Interview with Merlin Protocol: RWAs+NFT, the next outlet in the NFT market?

Q1: The guest of today's exclusive interview is Alex, a partner of Merlin Protocol. Alex, can you briefly introduce yourself first?

A：Hello, friends from the community!

I'm Alex Parker, a former investment banker and passionate blockchain investor. I have over 8 years of professional financial services experience in several top investment banks, with a particular focus on technology and fintech. I hold an MBA from the Wharton School of the University of Pennsylvania.

Q2: Let's talk about the market first. I heard that the Merlin Protocol team has been working in the Bitcoin industry for many years. What do you think of the recent bear market? Especially the part about bitcoin, is it the bottom now? We want to hear the views of people in the Bitcoin industry.

A：Now the most "talked about" is the so-called bear market topic and the FTX thunderstorm incident. This topic is somewhat bitter, but this is exactly what I want to convey to everyone: the more bearish the market, the less desperate you should be , the more we need to consider what we can do and invest in in a bear market. The bear market is the biggest source of income for practitioners and investors.

When is the bottom? We have to ask ourselves two questions: First, what are the characteristics of the bottom of a bear market according to historical laws? The second is whether a series of events have appeared in the current market to verify the historical law?

In the bear market, due to the general decline of encrypted assets, many institutions are constrained by rigid costs, and cash flow needs to be maintained by selling high-level assets. Therefore, in the middle of the bear market, there must be liquidity problems first among highly leveraged institutions. This has been fulfilled in the Luna and Three Arrows incidents in the middle of the year; The exchange mainly earns handling fees, and its scale is directly linked to the transaction volume + asset price. There is a high probability that the bear market will need to clear the "capacity" of CEX. This has also been fulfilled on FTX. It can be seen that this round of bear market has already appeared mid-term signals and bottom signals. In a vague sense, the time of the recent thunderstorm has constituted a typical feature of the bottom.

As a person who has experienced more than two rounds of bulls and bears, I sincerely suggest that everyone should be cautious in buying bottoms, especially pay attention to the selection of positions and targets. First of all, you vaguely know that now is the bottom, but it is difficult for you to accurately predict when the market will officially reverse. If you are a little bit unlucky, you will "fall before dawn". Secondly, the projects with a huge decline now may continue to suffer huge declines due to project quality and team management problems. After all, many altcoins have zero cost. Finally, each round of bull market has a different narrative, how do you ensure that you can grasp the main line?

The above problems will not happen to Bitcoin. In a bear market, time is Bitcoin's friend. Historically, the biggest drop in Bitcoin has been around 75% -85%, but this round of decline has achieved a drop of close to 80%, and the current position has an excellent margin of safety. Looking at the medium term, Bitcoin will halve again in March 2024. I cannot accurately predict when the next bull market will come, nor can I accurately predict what the narrative of the next bull market will be, but I can be sure that the next Bitcoin bull market will definitely come.

Almost no black swan risk is another advantage of Bitcoin. The recent black swan of FTX has shown us that even the world's second largest compliant exchange can collapse within three days, so what else is impossible for the Crypto market? Investment is the most test of "ass", and grasping certainty as much as possible within one's ability is the biggest source of profit for most investors.

If you lack confidence in yourself and are worried about poor purchase price and position control, I directly recommend regular investment purchases or participation in mining. Mining will smooth the future income to the greatest extent, and make good use of the time of the bear market to accumulate the amount of assets. This is the most mindless method and has been proven by history to be the most effective method.

Q3: Several expositions on the bear market are wonderful! Another area that has attracted a lot of attention in this bear market is NFT. How do you judge Alex in this area?

A：Although I have a deeper understanding of Bitcoin, we have also dabbled in NFT, so I will briefly talk about my personal opinion.

In the bear market, the test faced by NFT is even more severe than that of general Altcoins (altcoins), which is determined by the characteristics of NFT itself. First, NFT is too young, and there are few time-tested high-quality assets accumulated in the field, and most "junk assets" will be wiped out in a bear market. Second, the liquidity of NFT is much worse than that of FT. On the basis of the lack of liquidity in the bear market, it can be said to be even worse. Third, NFT-based De-Fi, that is, NFT-Fi, is far less mature than De-Fi, so the support for NFT in financial instruments in the bear market is very lacklustre, which in turn exacerbates liquidity problems.

