Dialogue between Enjin and MANA: How to Discover Investment Opportunities in the NFT Market?

Recently, the 22nd session of the Catcher Academy, hosted by Chain Catcher, invited Shawn', the founder of the Enjin Chinese community, and Linghang Yuan, the head of Decentraland in China, to share insights on "Mining NFT: Discussing Investment Strategies and Precautions."

During the session, Shawn' and Linghang Yuan shared valuable insights with community users on the various aspects of NFT value, how to view the current speculation in the NFT market, and what opportunities are worth participating in. The full text is organized as follows, hoping to inspire readers.

Chain Catcher: Could you both introduce Decentraland (Mana) and Enjin, as well as your specific explorations in the NFT field?

Linghang Yuan: Decentraland is a VR virtual world based on Ethereum. It raised $20 million in crowdfunding in 2017 and launched its mainnet in February 2020. Just this February, we held a one-year birthday party in the Decentraland virtual world.

I specifically mention the birthday party because Decentraland aims to create a new lifestyle for virtual socializing and digital economy, not limiting itself to just a game. The game is merely one of the virtual socializing methods in Decentraland, which also includes virtual meetings, virtual education, virtual galleries, virtual parks, virtual cinemas, virtual bars, and virtual headquarters, among others.

All blockchain projects (like Binance, Babit, imToken) and blockchain pets (like CryptoKitties) can settle in the Decentraland virtual world.

From the moment it was born, Decentraland has led a new direction for NFTs, integrating existing forms of NFTs. All elements in Decentraland, such as land, names, skins, buildings, and scenes, are NFTs. You can trade them; land prices have risen from a minimum of 200 yuan at auction to now 40,000 yuan per piece, an increase of 200 times. The virtual fashion brand RTFKT, in collaboration with Alida, launched NFT virtual shoes with a minimum price of 3,000 yuan.

MANA is the universal token for the Decentraland virtual world, and all the NFTs mentioned above support pricing and trading in MANA.

Shawn': Enjin is a gaming community established in 2009, with 20 million player users. It launched Enjin Coin in 2017, entering the blockchain gaming and NFT field. Enjin provides an integrated product ecosystem that allows everyone to easily develop, trade, monetize, and market using blockchain.

Currently, there are over 30 blockchain games (projects) developed based on the Enjin ecosystem, with heavyweight partners including Microsoft, Samsung, BMW Group, and the pixel game Minecraft. The Enjin Wallet, which features NFT trading and melting functions, has accumulated over a million downloads. The Enjin Platform, an NFT issuance platform, has over 47,000 registered users.

Chain Catcher: With the continued rise in NFT popularity, there has been a lot of discussion. In your view, what aspects reflect the value of NFTs? After extensive communication with the outside world, what do you think is the biggest misunderstanding people have about NFTs?

Linghang Yuan: The value of NFTs lies in ownership and copyright. Ownership is something everyone is familiar with; Vitalik Buterin developed Ethereum because he was frustrated when his favorite Blizzard game removed the Warlock skill "Life Tap" in an update, and his protests were ignored.

The value of copyright is something that people may not yet fully understand, and it's also an area that project parties have not clearly defined. However, based on the characteristics of blockchain and the logic of community DAO governance, copyright should belong to the community and the NFT holders.

CryptoKitties has been at the forefront in this regard. In their public promotion in 2020, they clearly stated that anyone could conduct in-depth development based on CryptoKitties without permission. This was the first project in the blockchain industry to explain copyright issues using the spirit of blockchain, and I believe this is a good start.

I think there are three misunderstandings about NFTs:

NFT Liquidity: There can be certain issues with NFT liquidity. When engaging with NFTs, one must carefully filter based on public chains, projects, artists, and community consensus.

NFT Value: Currently, the value of art-related and DeFi-related NFTs tends to be higher, while NFTs not on Ethereum generally have lower values, mainly due to Ethereum's strong consensus and its global nature.

NFT Production Methods: NFTs are primarily digital. Currently, many traditional artworks are issued on Ethereum by photographing them after painting. I believe this does not strictly qualify as NFT art; NFT art should have its own production methods, such as digital creation. The auction of Beeple's 5000 Days NFT for nearly $70 million also highlights this issue. Traditional art should continue to use its own mediums, such as paper; burning physical artworks to issue NFTs is not advisable.

