Editor | Wu Talks Blockchain

This podcast mainly discusses the current situation of the wrong investments in Blur and Magic Eden, token valuation, and related topics about NFTs. The two guests share their views on the current NFT market, investment experiences, and the potential for future market development. Overall, the token valuation of Magic Eden may be affected by the sluggish NFT market environment, especially given the poor performance of tokens from NFT platforms like Blur and Tensor. Additionally, the guests explore possible paths for the recovery of the NFT market, particularly in terms of liquidity, IP innovation, and community building.

The audio transcription was completed by GPT and may contain errors. Please listen to the full podcast:

Xiaoyuzhou:

https://www.xiaoyuzhoufm.com/episodes/6708fee381cdab3a934f95a4

YouTube:

https://youtu.be/y8OAgXlgApI

This podcast is a continuation of the previous episode where three young individuals from the crypto space discussed their "first bucket of gold and first pitfall."

Invested in BLUR based on on-chain data analysis, but made mistakes in assessing the NFT market conditions and team judgment

defioasis: Welcome back to Wu Talks Non-Crypto Podcast, I am Wu Talks analyst defioasis. Recently in the NFT market, Magic Eden announced the launch of a new token. We also know that the overall NFT market environment has not been ideal from last year to this year, and the performance of tokens from Blur and Tensor has also fallen short of expectations. So today we have invited two guests to discuss topics related to NFTs. This episode will be relatively relaxed, and everyone can share freely. First, let the guests briefly introduce themselves and share some experiences related to NFTs.

Xiao Guo: This should be my second or third time participating in this podcast; we talked about some NFT market topics last time as well. My main focus is on research and analysis of on-chain data. Today, I take this opportunity to share some of my thoughts on the NFT market.

Actually, I am not a particularly professional NFT player and have not bought many. Although I did buy some during the peak of NFTs, I do not have a deep understanding of the design of such products. At that time, I mainly purchased Blur tokens based on the results of on-chain data analysis. Looking back now, this investment was quite a failure.

I think there are two reasons for the failure. First, I was confident about the recovery of the NFT market at that time, but the market situation became increasingly bleak. Now, almost no one is discussing NFTs, except for podcasts like ours that still talk about this topic. The second reason is related to team selection. When I reflect on the investment in Blur, I realize that the operational direction of the team creates a significant information asymmetry for retail investors like us. When we invested in Blur tokens, we speculated that it might enter the Bitcoin NFT market and compete with Magic Eden, but unexpectedly, it launched an Ethereum Layer 2 solution. This completely caught us off guard.

After Blur launched Layer 2, it almost stopped the development and updates of Blur itself. For holders of Blur tokens, it felt like the product was abandoned. Mining and staking ultimately yielded nothing, and the Blur team seemed to no longer care about Blur, leaving it entirely to the community to operate. This led me to reflect a lot on team selection.

Shang: I am Shang, currently an analyst at BitMEX and also the host of Wu Talks English Podcast. My connection with NFTs dates back to 2020 when I interned at a startup in Canada, where my job was to report on new developments in the cryptocurrency space daily, and that was when I started to encounter NFTs through SuperRare. I was surprised that a painting could sell for hundreds of thousands of dollars, and at that time, BAYC (Bored Ape Yacht Club) had not yet emerged. Later, at the end of 2021 and into 2022, I joined a team focused on NFT fragmentation and participated in a lot of NFT research and development.

I also attended NFT.nyc and met Luca Netz from Pudgy Penguins. I have bought some NFTs, mainly on Ethereum, such as Mad Labs. I also participated in the second phase of Blur mining, where I borrowed and mined about 70,000 Blur tokens, and I was optimistic about Blur, just like Xiao Guo. But the results are well known now. As for Magic Eden, I don't know much, but they are about to launch a token, so I have been paying a little attention. Thank you, defioasis, for the invitation; today we can discuss recent happenings in the NFT space.

defioasis: I started paying attention to BAYC at the end of 2021 when I was monitoring on-chain gas fees and noticed that a project’s minting caused Ethereum gas fees to soar. At that time, I didn’t understand NFTs well; BAYC was priced at about 5 to 6 Ethereum, but I couldn’t comprehend the market at all. It wasn’t until 2022 that I began trading NFTs, but by then, the market had already shifted from a bull to a bear phase, and I lost about fifty to sixty Ethereum in the NFT market.

