Black Phoenix: 61 Thoughts on NFTs

This article is from Mars Finance, authored by Heifeng Li.

This article records some ordinary thoughts, which are purely personal subjective conjectures and are for reference only.

1. If you are an artist, start to break free from the path dependence of seeing is believing. NFTs are a new form of artistic expression, and they can also guarantee your rights. Imagine a hundred years from now, the blockchain still records the moment this work was created and tracks which collectors it has passed through. Even after you leave this world, you can pass on the "original ownership" of the work to your descendants, who can earn commissions from each transfer of the work; this is the artist's "gift" to future generations.

2. In the traditional collectibles market, expert authentication of authenticity is key. If an expert says it’s a counterfeit, no matter how beautiful it is, it’s useless; if an expert agrees it’s genuine, even if you spill cola on it, it can still fetch a high price.

3. The value of NFTs sometimes does not depend on the first creator; it may be the subsequent Dapps that give the NFT new value.

4. Currently, the asset types of NFTs are too singular, with 99% being artworks. In the future, 99% of NFTs should be financial assets, digital identities, or data rights, etc. The proportion of artworks/collectibles should be less than 1% in the future; this is reasonable.

5. Each NFT is a "description of a structure," which contains various information, such as the DEGO shovel, which includes: level, face value, image, introduction, etc.

6. NFTs will not break out of the art circle because art is a low-frequency trading market, both in reality and on-chain. The true value discovery of NFTs in the future must be related to finance, and it could even be decentralized digital identities.

7. Enriching the asset types of NFTs is essential for the NFT financial market.

8. NFTs have great application and innovation potential in the insurance field; each insurance policy is an NFT right, fully executed on-chain without relying on any centralized enforcement agency.

9. The DEGO ERC-908 protocol is too advanced; real-world behaviors like leasing and pawning cannot currently be implemented on-chain. First, the issues in (4) need to be resolved.

10. Regarding NFT fragmentation, I have looked at the solutions available in the market, and the one that comes closest to my imagination is DODO. However, its solution does not address the limitations of long-tail assets, which will still lead to a series of problems after implementation, although the general direction is relatively correct.

11. NFTfi and NFTx are worth paying attention to, but only to observe. They are typical cases of having a good direction but the wrong path. However, I still hold the view that we must believe in the evolution of human thought; excellent solutions are born through iteration, provided the direction is correct. The early ETHLend used P2P trading but did not succeed, later shifting to a lending pool model, solving past liquidity issues, and achieving a weekly income of up to 4.4 million USD for Aave.

12. There have been many successful cases of finding real-world examples and moving them on-chain, but I am more interested in business models that do not exist in reality. For example, Aave's flash loans, SuperRare's artist commissions, etc. I believe more "new businesses" will emerge in the NFT field.

13. Due to Aave, I am also one of the early investors in Aavegotchi. What attracted me early on was its promotion of a micro-innovation combining NFT and DeFi, where the birth of each little ghost came from the collateral of Atoken (the yield-bearing certificate on AAVE, similar to LP tokens). At that time, it aligned with my judgment of NFT + DeFi, but later Aavegotchi's direction shifted increasingly towards GameFi, emphasizing "Game" rather than "Fi," which I believe is problematic.

14. The focus of DAO + NFT is DAO, not NFT; NFT is merely a technical means.

15. Prioritize solving the issues of native on-chain assets rather than rushing to integrate with physical industries. It is not the blockchain that comes to us, but we who go to the blockchain; most people have got the direction wrong.

16. Recently, the hype around NFT + IP has been excessive. I believe that soon, many institutions that were caught up in FOMO will be educated, including many so-called big-name institutions.

17. One cannot completely view NFTs through the lens of consumer goods, but neither can one ignore this perspective; there is a balance to be struck.

18. In the MarketPlace sector, China does not yet have a strong player (which is also an opportunity), while strong competitors abound overseas. Why are Chinese NFT projects so inadequate? Does this indirectly indicate that the soft power of Chinese culture is indeed lagging behind the West?

19. The trading of non-standard assets in reality far exceeds that of standard assets, yet the current situation is that the market size of NFTs is far smaller than that of FT.