Currently, the platform MurAll is addressing NFT production methods. This platform has issued Paint tokens to replace traditional pigments and is integrated with design software, where each pixel requires 0.5 Paint. MurAll has formed a complete NFT production chain from design, value creation to issuance. This complements current NFT exhibition platforms like Rarible and Opensea.

MurAll also airdropped Paint tokens worth over 3,000 yuan to artists who held or created NFTs before the end of December 2020. Those who haven't claimed can do so here: https://murall.art/home.

Shawn': Regarding NFT value, I personally believe there are two aspects. First, from the functionality of NFTs, they grant unique properties to digital products (artworks, game skins, equipment, etc.), allowing consumers to truly own a digital product.

Secondly, from the perspective of the entire blockchain industry, NFTs greatly expand the application scenarios of blockchain technology. In the past, mining and smart contract products like Bitcoin and Ethereum were primarily focused on finance and insurance. The emergence of NFTs allows blockchain technology to be applied to entertainment, art, gaming, collectibles, virtual assets, and other life scenarios. This was the reason I became strongly interested when I discovered Enjin in 2018. The once exclusive world of the elite is now accessible to ordinary people.

If cryptocurrencies represented by Bitcoin are the first industry, and Ethereum as a smart contract platform represents the second industry, then NFTs herald the arrival of the third industry.

Regarding the biggest misunderstanding in people's understanding, from my personal experience, many people ask whether NFT projects have tokens. This depends on the specific scenario; some NFT projects will issue tokens, while others will not. Issued NFTs often have specific uses, such as collectible value, commemorative value, including certain services, or representing a skill in a game, etc.

Chain Catcher: After several years of development, NFTs have extended from the initial gaming circle to fields such as artworks, collectibles, tokenization of real assets, and virtual assets. How large do you think the potential market space for NFTs is? Is compliance and underlying infrastructure performance currently the main development obstacle?

Shawn': Just in the video game industry, there are currently 2.7 billion users globally, with a market value of $150 billion. I estimate that in the future, NFTs will permeate all aspects of our lives, and their potential market space is immeasurable.

NFTs are a new phenomenon, and the compliance issues they face are no less than those of other blockchain projects. Comparatively, I think the main obstacle lies in the underlying infrastructure.

Although more and more blockchain projects have begun to support NFT display, sending, trading, etc., there are still not many wallets that support NFT functions, and trading is not convenient. Moreover, Ethereum's high gas fees have indeed deterred many potential NFT users.

Linghang Yuan: The market for NFTs combined with reality is vast; any real asset that can be transformed using non-fungible tokens can be NFTed, so it's currently difficult to quantify.

There are currently no compliance barriers for NFTs combined with art and collectibles; the biggest obstacle lies in products that require government credibility, such as the NFTization of property certificates, which I feel may pose certain issues.

The performance of underlying infrastructure is a problem faced by all blockchain projects today, but one should not easily trust other public chains' NFTs due to Ethereum's performance issues, as blockchain projects rely on consensus. Without consensus, even the cheapest NFTs on a public chain have no value.

Chain Catcher: Recently, Beeple's 5000 Days NFT artwork was auctioned at Christie's for nearly $70 million, generating a huge impact both within and outside the industry. Many believe that bidders are speculating or even marketing their tokens. How do you view this high-priced auction event? Is the speculation and bubble situation in the current NFT market very serious?

Shawn': This auction event, whether seen as speculation or marketing, actually has a positive effect on the overall development of the NFT industry. An NFT artwork being auctioned at a traditional art auction house like Christie's has brought more awareness to NFTs and blockchain.

The traditional art market is monopolized by major galleries and art groups, making it difficult for ordinary artists to enter their circles. NFT artworks provide a chance for lesser-known artists to showcase themselves, allowing the value of artworks to no longer be controlled by intermediaries like galleries, and enabling artworks to be presented directly to users in NFT form.