Recently, the BAYC (boring ape) asset pool on the well-known NFT-Fi lending agreement BendDAO has been deliberately attacked. The attacker took advantage of the low liquidity of NFT to create abnormal transaction prices in a short period of time, triggering the forced liquidation of the BendDAO protocol BAYC assets that are mortgaged. If the BAYC of top-tier projects is like this, the situation may be even worse for other NFT-Fi assets.

Q4: So, as I said before, there are so many problems in the NFT market, do you think there is no solution?

A：You see many problems with NFT today, such as insufficient standardization, insufficient liquidity, and lack of financial instrument support. In fact, they are essentially a problem, that is, the quality of the underlying assets behind NFT is not good enough. And we firmly believe that the problem of NFT asset quality will only be temporary. In the foreseeable future, the industry will witness a large-scale NFTization of Real World Assets (RWAs).

The world of NFT should be a sea of ​​stars, because in the real world there are extremely rich underlying assets and rights that can be mapped to NFTs, such as artwork, music, membership cards, consumer rights, income rights, equity, and various on-chain Credentials... Now when it comes to NFT, people will most likely think of boring apes, Doodles, and Azuki, but please remember that PFP (Avatar Picture) is definitely not the whole of NFT. Speaking of this, Merlin Protocol is actually doing a great experiment. We are trying to bring the systematization of real-world assets to the chain and to the Web3 world. Our practice is likely to fundamentally solve many current problems in the NFT field.

For example, the most criticized NFT liquidity problem in the market is fundamentally a problem of asset quality. Due to its heterogeneous characteristics, NFT's liquidity is naturally inferior to that of homogenized tokens. However, the liquidity of the real estate market (the assets are heterogeneous) in major first-tier cities around the world can also be very good. So if many people want an asset, the liquidity will not be bad, because there will be many people who are willing to actively provide liquidity and provide financial services.

The further development of NFT-Fi will also add the last piece of the puzzle to solve the NFT liquidity problem at the tool level. As a market-level attribute, liquidity needs to be supported by market-level infrastructure. In the NFT field, we need to rely on NFT-Fi. Using various De-Fi ideas and methods, such as mortgage lending, Fractionalization (fragmentation), and AMM (automated market making), can improve the liquidity of NFT on the chain. I have observed that there are many NFT-Fi projects in the market making various attempts, and I believe that a hundred flowers will flourish soon.

Q 5: Alex, I talked about Bitcoin and NFT earlier, and it seems that they both have some connection with Merlin Protocol. How does Merlin Protocol combine two seemingly unrelated things, Bitcoin and NFT?

A：What Merlin Protocol does, in a word, is to introduce Bitcoin computing power as a real world asset (Real World Assets/RWAs) into the Web3 world. Merlin Protocol will be the first systemic and protocol-based implementation mechanism for RWA projects on the chain.

The issuer (third-party mine/miner) can issue products after passing Merlin’s risk control inspection. The bottom layer of each product is an independent asset. AB-NFT (Asset back NFT) can be issued through the Merlin Protocol. This idea is very innovative nature, but also in line with our technical intuition and business intuition. This is inseparable from the knowledge and experience of our core team members in related industries.

In terms of technical background, the technical members of our team include early contributors to the Bitcoin community, core developers of blockchain public projects, senior architects of top streaming media companies, founders and core developers of distributed computing and storage service providers. All members have more than 5 years of blockchain industry development/product design experience, and are very familiar with Bitcoin technology, consensus protocols, EVM development, De-Fi development, exchange/trading market development and other fields.

In terms of business and financial background, our team includes economic experts who hold CFA and focus on financial innovation business such as derivatives structure design and risk management. Compliance is very familiar with the experts. They have more than 5 years of experience in the traditional financial industry, FinTech and Crypto fields.

At the same time, our team is a highly international team with strong cross-border and cross-border collaboration capabilities. Team members are located in Asia, Europe and North America. Merlin Protocol has also reached strategic cooperation with North American mining company kming, law firm Ailiak Law, data service provider NFTscan, leasing agreement service provider Double, and communities such as OVT hubs and unenumerated labs, helping us on the asset side, technology side, and compliance Ecological links such as end and market operation end have achieved better development.

In addition to the above-mentioned industry know-how and ecological cooperation based on our core members, our advantages in existing core business resources also constitute a key support for the project. Regarding the Bitcoin mines that form the basis of Merlin Protocol's business, we have several years of experience in developing and operating mines in many countries and regions. Currently, we have enough computing power to support the start-up and operation of Merlin Protocol.

Based on the above capabilities, experience and resources, we were able to successfully accumulate a lot of technical and business model verification work in the early stage, and we will also have the ability and resources to quickly replicate and expand the business scale in the future.