Later, I shifted my focus from NFTs themselves to NFT market platforms. There were many innovations at that time, such as trading mining, witch attacks, and other ways to compete with OpenSea, and Blur's Bid Pool was also a significant innovation. In 2023, I wrote a lot about NFT market platforms, especially Magic Eden's multi-chain strategy, which still seems very successful.

However, from an investment perspective, I have also experienced many failures, such as early investments in tokens from NFT platforms like X2Y2 and ROSE, which have now almost dropped by 99.99%. The investment results in Blur were also unsatisfactory.

The inversion of primary and secondary markets will become the norm; it is expected that the Magic Eden token will launch below its primary market valuation.

defioasis: Looking at our investment experiences over the past year or two, it seems that the three of us have not performed well in investments. Back to Magic Eden, its last round of financing was in mid-June 2022, during the transition of the NFT market from a bull to a bear phase. At that time, Magic Eden completed a $130 million financing at a valuation of $1.6 billion. If we look at the current market environment, Blur's FDV is less than $500 million, while Magic Eden's competitor Tensor on Solana has an FDV of about $300 million. So if Magic Eden launches a token now, I believe it will be difficult to support a $1 billion FDV. What do you think? If Magic Eden launches a token, what level do you think its valuation can reach? Shang, why don’t you start?

Shang: Well, I think this is a common phenomenon; the inversion of primary and secondary markets exists not only in the NFT field but can be seen throughout the entire cryptocurrency industry. Especially during the bull market of 2021 and 2022, the market was overly inflated, and there was a lot of fluff in financing, but the secondary market did not have enough liquidity for all investors to exit smoothly. Therefore, if Magic Eden launches a token, its valuation may be lower than the primary market, which is not due to issues with NFTs themselves but rather a result of the overall market cycle and industry phenomena.

Specifically, Magic Eden's uniqueness lies in its integration of multiple chains. You can trade assets on the Solana chain on Magic Eden, as well as assets on EVM-compatible chains, Bitcoin, and Ordinals.

This could be a good narrative, but how high its valuation can reach still has many variables. Right now, what we are most concerned about is its token distribution method. If it is like LayerZero, although everyone has criticized its operations, it has some pull factors, then its FDV might not be that bad. If the tokens are too dispersed, especially if there are too many airdrops, the situation could be very unfavorable. There have been many such examples recently, and the market performance has been poor, especially if these tokens are not allocated to users who genuinely need Magic Eden tokens, then the performance of its tokens may plummet.

Additionally, regarding the team, I feel that Magic Eden's team is not particularly crypto-native. This is a problem because they are not closely connected to the crypto circle and have not demonstrated a particularly effective token economic model. Especially as an American team, they may not adopt certain "Ponzi" structural practices. So, frankly, I am not particularly optimistic about their token prospects. If I had to guess, I think their FDV might be between $500 million and $1 billion, and achieving something similar to Blur would be considered good.

Both Magic Eden and Blur are projects invested by Paradigm; is there an indication that the two should not become direct competitors?

defioasis: Alright, let me ask Xiao Guo, because Shang just mentioned that Magic Eden is pursuing a multi-chain strategy. Currently, a lot of its trading volume is concentrated on Bitcoin NFTs. Xiao Guo, you are also very interested in the Bitcoin ecosystem; what do you think about the future of Bitcoin NFTs and Magic Eden's strategy?

