From casting to circulation, a comprehensive sorting of the NFT industry value chain

This article is sourced from ChainNews, authored by Jasmine Zhang and Fiona He, partners and investment professionals at A & T Capital.

In late June, we published a research article in the NFT sector, outlining the investment opportunities we focus on within the NFT space. Since then, NFTs have been on the rise, and we have seen more industry leaders venturing into NFTs. Through the following article, we hope to share our methodology regarding the value chain of the NFT industry.

Related reading: “A & T Capital: NFTs Will Define the Final Form of Future Cultural Output”

On June 21, Alipay launched a limited sale of two "Dunhuang Feitian, Nine-Color Deer" payment code NFT skins on the "Ant Chain Fan Grain" mini-program, which were quickly sold out upon release.

On June 24, the American social network Reddit, known as the "Internet's Front Page," issued the NFT CryptoSnoo for a seven-day auction, characterized by news aggregation and commentary. Users can purchase CryptoSnoo NFTs and link them to their Reddit accounts to use as avatars, with a collectible NFT card appearing in their profiles.

On June 25, Marvel announced a collaboration with the VeVe Digital Collectibles app to launch official NFT digital products, 3D statues, and digital comic books.

On July 1, CNN launched two collectible news historical moment NFTs, namely "June 1, 1980, the Birth of CNN, the World's First 24-Hour Television News Network" and "January 1991, CNN's Exclusive Coverage of the Outbreak of the Iraq War."

On July 6, blockchain game and NFT developer Animoca Brands announced an investment from Jack Ma and Joe Tsai's family-managed fund, Blue Pool Capital.

In the past month, although the overall market remains sluggish, there continues to be exploration of NFTs outside the "circle." The reason, of course, is that the value of NFTs is gradually being recognized. We believe that the innovation of NFTs lies in providing a method to mark the ownership of native digital assets (i.e., assets that exist in or originate from the digital world), and that ownership can exist outside of centralized services.

The value of NFTs lies in their ability to expand the categories of on-chain assets, providing possibilities for assets that were previously unrepresentable. At the same time, the expanded asset categories are closely related to the general public and are easier to disseminate, which leads to the logic and business models behind NFTs being more easily understood and accepted.

We believe that the NFT sector still holds enormous potential, and the landscape of NFTs is just beginning to take shape. Therefore, we have organized the NFT industry value chain from minting to circulation. On one hand, we will use this chain to help clarify investment logic; on the other hand, we welcome peers or project parties to share insights with us.

The following diagram illustrates the layered logic of the NFT industry value chain: the overall flow of NFTs is divided into three layers, from bottom to top: Infrastructure Layer, Protocol Layer, and Application Layer.

Infrastructure Layer mainly encompasses underlying public chains, side chains/Layer 2, development tools, token standards, storage, and wallets. This layer captures value based on the minting of NFTs; for example, underlying public chains and side chains/Layer 2 capture the gas fees generated from minting. The more NFTs minted, the greater the value captured by this layer.

Protocol Layer includes:

• NFT minting protocols (Mint & Launch) and primary circulation markets (Sell & Trade). Most protocols combine these two aspects to further capture value. Value capture is based on primary transactions of NFTs, as secondary transactions are more dependent on platform traffic. Currently, OpenSea is the largest secondary platform by traffic, so minting protocols in this layer can only capture value through primary transactions. This is why Mintable introduced the concept of gasless items to attract users to mint and trade on the same platform; only after the transaction does the NFT go on-chain to capture primary transaction value.

• Liquidity protocols, mainly used for value discovery of NFTs. This type of protocol does not mint NFTs but prices them through various methods. Value capture is likely similar to DEXs and oracles, based on providing liquidity as a foundational financial service.

• DeFi + NFT, mainly refers to NFTs minted through DeFi activities, which differ from other minting protocols primarily in that they capture value through minting activities.

Application Layer mainly consists of applications derived from tokens based on the protocol layer, such as NFTs traded in the representative project of the general secondary market, OpenSea, which is primarily composed of various minting protocol platforms from the protocol layer. The value capture in this layer is mainly based on traffic and demand monetization, such as social and curation; how to gather traffic and monetize is the core value point.