Q 6: The introduction of the project and the team is very exciting, but you may have a question, what is the specific product of Merlin Protocol for the market? Is it possible for ordinary investors to get in touch?

A：As mentioned earlier, Merlin Protocol tries to solve the problem of how to introduce real-world assets into the Web3 world through standardization + on-chain processes from the protocol level, and HashNFT (Bitcoin hash power NFT) is based on Merlin Protocol to hash Bitcoin To achieve the successful practice of the first RWA.

HashNFT should be accurately defined as the first RWA-based AB-NFT product issued by Merlin Protocol, and the bottom layer is the BTC computing power of compliant third-party mines. HashNFT implements the whole process of investing in computing power (including pre-sale, observation period, delivery period, and before the end) on the chain through smart contracts. The contract automatically performs fund settlement and output delivery according to the state of the oracle machine, ensuring that the settlement process is open and transparent. Eliminate asset misappropriation, allowing NFT holders to obtain the same return on investment as mining in the real world.

Bitcoin computing power is a real asset in our real world: it is built on the basis of relevant venues/machines/facilities/personnel, it exists objectively and has a physical form, it requires continuous operation and maintenance, and after it starts running Capable of generating cash flow income, it is expected to ultimately generate financial profits... No matter what angle we analyze from, Bitcoin computing power meets the prevailing definition of "asset".

The Bitcoin computing power was selected by Merlin Protocol as the first RWA to be introduced into Web3, which is very suitable in all aspects. It conforms to the typical definition of RWA, is naturally accepted by Web3 users, and is closely related to Web3. As a product and deliverable of mining, Bitcoin itself is also an asset on the chain. Its existence and transfer activities are open and transparent, and can be easily captured by oracle machines, making the entire business model robust enough.

Standardization, sharing, and liquidity are the eternal themes of real-world assets, and they are also eternal problems. Any asset that can do better in these three things will be more popular in the financial market, and it will be more conducive to using financial activities to create more physical value in turn. Based on this understanding, we spent a lot of energy to build the Merlin Protocol, which solved the important problem of introducing Bitcoin computing power as RWA into the Web3 world.

The market need for the Merlin Protocol is obvious. Both for bitcoin mine operators and investors in the market, there are strong motivations for the "financialization" of bitcoin computing power assets. For various reasons, mine operators hope to recover the funds invested in the early stage as soon as possible; because market investors do not have the ability and funds to operate mines themselves, they hope to directly purchase the business shares of mines that have been built or are planned to be built.

Merlin Protocol has formed a complete closed-loop mechanism in terms of quantification, verification, disclosure, custody, and delivery of Bitcoin computing power, solving how to standardize and transparently verify Bitcoin hash computing power, and how related financial activities are mapped to Difficulties in NFTs. HashNFT is presented as the final product, which significantly reduces the threshold for investors to participate in mining, improves the transparency and credibility of computing power share, and also promotes greater liquidity of computing power share. It is a multi-party win- win result.

HashNFT adopts NFT form to solve the problem of chaining real-world assets, which is also a point worth explaining separately. HashNFT can not only obtain the support of common financial facilities in the market (such as centralized NFT exchanges, decentralized exchanges, NFT lending agreements, etc.) people to get in touch with more financial scenarios.

Just a while ago, we also had an in-depth exchange with the team behind EIP-4907 (a protocol that supports non-homogeneous token operations on Ethereum). A considerable degree of recognition was expressed, and a strategic cooperation intention was immediately reached, and there will be more technical cooperation and ecological cooperation in tokenization in the future. In terms of tokenization and how to exploit the potential of NFT assets, Merlin Protocol will work with these frontier forces in the industry to explore more.

Q 7: But Alex, I feel that the HashNFT model is somewhat similar to the concept of "cloud computing power". Is there any difference?

A：HashNFT is not cloud computing power, and there is an essential difference between the two.

Cloud computing power, in our words, is a "mining business share promised by commercial credit". Cloud computing power is a common and traditional mining business model, and its function is to introduce more individual investors into the mining business. Although HashNFT has similar appeals, in essence, it is based on the Merlin Protocol, which systematically and protocolically implements the product of Bitcoin computing power as a real-world asset (RWAs) on the chain.

Generally speaking, Merlin Protocol has completed what traditional cloud computing power has not done, such as standardization, protocolization, and NFTization. These three are not simply juxtaposed, but support and empower each other. The devil is in the details. I will introduce in detail, what is the specific difference between HashNFT and cloud computing power, and how HashNFT subverts the traditional cloud computing power model.

