Exchanges break through the NFT problem

Although the NFT market is still in its early stages of development, if trading and liquidity issues are not resolved, further development will inevitably encounter bottlenecks, and the current market boom will likely be short-lived.

If 2020 is the "first year of DeFi", then 2021 is undoubtedly the "first year of NFT" - from Beeple's art paintings to Twitter CEO Jack Dorsey's first tweet in history, and from pixel paintings to NBA stars' "highlight moments", people did not seem to expect that non-fungible tokens, a novel form of cryptocurrency, would go from a niche circle to the masses so quickly. According to NonFungible data, the total market value of NFTs reached US$210 million in 2019, an increase of 50% in 2020 to US$320 million, and is expected to climb 125% to US$710 million in 2021, with huge room for development.

In fact, NFT triggered a new wave of development in the cryptocurrency industry in early 2021, which was both unexpected and reasonable. It has been 12 years since the birth of Bitcoin, and the digital token economy urgently needs to be "connected" with the real world. The unique properties of NFT enable it to be combined with tickets, certificates, identity IDs, pet collections, cards, game props, artworks, virtual real estate, and many other real-life scenarios. It is the imagination space presented by these usage scenarios that makes NFT an entry point for blockchain applications to connect with the real world.

Under this general development trend, the cryptocurrency industry has put forward a new concept, namely: "Everything can be NFT". Especially in the current environment where Bitcoin prices continue to break historical records and cryptocurrency asset trading is so hot, the market does need a "new narrative". NFT seems to have stood at the forefront, and with the help of the gradually improved decentralized financial infrastructure, the emergence of the "NFT craze" seems to be a natural result.

But is this really the case?

Problems in the booming NFT market

Essentially, an NFT is a digital certificate and proof of authenticity for a physical asset (such as an art collection) - you don't really own a physical asset, but you own a "proof" of it, that's all. By transferring ownership of the collectible from the actual collectible to the certificate of authenticity, most of the value of owning the collectible will be lost, for example, the value of the NFT still depends on the value of the asset, not the token itself.

In addition, most NFTs do not live forever on the blockchain, and various problems may arise when you store NFTs. Since the content and metadata represented by NFTs are stored separately from the smart contract itself, the content and metadata themselves are large and cumbersome, so they cannot be stored on the blockchain. In most cases, NFTs are like a magic box, there may be nothing in it, and you will always think about it, but the truly valuable things are not stored in it.

If you dig deeper into the current NFT market, you will find that there is indeed a speculative element in it. Some mediocre NFT works can be sold for hundreds or even tens of millions of dollars simply because of the so-called "scarcity". Nowadays, there are too many people in the NFT market, so it is difficult to "pick up leaks" and buy high-value assets at low prices, which means that many people will invest higher costs but have little return. Of course, in the short term, due to market hype, there will still be some newcomers entering the market, so someone will "take over" when you resell NFTs, but this hype will definitely fade away and is inevitable. Once NFT becomes a "hot potato that no one takes over", it will become more difficult for you to make money from it at this time.

On the other hand, NFT is currently mainly used to tokenize non-standardized assets and help non-standardized assets go on-chain, not all assets, so the so-called "everything can be NFT" is actually meaningless. Not only that, the current application of NFT also has certain limitations, most of which are still restricted to games, collectibles and other fields, and there are no large-scale NFT use cases in the real economy, which has led to the fact that the vast majority of current NFT transactions are still low-frequency, high-value transactions. It is precisely because of the limitations of NFT applications, coupled with the fact that "traditional scenarios" such as artworks and collectibles are still the mainstream of NFT transactions, that we see high service fees and transaction fees on NFT trading platforms such as Nifty Gateway and OpenSea, as shown in the following table:

In addition to the high service fee problem caused by "low frequency and high value", to a certain extent, the decentralized financial NFT model has a "pricing problem" because non-standardization is the asset characteristic of NFT. It is difficult for people to give a unified value to unique assets, which makes it difficult to form a price standard. Especially when it comes to the issue of "on-chain" of physical assets, we have actually found that the liquidity of physical assets represented by cars and real estate is not strong, and the transaction costs and credit costs are relatively high.

Can the problems encountered by NFT be solved?