Next, we will introduce the projects in the protocol layer and application layer that we focus on.

Protocol Layer - NFT Minting Protocol and Primary Market -- "Comprehensive"

This category represents a comprehensive trading market that allows for the trading of various physical items. The mainstreaming of NFTs is closely related to NFT minting platforms and primary markets, as these platforms directly connect creators and users. On one hand, platforms need to further lower the acceptance threshold for users, enhance user experience, and increase user stickiness and participation, which can be referenced from apps like Xianyu; on the other hand, platforms need to provide creators with an easy-to-use NFT creation experience, lowering the barrier for creating NFTs to attract a more diverse range of creators to showcase their work.

• Mintable: A trading platform that provides users with features such as messaging, promotion, and rating, and introduces ERC-721 as a governance token, along with gasless items to attract users to mint and stay on the platform for trading.

• Mintbase: A trading market based on the NEAR ecosystem, where users can create and sell NFTs for music, artwork, tickets, photography, and more.

• VIV3: The first trading market based on Flow.

• Zora: Founded by former Coinbase product managers, its main product is a platform for creators or artists to issue works, primarily in media formats including video, audio, and documents.

• Cargo: Allows users to mint, buy, and sell NFTs on the platform, supporting Ethereum, xDai, and Polygon.

• TerraVirtua: A minting and trading platform for art, collectibles, and game IPs. The operating environment is highly compatible, allowing users to showcase, trade, and interact with NFTs in an immersive way; its virtual interface based on 3D Fancave, Terradome, and Galleries, along with a mobile AR application, provides a good user experience and strong IP resources.

Protocol Layer - NFT Minting Protocol and Primary Market -- "Art / Collectibles"

This category represents minting and primary markets primarily focused on art/collectibles. Art projects emphasize strong IP resources and artistic taste, while collectible projects focus on future hidden features and surprises. Among them, art projects often have higher barriers, requiring creators to have a certain artistic background or sufficient followers on social platforms to gain access to the platform, which contradicts the inclusive and egalitarian principles advocated by the crypto world.

• SuperRare: Established in 2018, one of the earliest NFT art minting platforms, with certain thresholds for artworks and artists.

• CryptoKitties: A digital cat collection and breeding game launched in 2017 on blockchain technology, which once accounted for over 16% of Ethereum's transaction volume, causing severe congestion and delays in transactions on the Ethereum network.

• Makersplace: A rare art minting and trading platform.

• CryptoPunks: Established in 2017, built on Ethereum, and one of the earliest inspirations for the ERC721 standard. It issued tokens by modifying the ERC20 contract, generating 10,000 completely different 24x24, 8-bit style pixel art images.

• Rarible: Founded at the end of 2019, primarily focused on fun art pieces, founded by a Russian serial entrepreneur, and the first NFT trading platform to launch a governance token.

• HashMasks: Created in 2021 by over 70 global artists, featuring 16,384 unique portraits, in a blind box format where users can name each painting, enhancing user engagement and adding more value to the tokens.

• NBA Top Shot: A collectible game built on the Flow public chain. NBA Top Shot collaborates with the NBA to obtain official IP authorization, allowing collectors to obtain authentic NBA player highlight reels in a gamified manner and trade them in the platform's marketplace.

• Nifty Gateway: A regulated NFT currency market, acquired in 2019 by "Bitcoin Billionaire" twins Tyler and Cameron Winklevoss, marking the first acquisition of the exchange. The platform utilizes Gemini's backend infrastructure to establish a dollar exchange platform, allowing users to purchase NFTs with credit cards and cash out directly to bank accounts when selling.

• Bored Ape Yacht Club: NFT trendy toys + membership club.

• Autoglyphs: The second NFT project by the CryptoPunks development team, a generative art platform.

• Meebits: The third NFT project by the CryptoPunks development team, consisting of 20,000 unique 3D voxel characters that developers can use. Owners can access a package containing complete 3D models, freely render Meebits, and set animations, allowing them to be used in any game engine, 3D studio, or as avatars in the Metaverse. Additionally, Meebits can be directly exchanged for other Meebits.

• Foundation: A community-driven, high-barrier minting trading platform.