Xiao Guo: Before discussing Magic Eden, I want to talk about the market capitalization situation of Blur first, which may provide a better reference for comparing with Magic Eden. In fact, when I initially invested in Blur, it was because of a point that defioasis mentioned that made me think for a long time. At that time, Blur's fully diluted market cap was less than $1 billion, while many projects had FDVs in the tens of billions or even hundreds of billions. At that time, Blur was already in a leading position in the NFT market, although some of the trading volume was due to wash trading and mining, overall, its valuation was still relatively low, which gave us some investment space.

Returning to Magic Eden, data shows that after it opened Ethereum trading, although there was a brief increase in trading volume, its current market share on Ethereum is very small, only about 1% to 2%. Meanwhile, Blur's trading volume still accounts for about 60%, so it can be said that Blur remains at the forefront on the Ethereum chain. Magic Eden's main market was once Solana, and later it decisively entered the Bitcoin NFT market, especially after the launch of the Ordinals protocol. This raises a question for me: both Magic Eden and Blur are projects invested by Paradigm; could it be that Paradigm, for some reason, instructed Blur not to enter the Bitcoin NFT market and instead focus on Ethereum's Layer 2? Perhaps they do not want the two projects to become direct competitors.

But later, when Magic Eden launched the Ethereum NFT market, it seemed to have dealt a significant blow to Blur. This is just my personal speculation, with no evidence to support it. However, it does make me feel that, perhaps to avoid competition, Blur and Magic Eden chose different markets.

Returning to the market capitalization of Magic Eden, we can analyze it through data. Currently, according to Similarweb, Blur's website traffic is about 1.3 million per month, while Magic Eden's monthly visits are around 3.4 million. Although its traffic has also declined, the extent is not as severe as that of Blur. From this perspective, Magic Eden's overall data performance is better than Blur's, especially in the Bitcoin NFT market, where its market share has reached 50%.

Now the question is, how do we position and value Magic Eden? If we treat it as a multi-chain NFT market or see it as a leader in the Bitcoin ecosystem, its valuation model becomes quite complex. Magic Eden is currently making efforts in multiple markets, but how can it effectively tell the NFT story? Especially in comparison to Blur's market capitalization, it is difficult to provide a clear judgment. Additionally, the team's attitude is also puzzling. As external investors, we do not have direct contact with the team and are unaware of their internal strategies and future plans. Many times, we can only speculate about their next moves based on publicly available market information.

For retail investors, this information asymmetry makes it challenging to make correct investment judgments, especially for projects with ample cash flow, as they have little motivation to enhance token value. Many projects essentially complete their tasks after the token issuance, leaving retail investors to watch the fluctuations of the tokens, disconnected from the actual operations of the projects. This is a common phenomenon in many token projects today.

Shang: Yes, especially for American teams, they do not actively promote the market under regulatory pressure like teams from other regions. They can only provide some basic liquidity support but will not intervene too much in market capitalization. Many recent projects have followed this pattern, with little follow-up action after the token issuance.

Xiao Guo: Yes, including some established DeFi projects like Uniswap and the renamed MakerDAO. Unlike network tokens like Ethereum or Bitcoin, many project tokens have no relation to the projects themselves. The amount of money a project earns has no connection to the value of its tokens, and the so-called governance tokens hold little practical significance for retail investors, as the votes held by retail investors cannot influence any decisions.

Shang: Exactly, and another particularly important variable is the regulatory environment in the U.S. The SEC's regulation of tokens prevents quality projects from assigning any real value to their tokens, because once value is assigned, it will be classified as a security, which restricts many good projects. Conversely, lower-quality projects can operate without restraint, creating a negative cycle.

NFTs are a tool for project teams to manage the market capitalization of airdrops early on.

defioasis: Yes, recently OpenSea also received a Wells notice from the SEC, which believes that NFTs on the platform are securities and intends to file a lawsuit. Returning to Blur, the role of Blur as a governance token is actually not significant. During the Blast mining period, staking Blur tokens was expected to yield a Blast airdrop, but the final result was not ideal.