In fact, although the NFT market is still in its early stages of development, if trading and liquidity issues are not resolved, further development will inevitably encounter bottlenecks, and the current market boom will likely be short-lived.

In terms of trading and liquidity, as an important part of the ecosystem, cryptocurrency exchanges actually have "natural advantages", and they have begun to play a role in the sustainable development of NFTs - many "old-fashioned" cryptocurrency exchanges including Binance, KuCoin, and Huobi have begun to deploy NFTs and empower multiple NFT projects.

Not only that, some leading cryptocurrency exchanges also have their own unique resources and competitive advantages, such as:

• Exchange public chains can provide low-cost, high-performance blockchain support. Although NFT originated from Ethereum, the performance of the underlying chain has always been limited. Exchange public chains such as Binance Smart Chain and the upcoming KuCoin Community Chain (KCC) will further activate the NFT market, forming a multi-field collaborative development ecosystem deployment dominated by DeFi+NFT+ development.

• Integrate the incremental user market. As an emerging crypto vertical field that is also related to the real economy, NFT is leading the cryptocurrency industry. If it can successfully "go out of the circle", it will inevitably bring a group of new users to the cryptocurrency market. The cryptocurrency exchange itself has the ability to integrate the incremental user market and can "feed back" customer resources to the NFT project. Frankly speaking, if NFT wants to further expand its audience, it cannot do without the support of the leading cryptocurrency exchanges.

• High liquidity empowers NFT projects. Take KuCoin as an example. As the first mainstream cryptocurrency exchange to support NFT asset deposits and withdrawals, KuCoin has long been committed to NFT market expansion and project empowerment. Providing NFT asset deposit and withdrawal services also marks that NFT is about to enter the circulation of centralized trading platforms. In addition, KuCoin NFT Zone has included many high-quality NFT projects, such as LYXe, DEGO and THETA.

• Lower the threshold for NFT transactions. At present, since most users are not familiar with on-chain operations, the threshold for trading NFT assets is relatively high. However, with the entry of "old-fashioned" cryptocurrency exchanges such as KuCoin and Binance, the threshold for NFT transactions will be greatly lowered, which will bring a more friendly and extreme NFT asset trading experience.

• Avoid NFT fraudulent transactions. Cryptocurrency exchanges usually comply with regulatory requirements such as KYC and anti-money laundering, which can better avoid bad trading activities such as transaction fraud.

• Promote the adoption of NFT. Cryptocurrency exchanges will also become an important channel for popularizing the concept of NFT, market education, and liquidity expansion, promoting the popularization and promotion of NFT.

As KuCoin CEO Johnny Lyu said: "If DeFi is still in its early stages, then NFT is in a state of urgent need for an explosion. NFT has a wide range of usage scenarios in our daily lives, far more than the current digital collectibles. When DeFi revolutionizes our financial services, NFT will gradually penetrate into our daily lives of food, clothing, housing and transportation. Although the current market attention and influence of NFT are not high, NFT has great application potential. There is also a lot of room in the fields of insurance, bonds, options, and even the hope of creating a virtual real world on the blockchain. Therefore, KuCoin strongly supports the development of NFT projects and has launched an NFT project trading zone to facilitate users to better participate in the investment of NFT projects. In the future, we will do more around NFT to solve the current problems encountered in the development of the NFT field."

Indeed, it is precisely because cryptocurrency exchanges have begun to use their resource advantages to address the problems encountered in the development of the NFT field that their role has become larger and more meaningful.

Summarize

It is undeniable that the NFT market is still in its early stages of development and still has certain limitations. If we want to enter an era of comprehensive prosperity, we need the entire cryptocurrency industry to work together and embrace change, and the important role of exchanges is self-evident. Just like the centralized cryptocurrency exchanges entering the DeFi industry, when exchanges enter the NFT industry, it will inevitably inject greater vitality into the market.

As a consensus, NFT has basically been considered to be the next major trend in the cryptocurrency industry after DeFi. In the "first year of NFT", we have seen multiple NFT projects emerge like mushrooms after rain, and the NFT asset transaction volume records have been continuously refreshed in a short period of time.

Only transactions have value, and no transactions have no value. With the entry of leading cryptocurrency exchanges such as Huobi, Binance, and KuCoin and the promotion of ecological expansion, NFT can run towards the stars and the sea with dreams as its horse.