I personally believe that in the short term, there is a bubble in the NFT market, but the entire market's value is only 1/10 of DeFi, while its application prospects are much broader than DeFi. I believe that as recognition increases, NFTs will extend into more fields, and the market potential is significant. If one or two NFT projects enter the Top 10 in market value in the future, Enjin is likely to be one of them.

Linghang Yuan: The art market cannot be viewed through a traditional lens; the saying that "what is loved is priceless" applies here. Of course, some people will use popular events to market themselves, which is unavoidable.

NFTs need to break out and be speculated upon. I believe the Beeple auction event planned by MP is a historical moment. We at Decentraland also synchronized with MP to hold an exhibition of Beeple's works in their virtual gallery, witnessing this historical event with Decentraland users, and specially created 1,000 "Witness History Moment" POAP commemorative medals, which were all claimed for free on the first day of the event.

NFTs need speculation; this is a process of discovering value, and there will inevitably be bubbles during this process. Everyone needs to learn to filter and discern value.

Chain Catcher: Many platforms now offer NFT issuance, bringing convenience and liquidity to the market, but this also means that the quality of NFTs varies widely. What should ordinary people pay attention to when participating in NFT investments? What evaluation models can be referenced and borrowed for assessing the value of an NFT?

Linghang Yuan: We can divide it into two models: the game NFT evaluation model and the art NFT evaluation model. The game NFT evaluation model should assess based on public chains, teams, models, and community consensus. In this regard, Shawn' from Enjin has more authority to speak, as they mainly address the issue of NFTing assets in games, and I would like to hear him discuss this.

Regarding the art NFT evaluation model, I wrote an article analyzing domestic NFT artists in June 2020 titled "The Outsider Can Chant the Scriptures, Who Will Take on Domestic NFT Artists?," which includes more detailed analytical angles, particularly proposing the Twelve Identification Methods for NFT Art: observe its appearance, listen to its sound, know its actions, and appreciate its art.

NFTs also provide emerging artists with opportunities to break through, so please do not be enamored with traditional artists; what we need is a new artistic language.

Shawn': First, one must learn to distinguish the authenticity of NFTs. Many NFTs may have the same image and name, but the IDs on the chain are different. Therefore, if friends want to purchase NFTs, they must verify the on-chain ID of the NFT.

As for how to assess the value of NFTs, I personally do not have particularly good suggestions. I believe it is essential to look at what category it belongs to. If it is an artwork or collectible NFT, the creator's fame and the value of previous works are considerations. If it is a game-related NFT, it should be evaluated based on the project's quality, such as team strength, game graphics, market entry points, etc.

On the Enjin platform, there is a game called "Lost Treasures," which features an NFT equipment that allows players to enter the game and recover health faster after taking damage. This equipment was priced at around 400 RMB last year, but as the number of players increased and the game became more popular, the price of this NFT equipment has now risen to 10,000 RMB, a 25-fold increase. In a healthy NFT + game project, early contributors, including players and developers, have all benefited in the later stages.

Chain Catcher: Previously, the CEO of Twitter announced that he would turn his first tweet into an NFT and start an auction, bringing tremendous traffic and attention to the NFT field. In terms of scarcity, it seems that the supply of NFTs in the market is infinite. How should we understand the scarcity of NFTs?

Linghang Yuan: NFTs are indeed infinite, so I feel it is essential to solve the issue of NFT production methods. For example, if the Twitter CEO produced his first tweet using MurAll instead of taking a screenshot of the original tweet and importing it into an NFT issuance platform.

NFTs can only have real value if they solve the issue of scarcity. Traditional artworks have more premium value because their supply is limited. Currently, professional NFT art evaluation models, platforms, and rankings have not yet emerged, but I believe they will soon, which will help us filter for more scarce and valuable NFTs.

Shawn': The scarcity of NFTs is analogous to the real world. The air we breathe daily is also a limited resource, but the supply is almost infinite. Everything that people perceive as infinite is actually brought closer to the real-world scenario by the emergence of NFTs. In the past, original digital assets like artworks and IPs often faced issues like infringement; NFTs have solved this problem at a very low cost and have evolved into many possibilities.