Ultimately, Blur has returned to the so-called form of a governance token. I think Magic Eden's token may also follow a similar path and become a governance token. Magic Eden has previously mentioned that their token is not entirely issued by Magic Eden itself but is managed by a foundation, which also leads to a certain separation between the token and the platform entity.

Therefore, I believe Magic Eden's token will also be more inclined to become a governance token like Blur. As for taking the dividend route, especially for an American team, it seems unrealistic from a legal perspective. Now let's continue discussing the next question. You all mentioned that whether on Ethereum or other chains, the NFT market is currently in a state of confusion. The trading volume of major platforms has significantly decreased compared to the peak in 2021. Do you think there will be another wave of opportunities for NFTs? Where might the future direction lie? Shang, why don’t you start?

Shang: To summarize my views on NFTs, I would say there are two points. First, NFTs are a form of art; people are willing to collect them and treat them as assets. In traditional industries, collectibles are a very large field. Second, NFTs are a tool for project teams to manage the market capitalization of airdrops. Because the supply of NFTs is fixed, project teams can relatively easily issue NFTs while adjusting the rules as needed. Before issuing tokens, many projects use NFTs to manage expectations for airdrops or to drive market momentum.

For example, if directly issuing tokens makes it difficult to drive momentum, it is relatively easier to do so by issuing NFTs. The liquidity of NFTs is not that high, and project teams can create a sense of rising through the performance of NFTs, thereby increasing the project's attractiveness. These are the two main functions of NFTs.

However, the current NFT market faces some challenges. First, can the crypto space attract external traffic? Second, the internal trends within the crypto space are also important. Especially from the perspective of collectibles, the current market environment is not good, with high interest rates and less disposable income. Homogeneity is severe among profile picture NFTs (PFP) like CryptoPunks. Buyers are now less interested in these traditional NFTs, and market demand is declining.

If you use a PFP as your avatar, you hope others will recognize you and think you are cool. But now that trend has passed, just like how everyone used to wear Jordan shoes, but now they are no longer in fashion. If you still use CryptoPunks as your avatar, it may seem somewhat outdated. With the increasing number of Memecoin NFTs, the market's speculative focus has shifted to these more liquid assets rather than the expensive, fragmented, and hard-to-speculate CryptoPunks.

Relatively speaking, I think the most certain point is that NFTs will continue to exist as a tool for project teams to manage airdrops. We have already seen projects like Berachain managing their market capitalization through NFT issuance, and their NFTs have performed very well. Mad Labs is also one of the largest NFT projects on Solana. Many times, NFTs are linked to token issuance plans or associated with collateral and value capture from other projects.

So, if NFTs are merely seen as symbols of culture or art, I think they are not easily grasped by the average person. Unless you have a deep understanding of the art world or are particularly familiar with the culture of the crypto space, like NFTs such as Milady, which may look ugly but are considered very cool, and people are still willing to buy them. Otherwise, NFTs still need a real project as backing to have a chance to exist and function in the long term.

From an asset standard perspective, NFTs will exist for a long time, but it is currently unclear where the turning point for the future lies.

Xiao Guo: Regarding the question of whether NFTs will exist for a long time, I have similar views. Although I have a simple hope that they can exist long-term, after a prolonged market downturn, I do feel some wavering. I believe many people share this sentiment. We can look back at the history of ERC-20 tokens. ERC-20 tokens emerged from the ICO boom in 2017, and now 80-90% of the tokens on the market are based on the ERC-20 standard. However, many ERC-20 tokens issued back then have now disappeared, but this asset format laid the foundation for subsequent projects, such as the well-known UNI, DAO, and even new-generation projects like ARB and OP.

NFTs are actually similar to ERC-20; I believe NFTs are one of the two asset types that have emerged. Apart from fungible tokens, NFTs represent another type of asset that operates independently on-chain. Therefore, we can also see that many blockchain projects, such as Solana, Cosmos, Arbitrum, Sui, and even TON, have borrowed from Ethereum's design logic, typically including both fungible and non-fungible token forms within their systems. This indicates that NFTs, as an asset type, have secured a place in the blockchain ecosystem and will exist for the long term.

