the long-term development of the project (such as the hidden cultural attributes of Hashmasks, etc.), community activities with rewards (such as holding online exhibitions, etc.)

In addition, for the encrypted art platform, the sales method of NFT art is also constantly innovating. Encrypted artists can not only register on the platform, issue works, and start bidding in the market, many platforms have begun to try the model of cooperating with artists for pricing and sales.

For example, the NFT Drop mode launched by the Nifty Gateway platform selects the works of different artists every day and allows artists to issue a series of limited works with different price gradients. This attempt is not only convenient for novices to collect, whether anyone is willing to snap up at the time of release, how the works perform in the second-hand market, etc., is also a process of “price discovery” for encrypted artists’ works.

In addition, projects including Meme are exploring a model of combining tokens and in-depth cooperation with big-name artists, in which investors can buy MEME tokens and pledge them in pools of different artists to obtain points, and use the points to snap up works issued by artists. The advantages of this innovative model over open market platforms include:

Participants do not need to spend a lot of time to select artists, the community can try to cooperate with big-name or potential crypto artists

Helping token holders to obtain the collections of some big-name artists that have been auctioned at “sky prices” without spending huge costs

Participants can play different roles at the same time, including token investors, art collectors, project governance participants, etc.

Participants can meet different needs, including long-term low-cost access to art collections, direct interaction with artists in the community, rush to buy artworks for speculation or long-term investment, etc.

Is the exploratory design of these business models just to attract more fans to discover and buy collections? Indeed, in the niche circle of collecting art, this kind of design tends to be more attractive to collectors and form a strong consensus in the fan community.

But from another point of view, the “business model” of NFT artworks is actually an exploration of how to define the “pricing” of NFT artworks, and it also serves to generate more valuable community consensus.

Imagining the future, the NFT issuance model will gradually become a prerequisite standard for capitalizing NFT artworks. For example, the blind box issuance model or the NFT Drop model will actually provide an objective reference basis for the more subjective pricing of NFT artworks. The design will actually affect the subsequent pricing and value-added of different types of NFTs.

It is worth noting that simply imitating these business models does not necessarily produce high-quality NFT artwork projects. It can even be foreseen. Similar to the previous ICO boom, 99% of the value of NFT artwork projects will also be zero, and the value of the project will ultimately remain It depends on whether the work is liked or whether the project can achieve a strong consensus.

How to avoid those NFT artworks whose value may be zero? I have a few tips to share with readers:

Buy projects that already have a certain strong consensus and value, and stay away from excessively hyped NFT art projects

Use aesthetic intuition to buy the works you like, because it is very likely that these works will not be able to change hands in a short time, at least you can leave those things that you like in your heart.

The artworks or projects that can be left will definitely have a pioneering or profound impact on social culture, industry, and art history (the way of identification is that if there is no impact now, there will certainly not be a profound impact in the future)

How to sell my NFT artwork? Who will buy it?

When I first entered the field of NFT art collection, my biggest concern was: “If I buy encrypted art at a high price, how long will it take me to sell? Will no one like it and cause it to be unsellable?”

In fact, these concerns and problems have always existed in the field of traditional art, but the development of infrastructure in the NFT field is seeking to improve these stubborn problems in the traditional art market.

Compared with the traditional art market, the current advantages of the encrypted art market include:

The entrance of “wallet + platform” is simpler, which is convenient for more ordinary people to participate in auction, investment, collection and transfer

The process of buying and selling is simpler and more suitable for large funds (the process of bidding and changing hands can be completed in a few minutes, without the intervention of traditional auction houses and banks)

On-chain auctions are more open and transparent, and at the same time richer in forms. Because of the traceability characteristics of the blockchain, there is no need to verify the authenticity of artworks. At the same time, it is easier to see other people’s collections and transaction records, adding more social attributes to encrypted artworks

So, who will buy my NFT artwork?

Ben Roy wrote in “The Fat CryptoPunks Thesis (Why CryptoPunks will usher in the Cambrian outbreak?)”: The total market value of CryptoPunks will continue to grow substantially in the next five years, and may even be proportional to the size of the entire NFT market. He took CryptoPunks as an example and divided the future buyers of CryptoPunks into two categories:

There is no cryptocurrency in the holding funds (new entry of high net worth individuals)

There are native cryptocurrencies in the holding funds (normal investors of NFT artworks and old NFT guns)

In my imagination, the reason why collectors of future NFT artworks do not need to worry about the problem that high-quality artworks cannot be sold is because the infrastructure in the NFT field will continue to be enriched in the future, such as NFT loan mortgage products, NFT exchanges, etc. Innovative tools will continue to emerge. Buyers of NFT artwork will also attract and cover a large part of the existing cryptocurrency investors, and there will even be robot spread arbitrage (quantitative traders in the NFT field?), liquidity market making on NFT decentralized exchanges, etc. demand.

In the future, the range of people buying NFT artworks will not only expand, but their attributes will also change. It is possible that the person who buys artworks is not a single person, but a group of people, a pool, or an exchange, or even a robot. At the same time, ordinary NFT artworks can be sold in the liquidity pool at the Floor Price (reset price) at any time, and the high-priced precious encrypted artworks will be fragmented into a kind of assets with common property rights to facilitate sales.

Although still not perfect, the vision of these NFT fields is being realized. More and more NFT projects try to combine with DeFi, and gradually piece together the composable “NFT Lego” in the NFT ecological field.

My List

Finally, let us see the full picture of the future NFT art market from some of the projects currently exploring and promoting the development of the NFT field:

NFT liquidity / reserve price related items: NFTX, Very Nifty

NFTX

Website: https://nftx.org

Introduction: NFTX is an NFT index fund protocol. Through the creation of NFT tokenized index funds (such as $PUNK), it provides liquidity for illiquid NFTs such as CryptoPunks. It currently supports users to deposit personal NFTs and redeem them randomly . At the same time, NFTX also launched subdivided NFT series collections, such as the zombie series index fund PUNK-ZOMBIE of CryptoPunks.

Very Nifty

Website: https://nft20.io

Introduction: Very Nifty is a community-driven NFT liquidity + exchange project. The project divides NFT assets into different asset pools, attracts holders to deposit into NFT and provides liquidity through mining rewards and other modes. At present, the platform supports users to deposit personal NFT and redeem it at any time, and supports the NFT-NFT one-key exchange mode in the NFT pool.

NFT trading and fragmentation related projects: NFT Protocol, NIFTEX

NFT Protocol

Website: https://www.nft.org/

Introduction: NFT Protocol aims to establish a decentralized NFT exchange. The platform is currently in the internal test phase and will officially release the product in the first quarter. The demo currently released supports the swap function of NFT in ERC-721 to ERC-721 and ERC-721 to ERC-20. At the same time, the platform will cooperate with the Flow public chain.

NIFTEX

Website: https://www.niftex.com/

Introduction: NIFTEX is a trading platform that supports NFT holders to fragment NFTs and become ERC-20 tokens. The project aims to provide the function of NFT splitting and sale, and provide restrictions on the prevention of sell-out, and facilitate investors to deal with high prices. NFT invests.

NFT mortgage and loan related projects: NFTfi, Drops

NFTfi

Website: https://nftfi.com/

Introduction: NFTfi aims to become a peer-to-peer mortgage lending platform for NFT. Users can choose to mortgage NFT and lend assets such as ETH or DAI. If the borrower defaults, the ownership of the NFT will be transferred to the lender.

Drops

Introduction: Drops aims to become a lottery, pledge and loan platform for NFT. The project is still in the development stage and was founded by the team of the blockchain game Noderuner.