一文读懂NFT期货：文化类资产的新型DeFi原语
Original author: GCR team
Original compilation: Luffy, Foresight News
Overview:
Futures (“perps”) trading dominates: At the time of writing, cryptocurrency futures trading dominates, accounting for over 60% of total trading volume compared to spot trading. This phenomenon is not unique to cryptocurrencies, it is also true in traditional financial markets.
NFT 1.0 transactions are mainly spot transactions: Initially, NFT transactions were driven by spot transactions, generating huge transaction volume, with a total transaction volume of more than 20 billion US dollars. However, it creates inefficiencies: only long positions are allowed, and small and medium-sized collectors have no or limited access to high-value collections.
NFT communities are culture-driven organizations: NFT collections successfully bring together users with similar interests, ideas, and values, creating a social structure shared by people around the world. These cultural elements are reinforced in virtual or real-world events around the world, just as other communities (such as anime) have done for decades.
NFT futures are expected to solve the problem of low efficiency of current spot NFT transactions: NFT Perpetual Futures (NFT Perps) solve the problem of low efficiency of NFT spot transactions. They allow trades of almost any size, long and short positions, and leveraged trading.
Spot trading will still be relevant, but there will be a shift: We expect spot trading and collections themselves will continue to be relevant, especially for accessing the utility and community and digital identity layers associated with NFTs. Collectors seeking to gain utility from an NFT and participate in the community may purchase it on the spot market. At the same time, the futures market is available to other types of participants as well as collectors looking to hedge or pursue different trading strategies.
Futures dominate the market
For a long time in early cryptocurrency history, the market was spot trading only, with users exchanging fiat currencies, other cryptocurrencies, or stablecoins for any other token. This creates some inefficiencies:
Can only do long: For spot, users can only do long (profits can only be made if the price rises). This prevents market participants from hedging losses or profiting from price declines.
Limited leverage: Relying only on spot trading, investors have limited leverage. While it is possible to establish a short position by borrowing an asset and then selling it in the hope of obtaining it at a lower price, this is capital inefficient (requires collateral) and may be difficult or costly for illiquid tokens (Borrowing rates are higher).
However, the launch of BitMEX’s perpetual futures market (“Perps”) and the launch of the first BTC futures by the Chicago Mercantile Exchange (CME) in December 2017 changed everything: the perpetual futures market began to dominate. As of this writing, perpetual futures dominate cryptocurrency trading activity. For BTC and ETH, spot trading volume accounts for only a small portion of the perpetual futures market: 20%-70% for BTC and 16%-44% for ETH.
Source: The Block
NFT market: History repeats itself
2021 is the beginning of the NFT bull market. During this period, NFT technology began to gain attention and adoption around the world. Not only are NFTs being used to generate art and photography use cases, they are used as credentials to enter communities and become a key part of our digital identities in the form of profile pictures, but they are also used in many other ways.
All of these use cases have helped push the Web3 space into the spotlight: attracting a large number of users, builders, collectors, as well as speculators and traders. A large amount of capital is pouring into the NFT ecosystem. According to data from Dune Analytics and DappRadar, the NFT transaction volume on the chain totaled more than 21 billion US dollars in 2021 (an annual growth rate of 20,000%) and 24.7 billion US dollars in 2022 (an annual growth rate of 17 %). This growth is driven by a variety of factors, including the launch of popular NFT projects such as Otherside, Metaverse, Azukis, and Moonbirds.
Source: Dune
Despite the large inflow of funds, the non-fungible nature of NFTs and the poor infrastructure at the time only allowed individuals to conduct NFT spot transactions. This creates friction and prevents collectors from entering or exiting positions easily. Collectors must wait for someone to accept their listing price or match the current asking price. And, as the value of collections rises, it reduces the chances of small investors acquiring high-priced collections. Furthermore, similar to the fungible crypto token market in 2017, it only allows long positions.
During the bear market of 2022-2023, the NFT ecosystem saw many innovations and new players, including Blur (with its incentivized bidding pool and lending feature Blend) and NFT AMMs (such as Sudoswap). These platforms are working hard to create a seamless trading experience and improve liquidity. However, as we will see later, these models still fail to enable seamless short positioning and do not address capital efficiency issues.
It’s worth noting that this doesn’t mean NFT AMMs or lending don’t have a strong value proposition. In our opinion, NFT AMM is fully capable of helping collectors build and incentivize community-owned trading venues, benefiting the entire collector ecosystem by creating an economic cycle: transaction fees go back to collectors, creating value for holders and managing relationship with them.
History will not repeat itself, but it will always be strikingly similar: NFT 2.0
NFT Perpetual Futures (NFT Perps) are a new type of derivatives that allow investors to trade NFTs with better liquidity. NFT perpetual futures are similar to traditional cryptocurrency perpetual futures, except that their prices track NFT collections. NFT perpetual futures provide multiple advantages over the traditional NFT spot market and will enhance the trading experience:
Quick Access: NFT futures allow investors to instantly enter and exit positions without purchasing the underlying asset or listing the NFT on an NFT marketplace, aggregator, or NFT automated market maker. This is advantageous because it reduces the effort of storing or transferring NFTs.
