DeFi fever subsides, NFT takes over? Ethereum is still the biggest winner

Source: Blockchain Frontier

By Robert Stevens

Translator: Nuka-Cola

A new story to tell?

In August, Jordan Lyall, head of decentralized financial products at ConsenSys, tweeted to launch a fictitious DeFi project "The Degenerator" to mock those DeFi MEME projects that were launched in 5 minutes. After the tweet was released, an anonymous person actually created the MEME token. The crazy market caused the trading volume of MEME to reach 1.2 million US dollars that day, and the highest price reached 40 US dollars. The biggest selling point of MEME is "DeFi + NFT".

The story of DeFi is not easy to tell at the moment. According to Odaily statistics, the cumulative decline of most DeFi tokens in September was about 50%. The decline of old DeFi tokens such as LINK and MKR was about 30%, while the new generation of DeFi tokens that focus on liquidity mining, such as SAL (Salmon), KIMCHI (Kimchi), and SUSHI (Sushi), generally fell by more than 70%.

The media "Caiyun Blockchain" said that DeFi has been popular for about three months since June, and the shortest time of each stage in the bull market is 3 months and the longest is 6 months. Based on this, it can be inferred that the bubble may end around mid-to-late October.

So, will the NFT market be the next trend?

CryptoKitties is a big hit, Ubisoft and BBC are trying their hand at it

Hiding in a workshop shed in Vancouver, Dieter Shirley and his team spent three months developing ERC-721 at the end of 2017. This is an Ethereum token standard that enables "proven scarcity" for digital artworks.

Based on this, the CryptoKitties project received a warm response from the market, and the enthusiasm of many "cloud cat raising" enthusiasts almost caused the Ethereum network to collapse. The success of the project also gave birth to the digital art industry, and the total market value is expected to reach US$315 million this year.

The innovation of the project is to combine scarcity with cryptocurrency. There is no difference between individual Bitcoins, but Shirley's ERC-721 tokens are different. They embed these tokens into each CryptoKitty, similar to the genetic code of these cartoon kittens. Each CryptoKitty has its own unique "category", that is, father, mother and personality. Users can raise their own kittens to breed new kittens. Rare CryptoKitties can be worth thousands of dollars, and a cat named "Dragon" even sold for a sky-high price of $170,000 in 2018.

Screenshot of CryptoKitties sales, source: cryptokitties.co

“They breathe life into boring things,” said Franky Aguilar, an artist from Los Angeles who has since partnered with Dapper Labs, the company behind the CryptoKitties project. “They give it a character that’s not just an economic symbol, but makes it cute and engaging — people are passionate about their CryptoKitties.”

A gold rush ensued, with others quickly launching their own ECR-721 tokens (also known as NFTs, or non-fungible tokens).

As the market opened up, game developers began to integrate NFTs into digital objects, and digital artists also used it as a carrier to create all kinds of fresh designs. A few years later, French game giant Ubisoft even developed a complete game around NFT, which is an online tradable NBA player card based on ERC-721. Excellent artists use this to make their works unique, and even the BBC has decided to get involved - this old media giant, which is getting involved in blockchain for the first time, decided to test the waters with its trump card "Doctor Who" series.

Watching this entire world being built, Shirley said, “I feel really proud that we’ve worked hard to build something that will further help other people create new things, and that other people’s ingenuity will completely surpass any internal team. This makes me feel very gratified.”

But times have changed. Some say the NFT market is too big for Ethereum, with extremely high fees and limited performance. For this reason, people are looking for new solutions.

Shirley's team grew into Dapper Labs, and over the past two years has been working on building Flow, a blockchain network designed specifically for NFTs. Dapper Labs has made good progress and recently planned to create NFTs based on Dr. Seuss (a character in the classic children's science book) on the Flow blockchain.

If Ethereum cannot solve its own problems, the NFT industry will definitely abandon it decisively.

The rapidly maturing NFT market

Devin Finzer, co-founder and CEO of New York-based OpenSea, built one of the largest NFT markets. He and co-founder and CTO Alex Atallah founded the company during the CryptoKitties boom and entered the market in early 2018.