• Async Art: A platform for programmable art (mainly) and music minting and trading.

• KnownOrigin: A high-end art minting and trading (primary and secondary) platform.

• Avastas: A generative art trading platform.

• Art Blocks: A generative art minting and trading platform.

Protocol Layer - NFT Minting Protocol and Primary Market -- "Games"

This category lists current cases where blockchain game developers use NFTs to empower the in-game economy for players. Previously, NFT game projects attracted players primarily through the P2E (Play-to-Earn) model, leveraging the unique and tradable characteristics of NFT items to create a fitting game economy. However, they often lacked focus on the game design itself, failing to attract long-term players from the crypto space, let alone entice players outside the crypto world to abandon centralized games for blockchain games.

After several years of development, developers have gradually realized that successful blockchain games need a solid gameplay experience to support them, along with the P2E model to fully unlock the potential of blockchain games.

• Axie Infinity: Axie Infinity is a blockchain game where players collect and breed various quirky creatures. In addition to ordinary collection attributes, Axie also adds unique battle attributes, becoming one of the earliest combat-capable NFT pets. In February, the Axie team launched a customized Ethereum sidechain called Ronin to improve verification speed through POA consensus, alleviating congestion on the Ethereum network and the pressure of gas fees for players. Axie has become a representative of blockchain games, with sales exceeding $121 million in June, a 351% month-over-month increase, nearly three times that of the second-place NBA Top Shot ($45.43 million).

• Gods Unchained: The first on-chain esports card game based on Ethereum, similar to "Hearthstone," allowing users to freely trade and sell their cards while owning the cards.

• Zed: The first AR horse racing game on Ethereum Layer 2, providing a one-stop NFT horse racing experience that includes breeding, racing, and watching races. Its backer, Atari, has authorized multiple game IPs such as "Asteroids," "Centipede," "Missile Command," and "Pong." In the future, as more horse racing enthusiasts join, the gameplay and content boundaries will continue to expand.

• Skyweaver: Similar to Gods Unchained, it is a digital trading card game with actual trading functionality. Players control the economy and the value of NFT cards based on the number of cards forged in different game modes, demand for certain cards in the shop, and the number of players offering cards for sale.

• Alien Worlds: A DeFi game based on the WAX public chain, where players can earn Trilium (TLM) through mining, with a chance to mine NFTs each time. Trilium can be staked on one or more of the six planets in the game, and after signing up to become a candidate for planetary governance, players may have the opportunity to rule that planet. NFT game cards will introduce innovative gameplay over time, including upgrading cards through "shining" and battling in fighting games.

• Sorare: A fantasy football game based on Ethereum, developed by the startup Sorare. Players can purchase and trade NFT player cards certified by clubs or leagues to build their teams, each with its own scarcity and uniqueness level, with player card ratings based on their real-life performance. Once players assemble a complete lineup, they can participate in fantasy football competitions on the platform and earn card and token rewards.

• Mega Crypto Polis: A city management game based on Ethereum and TRON, where players can start by acquiring a piece of land on a decentralized city map and build a variety of building types. Each piece of land, along with the buildings constructed, exists as NFTs that can be transferred or traded in the market. Every action in the game incurs some taxes for regional and federal budgets, which are then distributed to all players based on their share of total influence points generated during the game cycle (24 hours).

Protocol Layer - NFT Minting Protocol and Primary Market -- "Metaverse"

This category represents current cases where the Metaverse uses NFTs as a means of certifying digital assets. Currently, the NFT ecosystem within the Metaverse has considerable room for development compared to earlier applications like art and collectibles. The issues that need to be addressed include:

1. The hardware threshold is relatively high, and optimization is inadequate. Users' computers need to meet certain specifications to smoothly run the rendering of open-world graphics. In the future, project teams still need to make trade-offs between graphical performance and smooth gameplay experience.

2. Compared to other blockchain areas, the Metaverse currently lacks gameplay and wealth creation effects that align with its advantages. Most content within the current Metaverse ecosystem is still built around NFT collectibles, with collectors showcasing their collections in various corners of the Metaverse, resembling a 3D version of Opensea, with few attractions for open-world players.