Hedging opportunities and long-short market: So far, NFT investors can only go long in the NFT market. By using NFT perpetual futures, investors can establish a market-neutral position by shorting the perpetual contract while still reaping the utility, community, and other benefits that NFTs bring. Additionally, it allows them to gain from the collections negative catalysts.
Leverage: Until now, NFT investors could only use leverage by borrowing NFTs on NFT lending platforms such as Arcade or Paraspace. However, in addition to creating friction (users must deploy borrowed funds into other trading activities), NFT lending can in some cases lack capital efficiency because it requires a full NFT asset already in inventory to gain leverage.
Scale flexibility: NFT perpetual futures allow users to acquire desired NFT collections at any scale because it does not require acquiring a specific NFT and paying its asking price. In this way, users can trade BAYC for 100 ETH or BAYC for 0.1 ETH. This allows small holders to obtain positions in NFT collections that they would not be able to obtain if they were trading live. Additionally, it allows institutions and large collectors to trade on a larger scale without having to impact prices by sweeping the floor.
Introduce new users: The small-scale availability mentioned above may attract more retail collectors and traders to the space, which can then be brought into the overall blockchain ecosystem.
As we mentioned before, the bear market of 2023 has brought innovation to the NFT field, and some may think that other vertical industries and players can solve the above problems. Let’s dig a little deeper:
On-chain NFT options: They address hedging possibilities, directional NFT market risk, and can be offered in different contract sizes. However, options are a more complex product than perpetual contracts, which are widely known for their popularity on centralized venues. Additionally, there may be a lack of liquidity at different strike prices or expiration dates, creating friction.
Fragmented NFTs: Fragmented NFTs lower the barrier to entry for high-priced collectibles and can be traded at any scale. However, fragmentation has the following pitfalls:
Funding inefficiency: The fragmentation process requires users to purchase NFTs and then lock them in a contract to start the fragmentation process, which makes funds inefficient.
Fungibility Limitation: The score of one NFT is not equal to the score of another NFT, even if they are from the same collection.
Limited Liquidity and Scale: As mentioned previously, building a liquid trading pool interested in a specific NFT can be challenging.
Governance and Redemption Issues: NFT redemptions can encounter friction because they require consensus among holders.
NFT AMM: NFT Automated Market Maker (AMM) solves the liquidity incentive problem, creates a more liquid market, and also supports the trading of NFT collections at any scale. However, they still suffer from capital inefficiencies as they require NFTs to be deposited into pools. Additionally, NFT AMM does not allow short selling.
NFT Perpetual Agreement
nftperp: Pioneer
Year Founded: 2022 - Stage: Private Alpha Stage - Funds Raised: $4.7M
nftperp is a pioneer in the vertical field of NFT sustainable protocols. The platform offers a seamless trading experience integrated into a simple and well-thought-out user interface. At the time of writing, the protocol is currently rolling out v2, allowing users to trade collectibles like Miladies and Pudgy Penguins, all while reducing gas fees by running DApps on Arbitrum.
According to nftperpDashboardIt shows that the transaction volume of the protocol when v1 was released has exceeded 8.3 million US dollars, covering more than 800 traders (whitelist users).
Source: Dune
Tribe 3: Gamification and social trading
Year Founded: 2022 - Stage: v2 Testnet - Funds Raised: $2.1M
Tribe 3 is an NFT futures DEX that integrates social and gamification elements into the trading platform. In addition to NFT futures trading, users can also participate in battles with others (community-to-community trading) and earn in-game items based on trading behavior. The platform allows users to trade multiple NFT series with up to 5x leverage.
The platform completed v1 public testing, with a trading volume of $71 million and more than 840 active traders. At the time of writing, the platform is testing updated protocol designs on its v2 testnet.
Wasabi: A complete and popular NFT derivatives platform
Year Founded: N/A - Stage: Public - Funds Raised: N/A
Wasabi has built a whole suite of derivative products for NFTs. The protocol began offering put and call options on specific NFT series, allowing users to go long or short until a specific date without risking liquidation.
To expand its product range, Wasabi has launched:
BNPL: Wasabi cooperates with different NFT lending protocols to allow users to seamlessly purchase NFTs by buy now, pay later
Perpetual Contracts: Recently, Wasabi partnered with Flooring Protocol to launch an index-based perpetual contract product that allows users to trade any whitelisted NFT collection with up to 5x leverage.
According to WasabisDune panel, the notional value of the protocol’s options product transactions has reached $6.1 million, and the liquidity provider received a fee of $300,000.
Source: Dune
The trading volume of perpetual futures products has reached more than US$40 million, with approximately 470 active traders.
Source: Dune
in conclusion
NFT futures apply the concept of perpetual trading to NFTs, which unlocks a more accessible and two-way trading experience previously unavailable in the NFT spot market. While it is too early to draw conclusions, the underlying value proposition offered by NFT futures has strong growth potential in the NFT market.