20. ERC-721 deserves respect. Similarly, ERC-1155 also deserves respect (if the respect for ERC-721 is 100 points, then ERC-1155's respect is at most 65 points). This is because the technical difficulty, problems solved, and innovations of ERC-1155 are not as impressive as advertised. Therefore, ENJ is a PR company, and they have recently come out to raise funds again. (sigh)

21. CryptoPunk is a collectible that can transcend time; it can be said to be the BTC of NFTs. HashMask is the next potential high-quality target, but I think it will be hard to surpass it; it might become the ETH of NFTs. Perhaps they should be seen as the relationship between gold and silver?

22. Does NFT need a public chain? I believe it does. But can ENJ do it well? I remain skeptical.

23. Whale has a great reputation, and its direction and ideas are good, but what is the relationship between its token and the NFT assets it collects? How are those assets valued, and do they have liquidity? This is a question that needs to be resolved.

24. DapperLab is indeed the team that understands how to play with NFTs the best in the world, and there is no dispute about that. However, if it comes to NFT + DeFi, I think that may not be the case. DEGO has provided many unprecedented ideas in NFT + DeFi, leading trends in many key innovations. Nowadays, everywhere you see "blind box airdrops," "NFT mining," "INO platforms," "NFT synthetic assets," etc., any product from DEGO could easily raise tens of millions of dollars in valuation.

25. I have found that many people with great insights may not necessarily be able to create good projects; good understanding does not equate to a good project. The key to a project's success lies in execution.

26. In fact, the opportunity for BSC to overtake is in NFTs. Most NFT users do not overlap with DeFi users; for the vast majority of NFT users, which chain they use and the degree of decentralization are not as concerning as they are for DeFi users. Moreover, in the NFT field, the advantages of ETH are not that obvious.

27. Some may ask why most NFTs are artworks? Because most users, even industry veterans, first encountered NFTs through CryptoKitties. Before new things emerge, it is difficult for people to break out of fixed thinking frameworks (including myself); it’s like we didn’t realize how convenient "smartphones" were before the iPhone appeared.

28. NFT lending is a very large sector, and as an entrepreneur, I am excited about it. However, it is currently too early; the timing is not mature, and NFTfi's current choices are wrong. Exposing methods too early could lead to becoming a martyr; sometimes, being a latecomer can be more efficient.

29. NFTs can not only package assets but also serve as proof of rights, and this right can be further refined, such as defining the boundaries of rights, etc.

30. The development of decentralized storage has also influenced the development of NFTs.

31. Back in 2018, the story of NFT asset reuse was very popular. Users' NFTs only belong to themselves and not to any past "centralized server"; users can use their NFTs in countless worlds built by Dapps. For example, a dragon-slaying sword in A-Dapp can be used in the B-Dapp world. Now, in 2021, those stories are indeed valid, but it is still too early.

32. Chain games are a fantastic sector, but currently, I have not seen a case that I consider "successful." In 2018, NetEase launched a game called "Nishuihan" that combined blockchain technology, but it seems there was no follow-up. Some believe it is due to immature infrastructure, while others argue that not all content needs to be processed in a "decentralized" manner, but it seems there have been no good results.

33. NFTs are very suitable for people who only partially understand them to boast about.

34. There is a quirky project in the Philippines called YGG, which can be understood as a gold farming guild in games. It is said that the current situation (which I have not experienced firsthand) is that because Axie pets are expensive and labor costs in the Philippines are cheap, YGG has maximized the use of cheap labor in the Philippines, renting these assets to "laborers" who play games, and the money earned is shared with the capitalists. Does this feel particularly magical realism? The rules of reality seem not too different from those on-chain.

35. Cross-chain for NFTs is not very important now, but it will be very important in the future. Why? Because currently, most NFTs are artworks, and the demand for cross-chain in artworks is not significant. In the future, as NFTs become predominantly financial assets, cross-chain will become crucial.

36. Everyone is an NFT; for the concept of digital identity to be established, NFTs must be used.

37. NFTs and FTs are relative; when NFTs are no longer an independent sector, they will no longer be undervalued. Have you ever heard of someone treating FTs as an independent sector?

38. Traditional art and NFT art are two different things; the user groups and consumption concepts are entirely different.

39. Before a Christie’s auction, there is a verification process for authenticity; it is said that having over 60% genuine items is already quite good, and this situation will not exist in the NFT field.