3. The player base is still limited to users within the circle, not reaching the general public who do not pay attention to blockchain. This requires a strong IP + smooth user experience + innovative NFT Metaverse gameplay to combine and break out.

• Cryptovoxels: A virtual world built on Ethereum. Users can build, develop, and sell parcels of property in the encrypted pixel neighborhood, owning their land in the form of NFTs and displaying various NFT collectibles within their buildings.

• Decentraland: A virtual world built on Ethereum, similar to Cryptovoxels, providing land, avatar clothing, and content servers in the form of NFTs. Additionally, Decentraland utilizes its native cryptocurrency MANA to subsidize various operations and plans within the Metaverse and serves as the currency for transactions between users.

• The Sandbox: A pixel sandbox building game similar to Minecraft and Roblox, where players can create digital assets in the form of NFTs in The Sandbox VoxEdit and upload them to the store, creating games on their properties using a simple drag-and-drop method through Game Maker to attract other players to participate.

• Somnium Space: Somnium Space VR is a VR social application based on Ethereum, allowing users to purchase land, build or import objects to create shared virtual worlds. It provides native NFT integration and supports mainstream head-mounted displays for full VR exploration, using CUBE as the in-app interaction token.

Protocol Layer - NFT Minting Protocol and Primary Market -- "Fan Economy"

In the traditional fan economy, neither fans nor idols are the biggest beneficiaries in this ecosystem. Instead, centralized social platforms act as intermediaries connecting creators and fans, inserting advertisements and algorithmic recommendations between creators and users to capture most of the revenue. On the other hand, interactions between idols and fans are often monotonous and one-sided.

The advantage of NFTs lies in their ability to connect fans and idols more efficiently, encouraging two-way interaction between idols and fans. Platforms centered around the NFT ecosystem need to establish appropriate economic incentives and mechanisms for both fans and creators, facilitating "commoners" to become idols and encouraging more original content.

• BitClout: Allows users to speculate on Creator Coins using cryptocurrency, based on the fame of celebrities. It is built on its own custom blockchain, supporting complex social network activities such as posting, profiles, following, and other speculative functions. It is a POW blockchain designed specifically for running social media, where everyone can have their own Creator Coin and trade it freely.

• Rally: Allows creators to launch their own social tokens. Rally is governed by its native token RLY, where fans can purchase creator tokens to support their favorite creators and receive special benefits determined by the creators. Developers can drive business models based on their social tokens and share the economy with fans. The platform can also combine its native governance token RLY with creators' social tokens to mint a new token, while designing a Layer 2 solution that allows for instant trading, dollar purchases, and a value acquisition mechanism using bonding curves.

• Roll: Represents users creating ERC-20 tokens while providing storage and trading venues. The issuance model has a total supply of 10 million for each social token, with 2 million directly allocated to content creators, 1.2 million belonging to the Roll platform, and the remaining portion being unlocked linearly over three years. After the social token is issued, creators can sell it or distribute it to fans through the Roll app, listing it for sale or conducting strict peer-to-peer transactions, or exchanging it for other tokens on Uniswap.

• Mirror: The platform token $WRITE (ERC-20) represents authors' permissions to publish content on the platform. Content creators need to burn $WRITE to open their columns. The Mirror team selected a group of creators as the platform's inaugural writers and holds a weekly $WRITE Race, where community users vote for selected authors to receive tokens to open their columns. In the early stages of their works, authors can crowdfund by issuing work tokens to fans, and once the work is completed, it will be minted as an NFT on-chain, with revenues from article reprints, tips, and auctions shared based on fans' contributions in the crowdfunding.

• Chiliz: The utility token for the fan site Socios.com, providing sports and esports fans with the right to co-manage teams, events, leagues, and other activities through voting, participating in team management and strategic decision-making. Teams and organizations in the sports and esports fields can also achieve fan monetization by granting fans certain decision-making powers.

Application Layer -- Finance -- "Liquidity Protocols"

This category mainly represents protocols that provide NFT pricing as underlying assets. Currently, there are three solutions: first, buyer pricing, such as TopBidder pricing through auctions; second, seller pricing, such as NiftEx/NFT20/NFTX, where sellers stake NFTs to generate ERC-20 tokens for initial liquidity pricing; third, third-party pricing, such as Upshot, which generates pricing based on the predictive behavior of random users. These liquidity protocols are necessary financial infrastructure, providing NFT value discovery for more complex applications above.