He said in the interview, “We originally just wanted to provide another way to trade CryptoKitties. But the effect was not good at the beginning because the CryptoKitties project already had its own trading market. But as more and more other NFT products were launched, the value of OpenSea became apparent: people who hold these products can connect to their own MetaMask and start trading operations easily and conveniently.”

Finzer noted that in the months that followed, a large number of low-quality CryptoKitties clones emerged on the market, hoping to “piggyback on the CryptoKitties hype and profit from this speculative frenzy.”

But the good news is that the NFT market is maturing quickly.

By February 2018, the market was dominated by legitimate projects — projects with more promising futures and proven quality. Today, there are 600 to 700 legitimate projects running on OpenSea.

Works by Connie Digital, a digital artist from New Jersey

Finzer's company currently has about 20,000 traders and a monthly trading volume of about $1 million. He estimates that the monthly market size will grow to $4 to $5 million in the future. "Even now, we are still in the early stages, and there are very few users using NFTs," Finzer said.

NFT has attracted many serious artists, including photographers, graffiti artists, and 3D digital art producers.

Nifty Gateway is an exclusive digital art and collectibles platform that offers NFTs. It was founded a few months ago by Cameron and Tyler Winkevoss, the founders of the cryptocurrency exchange Gemini.

Works on Nifty Gateway can sell for thousands or even tens of thousands of dollars. “What’s most exciting to me is that artists who have a large Instagram following but have never been able to find a way to sell their work finally have a marketplace,” said Duncan Cock Foster, co-founder of Nifty Gateway.

Jon Noorlander is a digital artist with 400,000 followers on TikTok. With his excellent professional skills, his digital art works will soon be available on Nifty Gateway. Cock Foster said: "This is the first time he has made money from selling his works. It is really exciting to witness this." But he did not disclose the income he received from these sales.

NFT ecosystem, source: The Block

DeFi grabs Ethereum resources, NFT is implicated

For Cocker Foster, Ethereum is the “best choice without a doubt”: it has the most collectors, the most tool options, and a strong infrastructure. Although NFTs can be implemented on other blockchain networks, Ethereum’s performance is very stable. Over the past few years, Ethereum has been the main platform for crypto-collectible applications.

It can be seen that the entire NFT community uses Ethereum's infrastructure as its foundation. For example, by connecting your MetaMask to the crypto collectible game "Decentraland", you can transfer tokens to OpenSea and use them directly in multiple games. This is something that other blockchains cannot do at present.

But Finzer said blockchain also has substantial limitations and shortcomings.

With the recent rise of DeFi (i.e. decentralized finance), transaction fees have skyrocketed, making it difficult for games that rely on microtransactions to obtain crypto collectibles to continue operating.

He explained: “Right now, to buy something on OpenSea, it costs about $1 per transaction. If people want to buy something worth 50 cents, it’s a terrible experience that the tax is more expensive than the product.”

That’s why Shirley led Dapper Labs to invest several years to build a blockchain designed specifically for NFTs. This blockchain, called Flow, is still under construction. Shirley hopes to migrate CryptoKitties to this new chain after the project is completed, and promises to help the entire NFT industry get rid of the problem of high transaction fees.

But at least at launch, the Flow blockchain will probably not support Ethereum, which means that all kinds of NFTs, games, and even markets based on Ethereum will be excluded. Shirley explained, "Interoperability between decentralized systems is really difficult, and I haven't really solved this problem yet."

So, will the Ethereum community fall apart because of this?

Cock Foster said he had no reason to move Nifty Gateway to another blockchain. Although Ethereum's transaction fees are high, they will not affect buyers who are willing to spend $10,000 to buy a JPEG painting.

Shirley also mentioned that those who have invested in cryptocurrency collections are unlikely to completely abandon Ethereum. "In the next hundred years, I believe Ethereum will continue to run - even if there is only one node left, running in a place like the Smithsonian Museum."

In Shirley's view, "As long as Ethereum is alive, the NFTs on it will be alive." However, although everyone's connection with Ethereum is already very close, if faster and lower-cost services can be provided, people have no reason to refuse.

Further reading:

https://decrypt.co/38773/how-ethereum-fuelled-the-nft-boom