Of course, their future popularity may not depend on micro-innovations or mechanism designs but rather on the inflow of market funds. Just like we experienced the ICO boom in 2017, we might have thought that the ICO model would never return, but unexpectedly, Solana has allowed us to revisit the ICO gameplay in the recent surge. Although ICOs have changed somewhat after combining with AMM automated market makers, they are essentially still ICOs.

Therefore, I believe NFTs will also undergo similar cycles. It may not be this year or next year, but in three to five years, they will attract market attention again with new gameplay. However, whether market participants like Blur or Magic Eden will still be around at that time is uncertain. Looking at past examples, such as Loopring, a Layer 2 project that existed during the ICO era, it was ahead at that time but did not keep up with the later Layer 2 boom, while EtherDelta has completely disappeared. So even if the NFT wave returns, it is not guaranteed to happen on Ethereum.

In this regard, I think Magic Eden is doing better than Blur because it is not betting on a single ecosystem but is trying to support multi-chain non-fungible tokens, such as entering Bitcoin, Ethereum, and other chains. However, the entire NFT ecosystem currently lacks a wealth effect, making it difficult for retail investors to see its value points. This is my view on NFTs at present and my expectations for the future.

defioasis: I would also like to share a bit. This year, the development of NFTs on Ethereum has seen a certain increase in floor prices, and one of the better-performing projects is Pudgy Penguins. The success of Pudgy Penguins lies in its development along the IP direction, entering the real-world trendy toy market by launching physical products like plush toys, successfully extending the value of NFTs into the offline market. This is a case worth paying attention to.

In fact, there are many trendy toy phenomena in society today. When we go to shopping malls, we can see many brands, some of which we may not have even heard of. The core of trendy toys is to materialize the IP image, such as making it into plush toys or other objects, or even like Pokémon, creating games to push the IP into the real world and generate cash flow.

With cash flow, you can use it to do more NFT-related things, such as market capitalization management or even directly driving momentum, providing more economic returns to holders. I think Pudgy Penguins is doing quite well now, creating real-world returns through IP materialization. Additionally, major projects like LayerZero are also willing to airdrop to Pudgy Penguins holders, making it a project worth paying attention to from this perspective.

Additionally, from the perspective of asset classes, NFT asset formats like ERC-1155 are unlikely to disappear in the short term. However, it is not clear in what form they will become popular again in the future. Whether the NFT market can exist long-term remains a question. A few years ago, platforms like OpenSea were impressive during their boom in 2020-2021, but their valuation has since dropped by 90%. Instead, many people are now turning to Blur or Magic Eden. Whether these platforms can continue to exist in three to five years, or whether NFTs can experience a new breakout point, is still unknown. Therefore, I maintain a relatively pessimistic attitude towards the prospects of the NFT market. If you want to invest in the NFT market, now may not be an ideal time.

NFTs need new liquidity solutions, but if they abandon their NFT characteristics, it would be better to speculate on Memecoins.

Shang: Does everyone remember Pandora?

defioasis: Yes, yes, Pandora was once very interesting; it focused on the duality of image coins, but now it has disappeared.

Shang: Yes, if the duality of image coins cannot operate well, the role of the NFT market will further diminish.

Xiao Guo: Regarding Pandora, its problem actually goes back to the ERC-20 liquidity issue we discussed earlier. Initially, Uniswap solved the liquidity problem of ERC-20 tokens through an automated market maker mechanism, and Pandora was also an exploration of NFT liquidity. The secondary explosion of NFTs will definitely require new liquidity experiences or gameplay. For example, we have previously tried fragmentation, Pandora, and NFT platforms based on AMM like Sudoswap; these are all explorations of liquidity.

From my perspective, Pandora made multiple attempts at liquidity, including DeFi collateral and iterations, many of which borrowed ideas from ERC-20. In the future, there will certainly be more explorations of NFT liquidity. As for larger IPs or more exquisite images, I believe their overall impact on the NFT ecosystem will not be significant.