First of all, HashNFT solves the problems of transparency and verifiability of computing power. Traditional cloud computing power is essentially an act of splitting the income rights of computing power and selling them to small and medium-sized investors. The initial field machines are generally inspected and verified, but the output information during daily operation can only be obtained by mining pool operators And transmission, internal and external information is asymmetric. Investors need to use estimates to confirm whether the returns are in line with expectations, and it is difficult to verify why when things go wrong. Merlin Protocol’s approach is to use the logic of over-collateralization of RWAs assets and future cash flow discounting, and feed the real-time computing power of the entire network and the proportion of mining pool computing power in the cycle through Oracle (decentralized oracle), and then infer theoretical output. The Merlin Protocol will compare the input of the Oracle with the output submitted by the miners in the cycle, and enforce that it must be within a reasonable theoretical range. The design of this product is more in line with financial logic. At the same time, users can buy future BTC output at a discounted price, and buy BTC at a cheaper price.

Secondly, HashNFT has implemented a delivery and settlement process that prioritizes the protection of user rights and interests to maximize the cost of doing evil. For example, in the settlement of computing power sales income, we do not pay directly to the seller (mine farm/miner), but lock it in the smart contract and release it in batches according to the output submission history. Code is law, there is no way to take away all the sales revenue before the mine/miner actually produces coins that meet theoretical expectations and distributes the proceeds. For another example, we will require mines/miners to stake a certain amount of platform tokens in the smart contract to further increase the cost of doing evil. No matter where the evil is done, it will be discovered and punished immediately.

In addition to the contract level, we also use the strictest standards to require mines/miners to conduct offline compliance and information disclosure. As a physical industry, mining farms inevitably have many parts that cannot be verified online or on the chain. We will require mines to complete the audit, and the third-party custody arrangement will absolutely follow the highest standards. We hope that investors will be more rest assured.

Q 7.5: So how does HashNFT solve the liquidity problem of computing power share?

A：The poor liquidity of computing power comes from two fundamental problems in theory: one is that computing power itself is opaque and non-standard, and it is difficult to obtain good liquidity, which is a market rule; the other is that the traditional way is offline sales contracts (or In an online closed system), there are various terms and conditions, and the transaction and circulation cost of computing power share is huge.

The combination of standardization + NFTization solves the above problems in a targeted manner. First of all, Merlin Protocol reasonably hides the complexity behind the computing power share, lowering the threshold for users to understand. Furthermore, the rights and interests are placed in the HashNFT, and the income distribution and settlement are done through the transactions on the chain. The transparency is greatly increased, because anyone can know whether the computing power behind a HashNFT has historically been supported by looking at the transactions on the chain. Some people bring reliable income! The approach of Merlin Protocol is a game changer in the industry.

Merlin Protocol also introduces NFT-Fi facilities to improve liquidity and enrich financial service scenarios. For example, if you want to trade HashNFT, we provide NFT Swap to complete the transaction in a decentralized manner, with zero trust risk and no offline process. If you hold a large amount of HashNFT and want to obtain some liquidity, but do not want to completely give up the future income of HashNFT, you can also put HashNFT in Merlin Protocol’s loan pool and directly realize part of the income right.

In fact, from a perspective closer to the market, Merlin Protocol is likely to exist as a direct booster and promoter of the next round of NFT bull market. The first round of NFT bull market originated from the acceptance of the NFT concept by the market, and its basic gameplay has been verified in the asset class of PFP (Avatar Picture). PFP asset is a simple, digital off-chain asset. It is a matter of course that it is first accepted, and the next round of NFT bull market will inevitably require people to extend the underlying assets of NFT to the real world, so as to realize that NFT was invented at the beginning It has a clear mission - to carry various real-world assets (or rights and interests) with non-homogeneous characteristics. At that time, whoever can do a good job of "introducing RWA into Web3" in terms of both the implementation mechanism and the implementation scale will be able to enjoy the biggest dividend of the next round of bull market.

Q 8: It sounds like the HashNFT scheme is very reliable. But according to my understanding, investors always attach great importance to absolute returns, and the previous analysis focuses more on how to control risks. May I ask Alex, if you only emphasize low risks, the perception of ordinary investors does not seem to be strong. And if the risk is low, will your income be correspondingly lower?