Chain Catcher: Decentraland (MANA) and Enjin have integrated protocols, trading, and issuance. However, both projects are based on the Ethereum ecosystem, which itself faces issues of insufficient on-chain performance and high fees. Public chains like Flow and Near have introduced the concept of NFTs. Do you have plans to migrate to Layer 2 or other public chains? What is the actual impact of Ethereum's performance issues on you?

Shawn': Although concepts like Layer 2 are currently popular, Enjin actually began developing an Ethereum sidechain called Efinity back in 2019. This project is an upcoming Ethereum scaling solution that will enable fast, free processing of ERC-20 and ERC-1155 tokens, scheduled to launch this year.

Game and DApp developers can open an Efinity Hub, allowing users to conduct zero gas fee transactions and transfers within their applications, writing the ledger to the Ethereum network only after DApp usage is complete. Users will be able to receive and send ERC-20 and ERC-1155 tokens on Efinity without needing to own or spend any ETH. The congestion of the Ethereum network has greatly diminished players' enthusiasm for trading; many NFT items are priced under ten dollars, but Ethereum's gas fees can reach twenty or thirty dollars, which urgently needs to be addressed.

Linghang Yuan: Decentraland focuses on content creation in the virtual world on Ethereum, which is currently the only project that has entered the content creation stage, while many other projects are still in the early stages of selling land and tokens. Decentraland will integrate some of the most advanced protocols and technologies available today, but will not focus its energy on protocols.

We will support Layer 2, but we will not migrate to other public chains. For a project like Decentraland, where all elements are NFTs, the migration cost is very high. We believe that Ethereum will solve these issues and have faith in Ethereum's consensus.

Ethereum's performance has indeed impacted us; for example, in DAO governance voting, we initially used on-chain governance, which resulted in high gas fees, causing many users to refrain from participating in DAO governance. We are now using a third-party snapshot governance solution.

Chain Catcher: Over the past year, many NFT projects have combined with DeFi's composability, bringing novel gameplay such as NFT + liquidity mining and collateralizing NFTs for lending. What significance do you think these integrated products hold? Does Enjin and Decentraland have any plans for integrating DeFi in the future? What plans do you have for the NFTization of physical assets?

Shawn': The blockchain space is full of unknowns and innovations, and I believe that the DeFi + NFT attempts will continue for a long time. Enjin's upcoming Ethereum expansion solution, Efinity, will also include DeFi functions, providing passive income for ENJ token lenders.

Developers can borrow ENJ tokens to mint NFT/FT assets, which will increase the economic value of the assets, and in Efinity, assets will receive priority processing. Users can lend ENJ tokens to developers of blockchain games and DApps to earn passive income with just a click of a button in the Enjin wallet.

There are two cases for asset tokenization: one is an art group called Beauty in the Streets, which recently collaborated with Enjin to create some dance moves into NFT-form animated emojis, which players who purchase the NFT can use in a blockchain game called "AlterVerse."

Another example is the attempt at real estate asset NFTization in collaboration with the LABS Group team. Both projects are ongoing, and we look forward to good results.

Linghang Yuan: The significance of this integration is substantial, and I fully agree. However, our Decentraland team seems more focused on content creation in the virtual world, as we have already entered the content creation stage, rather than relying on concepts and DeFi speculation.

Future blockchain projects will rely on content to sustain community consensus. We have gradually brought high-quality blockchain projects from China into Decentraland, such as Babit. Their Babit号 virtual spaceship in Decentraland will soon hold a month-long launch event, starting from March 19, where everyone can enter Decentraland to claim a commemorative NFT exclusive to the Babit号 spaceship. imToken's virtual headquarters in Decentraland will also meet everyone soon.

Our MANA has supported collateralized lending on platforms like MakerDao and AAVE. The spinach project DG, which was incubated from the Decentraland community, supported MANA liquidity mining in its early stages, and now is a good time to invest in DG (click here for details).

Another upcoming Decentraland community project, Longcheng DAO governance, will also support MANA mining, so please stay tuned.

We believe that more third-party platforms will support various DeFi gameplay functions like liquidity mining and lending for Decentraland's NFTs. We are solely responsible for producing valuable NFT content and welcome all platforms to DeFi-ify them.

We support all teams involved in content creation around Decentraland and have launched a community support fund worth 150 million yuan, governed by the Decentraland DAO.