40. Does NFT solve the counterfeit problem? Actually, it does and it doesn't. There are two situations: the first is the method of counterfeiting authors, copying a painting and circulating it in the market, which will not exist in the blockchain world. The second is a more painful situation brought by the blockchain, where anyone can directly copy any PDF file, package it as an NFT, and upload it. Who knows if this work was uploaded by the original author?

41. The phenomenon of selling others' works as NFTs continues despite repeated bans. How can this problem be solved? Can it be combined with identity information? It seems quite difficult to resolve. Just like major e-commerce platforms have yet to solve the counterfeit problem.

42. Web 3.0 is a grand vision; it aims to achieve people's "ownership" and "management" of their rights to privacy, identity, data, assets, etc. Therefore, NFTs will be an indispensable part of Web 3.0.

43. Each person's life can be an NFT; from the moment we are born to the moment we die, is there a possibility of being recorded and passed down through the ages?

44. I discussed the developmental stages of NFT + IP in an AMA, roughly divided into three situations:

First stage: IP > Channel

Second stage: IP = Channel

Third stage: IP < Channel

45. Mintbase's direction may be correct in the long run; I admit I was not very optimistic about it before.

46. In the future, I will encapsulate moments like my wedding and the birth of my child into an NFT.

47. The fragmentation of NFTs is the infrastructure for NFT finance. It deconstructs previous NFTs and helps those that previously lost liquidity to flow again.

48. NFT20/NFTx, such NFT index funds, are worth paying attention to, but their solutions always seem somewhat off, and they have not figured out how to solve the specifics.

49. NFT Layer 2 needs a completely new solution different from FT.

50. NFT artworks are merely JPG + ownership, overlooking other connotations of NFTs. In the U.S., there is a more CX-oriented saying: "the programmability of NFTs," which elevates my previous "structured description" to a new level, expanding the imaginative space. In terms of CX, the Westerners are still strong; their ideas are quite expansive.

51. Why is "Roseonly" valuable? Because each user can only give it to one person in their lifetime. Will the combination of NFTs and consumer goods yield a higher premium? When Shen Yu married, he gifted his wife BTC, with the signature forever on-chain. So, if I gift my wife an "NFT jewelry" with a heartfelt confession written on-chain, will I get killed by my wife?

52. Currently, the real world and the on-chain world are two parallel worlds because a good oracle mechanism has yet to emerge. The process of mapping real-world data to the chain is centralized, which cannot guarantee its validity; any centralized institution acting as a verification node has issues.

53. Has OpenSea monopolized the market? I don’t think so.

54. The NFT market is filled with various pseudo-demands.

55. DEGO uses NFTs to solve the problem of "1.5-level market liquidity," truly addressing trust and rights issues through blockchain technology.

56. People's understanding of NFTs is divided into three stages: initially focusing on the potential of NFT + IP, then on the characteristics of NFT structures (exploring financial aspects), and finally beginning to consider the interoperability of NFTs.

57. Using NFTs as legal agreements may be one of the future choices for NFT implementation, but the premise is to achieve "operability."

58. Currently, I am not optimistic about projects that aim to NFT-ize all off-chain assets because the bridge between reality and on-chain has yet to be built. The most promising opportunities still lie in native on-chain assets.

59. Not all NFTs need to be fragmented; long-tail assets that lack liquidity will not improve due to fragmentation, so I see no value in that. We should prioritize the liquidity issues of high-net-worth assets because that signifies "consensus."

60. The Metaverse originated from writer Neal Stephenson's 1992 novel "Snow Crash"; it is not a new concept. I believe the era of "Oasis" will eventually come. Perhaps, at that time, our bodies will perish, but our will will still exist in another "artificial world." But will this be happiness? Perhaps not.

61. Can the Alipay credit system of the internet era be combined with the blockchain identity credit system? Decentralized identity is indeed the cornerstone of Web 3.0; this is a deterministic opportunity, but this is not something everyone can do. Technology is secondary; the ecosystem is the most important.

The above are some records of my fragmented thoughts. I hope that after reading my reflections, everyone can gain inspiration and do more valuable things for the industry. When you truly become an innovator in this field, you will find that blockchain has a very high premium for "reasonable innovation."