Original author: Ishanee,IOSG Ventures

This article is an excerpt from the IOSG Ventures official account article.

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NFT-Fi 1.0 waiting for adoption

As the asset class grows in size, so does the risk for investors. The accompanying risks such as insufficient liquidity and volatility cannot be ignored. Essentially,NFTs are less liquid assets, but their ETH denominations make them volatile and subject to currency risk, as investors tend to measure profit/loss using a single accounting method — USD or local currency.

Although it is difficult to change the value measurement method of NFT, NFT enthusiasts have also created many alternative protocols for Aidan, such as NFTX, Unicly and Fractional. Although their mission is to bring liquidity to these markets, they have their own liquidity problems:

• NFTX tracks collectible floor prices for its ERC 20 tokens; this means the protocol’s vaults are more of a draw for interest from holders of low-value NFTs. Most NFT investors will not use the protocol unless they want to speculate on NFT floor prices, which are actually driven by market sentiment.

• Fractional and Unicly offer a more custom approach that doesn't require tracking floor prices, but relies heavily on large numbers of investors and whales to speculate on the price of NFTs. Acquiring an entire collection is also difficult (but not impossible) as it would require the involvement of a whale/investor with deep pockets to get the collectible's ERC20 token holders out.

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1. Productive NFT

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2. Royalty NFTs

Royalty-backed productive NFTs are gaining traction, a wave likely pioneered by Yuga Labs and music NFTs. They earn income from commercially licensed NFTs and distribute the income to holders.

These royalty-based NFTs are less likely to be lent/rented because holders do not have"trigger"secondary title

Game NFT

Gaming NFTs provide core utility to their holders, subsequently spawning guilds and learners across the industry. The guild, which is an asset manager and resource allocator, buys game NFTs in large quantities, and then rents them out to a group of players who use NFTs to play games such as Axie. Rewards earned in P2E games are then distributed back to players, guilds and middlemen called managers. Currently, this entire process is conducted in a centralized manner, and a high level of trust needs to be established between managers and participants.

For game NFTs with scarce supply and unlimited demand (players), access issues arise. NFTs also don't generate passive income - they need to be used in-game for rewards, aka"trigger". In order for NFTs to be productive, owners now have an incentive to lend/lease NFTs. Lack of supply and earning potential are incentives for players to borrow/lease from landlords. Some players may buy directly from the marketplace, but through Axie's case study, we know that most"scholar"Or the player is not crypto-native, does not own ETH, and is primarily incentivized by $SLP income.

Earn money"Earn money"reputation"time"and"reputation"Players will enter the market. In the future, there will inevitably be a new group of players-star players, that is, e-sports teams in cryptocurrency games, who play high-stakes PvP games for high token rewards.

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Guild Operations (Centralized Governance)

The centralized approach to guild operations management has been increasing. The following case study shows how a Guild manages its Axie assets. Curator Ronin Wallet has joined Axies with the ability to natively distribute NFTs to scholars via QR codes. These codes are assigned to scholars. Sub-accounts can use NFT to play games, but cannot move assets. They do their daily paychecks, and the guild managers will manually transfer these earnings.

Key issues highlighted here include:

a)Too many management issues- Manage QR code distribution and payroll

b)Scholars must trust and rely on managers/guilds to pay their earnings on time

This inspired guilds and founders to create their own smart contract solutions.Once implemented, the guild took on the primary role of being asset managers.Their main responsibility is to allocate the right resources to the right players based on their past performance in order to maximize their returns on NFT assets.

Large guilds such as YGG and Merit Circle may create their own custom solutions, but micro guilds (defined as <100 players, financial<10,000 USD guild) will use more common SaaS platforms, such as GuildFi, GuildOS, 0xAdventure, Blockchain Space, etc.

Assuming that data becomes the next key, all guilds will try their best to gain more advantages over other guilds and subscribe to some services to track players' off-chain data.first level title

Forward direction

While centralized solutions have changed the game for most guilds, the centralized nature of tracking player data and services created a single point of failure when the platform evolved from a SaaS platform to a DeFi center for NFT lending, leasing, and mortgage solutions , this becomes crucial.

• Player data once used by guilds to make distribution decisions will be used as credit scores for borrowing ERC20 or NFT by players who want to use their future earnings as loans/collaterals.

• Renting NFTs is done in escrow, so any hacking or restrictions on players by the platform will result in the loss of players' funds and assets. This can especially become a high-risk situation for players from sanctioned countries.

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The road to decentralization

It is hoped that lending, leasing, staking solutions will be provided on-chain with minimal human intervention. The outer framework of most of these solutions has already been established and will continue to evolve as the entire industry becomes scalable infrastructure through the use of L2 and faster L1.

• As more and more games embrace on-chain features like Blockchain Monster Hunter or DeHorizon, most player data will be accessible using Dune, Graph or CyberConnect.

• NFT loans and leases can be accessed using vaults such as ReNFT or the IQ protocol. Pegaxy, a game on Polygon, already has in-house lending capabilities, removing the huge need for guilds as asset managers.

• The NFT mortgage agreement allows players and guilds to purchase NFTs, earn rewards through them, and use the generated income to repay debts (Alchemix model).

Next, let’s deconstruct some of the major challenges in DeFi currently holding back guilds/games:

1. Third-party NFT loan/lease agreement

These solutions, like ReNFT and IQ Protocol, take on the role of a middleman, charging a small publicity fee. The P2P leasing/lending protocol will allow asset owners to deposit and lock NFTs in a vault, and then lease them out to interested parties in exchange for a small rental fee. The actual NFT never leaves the vault, but the NFT's game rights (utility) are forwarded to the renter's address.

The key challenge with third-party agreements is that they require games to integrate with their agreement. The game does not gain any material benefit from enabling third parties to do so. Due to the open-source nature of cryptocurrencies, games can easily fork their Vault versions of Ronin QR codes/reNFTs. Ronin's recipe is currently completely closed-source, and a key hurdle for the game to develop its own version is the lack of resources and energy to build auxiliary modules that don't directly contribute to gameplay.

However, some games such as Pegaxy already have this functionality built in. They technically don't need guilds, but continue to work with them to ensure community engagement and as a means of acquiring customers. We can expect many more games to continue on this path in the future.

2. Mortgage plan

The mortgage scheme of game NFT has a unique position in the market.As free-to-play business models continue to prevail, premium NFTs will remain paid services. Premium NFTs = enhanced game rewards, so guilds and asset owners will continue to buy NFTs.

Using debt to fund NFT purchases will be the preferred choice for some star players (aka esports teams) as opposed to cash or revenue sharing models (guilds).Since players have different play styles, esports teams are very sensitive about the ownership of their assets when playing MMO or TCG games. Potential looting of these assets by owners of assets on guilds or centralized guild platforms or ReNFTs is a threat to their income, so owning these assets makes the most sense.

in conclusion

in conclusion

We see GameFi and guilds being born in 2021. Many new primitives, ideas, and incentive structures are being experimented with, and although the field is relatively early, it is ripe for the financialization of NFTs.

Some areas worth noting:

• On-Chain Gameplay

• On-chain player identity system

• Trustless NFT delegation

• Provide gamers with a transparent credit score

GuildFi will likely start with a centralized system until we address some structural issues:Such as NFT price oracles, smarter evaluation and analysis, and better risk models for games and their economies.Once these three issues are resolved, the GuildFi industry will begin its path to decentralization. Of course, it may be several years before we see mass adoption.