Rather than focusing on the entire ecosystem of NFT investments, I personally prefer to focus on how to create new directions for NFT liquidity. Of course, there will definitely be many failed attempts in this process; we have already seen three or four failures in the past. But if the NFT ecosystem is to thrive, new liquidity solutions are key.

Shang: Yes, I think the liquidity of NFTs ultimately represents a multiplicative effect. If an NFT itself has no value, no matter how good the liquidity is, it is useless; zero multiplied by any number is still zero. If an NFT truly has value, even if there is no perfect liquidity solution in the market, people will still be willing to trade; the price is just a matter of concern.

Xiao Guo: Right, the judgment of value is indeed very difficult. Just like many Meme Tokens, their value comes more from culture and consensus. Bitcoin is the same; its value is hard to measure with real-world frameworks. I think the IP aspect of NFTs has some similarities with Meme Tokens; their value lies in the establishment of consensus.

defioasis: Yes, many current liquidity solutions, whether collateral lending, fragmentation, or image coin duality, overlook the unique attributes of NFTs. Ultimately, these solutions treat NFTs as another form of token. If the rarity and uniqueness of NFTs are completely abandoned, then they are no different from fungible tokens (FT). In that case, it might be faster and more direct to speculate on Memecoins.

Shang: Right, there is no need to complicate the issue.

defioasis: Yes, so in pursuit of liquidity, if the unique attributes of NFTs are abandoned, then they lose their meaning of existence. From this perspective, NFTs become meaningless, and it would be faster to speculate on Memecoins.

Personal focus or promising NFT project sharing

Shang: I think before we wrap up, we can talk about whether anyone has promising NFT projects in mind.

Xiao Guo: Actually, during the peak of NFTs, I once thought about buying a Punk when the market was down. I really liked the design concept of Punks, especially its element combination gameplay. However, later Yuga Labs— the parent company of Bored Ape Yacht Club—acquired Punk, which made me abandon that idea. I believe Yuga Labs has commercialized NFTs, which somewhat deviates from the early NFT philosophy.

Additionally, I also considered buying some ENS domain names. ENS is both an NFT and a domain asset. However, I am somewhat disappointed with the ENS team; although they have generated a lot of income through ENS DAO, it seems that this funding has not been reinvested into ecosystem development but is controlled by the company. I find this operational approach of ENS confusing, which is also why I did not purchase ENS domain names later.

Shang: Hmm, I understand your point. The imbalance between the team and the market indeed raises doubts about the long-term viability of the project.

Currently, I am quite optimistic about Mad Labs, which is one of the largest NFT projects on Solana. They are also developing an exchange called Backpack, mainly addressing compliance issues. The community of Mad Labs is very active, and the atmosphere is great. Additionally, I hold Berachain's Bit Bears NFT, which has many innovations in its token economic model and great potential for future development.

defioasis: Mad Labs is indeed a project worth paying attention to, especially in the Solana ecosystem. Pudgy Penguins is also a project I am investigating, as many major project teams are willing to airdrop to Pudgy Penguins holders. I am currently considering whether to acquire some.

Overall, if the NFT market warms up, I may be more inclined to invest in leading projects like CryptoPunks or BAYC. However, the market is still quite bearish, so I will not enter this space on a large scale for now.

One idea is to buy NFTs that may have future airdrops. Holding these NFTs and anticipating the expanded effects of future airdrops could be a more speculative approach; I have been thinking about this strategy recently. Regarding Mad Labs, I am indeed paying attention to it, as it has a significant influence within the entire Solana ecosystem. I am also considering whether other major projects will airdrop to it in the future; perhaps I will look for an opportunity to acquire one.

Another one is the previously mentioned Pudgy Penguins. Recently, we can see that some major project teams are willing to airdrop to Pudgy Penguins holders, so Pudgy Penguins is also within my scope of investigation. These are some of my investment thoughts regarding NFTs and the NFT market.

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