A：To correct a perception, low risk itself is a huge advantage. The next bull market for Bitcoin will always come, so the "coin hoarding party" and "mining party" are not afraid of the long-term downturn in currency prices, but they are afraid that they will return to the pre-liberation once they step on the thunder. The risk-controllable system provided by Merlin Protocol is actually the "ultimate paradigm" that many mining investors dream of.

If we put aside the advantage of low risk, only in terms of absolute income, HashNFT also has the following advantages:

First, mines and machines of the same specifications are made with traditional cloud computing power and HashNFT respectively. The cost of each link of the former is not low, and it faces the risk of cheating. In the end, there is a high probability of high loss and low income.

Second, the computing power represented by HashNFT will receive a large premium in the market. The premium comes from the more transparent and verifiable computing power share behind HashNFT, and also from the liquidity advantage of NFT. In the financial market, low risk and high liquidity are important sources of premium, which is an eternal truth.

Third, holding HashNFT can get some extra benefits, which cannot be given by the traditional cloud computing power model. For example, holders will get benefits from financial scenarios (such as lending in NFT-Fi or providing liquidity), and they can also get benefits from some community user feedback activities at the Merlin Protocol level, which is also considerable.

Q 9: But I feel that there are so many interesting things in the encryption market. Will this type of investment be boring? Whether long-term investment can withstand loneliness is a big problem.

A：If you are optimistic about BTC, I will directly recommend you to buy HashNFT instead of buying BTC directly. Buying BTC and hoarding coins = confronting human nature, it is difficult for you to win.

"Hoarding coins" is a good investment strategy, yes, but it requires a strong psychological quality and absolutely solid beliefs to ensure that you can remain unwavering when the market goes down (you won't easily sell low-priced chips), and you can go up in the market Resist temptation from time to time (will not hand over chips in the early stage of a bull market just because of small gains).

Investing in mining can avoid many problems unique to coin hoarding strategies. Mining is a long-term income. The time allocation for obtaining income is mandatory and passive. You must accept a relatively long-term investment-income process. This feature of smooth income makes you have to act with a "long-termism" attitude, and it is difficult for you to miss the most exciting part of the long-term cycle.

So in the matter of "endurance to loneliness" you said, I think investing in mining is much friendlier than buying and hoarding coins, and the success rate is much higher. Buying HashNFT not only enjoys this benefit, but also gives you a lot of extra things. For example, you can play it like other NFTs, use it for loans to earn interest, provide incentives for liquidity acquisition agreements, and so on. Merlin Protocol will launch a native HashNFT leasing market in the future. It is worth considering for users who do not want to give up income but also want to exchange some liquidity.

In addition, with the release of the first batch of HashNFTs, we will simultaneously plan a community mining event, not only to give back a considerable portion of real money revenue to early community users, but also to bring a positive community atmosphere Established, this is very good for us to stick to the investment.

Q1 0: Now I don't question HashNFT's friendliness to retail investors at all. I would like to talk about another perspective, that is, from our industry, for example, for project parties, large institutions, and Merlin Protocol, will there be a chance for sparks?

A：Of course, if it is for big players, such as the project parties and various institutions you mentioned, I can also provide some ideas on how to play this HashNFT ecology together.

The first idea is that HashNFT can be used as a good investment target and contributed to the investment DAO community. Now there are many DAOs of investment entities with funds in hand, but many targets in the bear market are still unavailable, so why not consider investing in BTC mining? This is the highest-quality asset you can buy in the cryptocurrency industry, and it is in the form of NFT on the chain, which is perfectly compatible with the functional modules of DAO. We also said just now that HashNFT is very fun, you can do a lot of things and get a lot of benefits, I think this is perfect for the investment DAO community. We will launch the first phase of the HashNFT contract on February 24th, with a computing power scale of 50,000 TH/s. At the same time, we will launch a Discord point prize pool game to give back to the early participants in the community. You can enter our Discord for more information.

Another idea, we internally call it "NFT empowerment". To put it simply, if you are working on an NFT project and you want to endow your NFT with more value endorsements based on your original story, you can consider "binding" some HashNFT income rights to your NFT Then your NFT becomes an NFT that can obtain future BTC mining income! Is this right hard? Is the playability high? You can match your other original narratives to give your NFT more value and gameplay. As long as you dare to think, we can try all kinds of equity binding schemes.

In fact, Merlin Protocol is an open and open source protocol, a protocol in line with the spirit of web3, and a long-term protocol, so we welcome all parties in the industry and ecology to play together, explore how to play together, and gradually develop Make this ecology bigger and better. thank you all!