• NiftEx: Launched in May 2020, allows users to stake NFTs and split their ownership into ERC-20 tokens to promote liquidity. As of July 7, the total market value of all staked NFTs was $4.4M.

• Upshot: Launched in May 2021 in Open Beta, uses prediction markets to provide price discovery for NFTs, requiring users to complete a series of simple multiple-choice questions rather than inputting precise prices, selecting which of two paintings they believe is more valuable.

• NFT20: Launched in November 2020, allows users to stake NFTs and generate ERC-20 token derivatives that can be traded on DEXs like Uniswap to promote liquidity. As of July 7, the total market value of all staked NFTs was $1.4M.

• NFTX: Launched in January 2021, allows users to stake NFTs and split their ownership into ERC-20 tokens. As of July 7, the total market value of all staked NFTs was $3.2M.

• TopBidder: Launched in April 2021, it is a bidding protocol for crypto art and collectibles, providing price discovery for NFTs.

Application Layer -- Finance -- "DeFi + NFT"

This category mainly represents protocols that utilize NFTs as asset representation tools. NFTs can be seen as an evolution of tokens, from representing indistinguishable assets to defining more unique values. This category will produce "DeFi" type NFTs, such as Uniswap LP tokens and yinsure policies, which differ from NFTs minted through art and collectible minting protocols primarily in their minting methods, as they are minted through financial activities.

• Uniswap V3: Launched in May 2021, represents LP tokens as NFTs, defining liquidity value under different market-making strategies. As of July 7, the total locked value was $1.8B.

• Aavegotchi: Launched in March 2021, obtained through collateralizing interest-bearing deposit certificates aTokens on the Aave lending platform, expanding the use of NFTs in gaming scenarios.

• Dego: Launched in September 2020, the project airdrops NFTs with different rarities through blind boxes, rewarding users with DEGO tokens for staking, and allowing participation in community governance through NFT ownership. In the future, users can also mint NFTs using DEGO tokens. As of July 7, the total market value of all staked NFTs was $9M.

• Yinsure.finance: Tokenizes unique insurance policies as NFTs, allowing them to flow in secondary markets and increasing the liquidity of the policies.

• Meme: Launched in September 2020, combines DeFi and NFT gameplay (Stake Meme to specific collateral pools to earn corresponding scores, which can be exchanged for NFTs).

Application Layer -- Finance -- "Collateralized Lending"

This category mainly represents protocols that realize collateralized lending using NFTs as underlying assets. Currently, due to the lack of liquidity and pricing issues with NFTs, collateralized lending can only be achieved in a P2P manner. However, referencing the iterative path of DeFi from ETHLend to Aave, P2Pool may be the next upgrade path.

• NFTfi: Launched in February 2020, allows borrowers to put their NFT assets as collateral in the market in a P2P manner, with lenders in the market quoting prices. As of July 7, the total loan amount was $4.8M.

• Pawnhouse: Launched in July 2021 in beta, also in a P2P manner, where borrowers put their NFT assets as collateral in the market, with lenders quoting prices.

• Taker Protocol: Not yet launched. Also in a P2P manner, introducing the ERC-20 token Tai as an interest-bearing deposit certificate, creating a lending pool to bridge DeFi and NFTs.

Application Layer -- Finance -- "Asset Management Tools"

This category mainly consists of asset management tools at the upper level of the NFT industry chain, similar to asset management platforms like Zapper and DeBank in DeFi. Currently, there are few projects.

• NFT Bank: Launched in June 2020, an asset management platform focused on NFTs.

Application Layer -- General Secondary Market

This category mainly represents the secondary market formed after NFTs are minted. Unlike primary markets, these platforms take on the responsibilities of secondary markets, mostly including NFTs produced by major minting platforms.

• OpenSea: Launched in December 2017, it is currently the largest NFT trading platform, with sales nearing $150 million in June.

• Auctionity: Launched in January 2018 in beta, it is an on-chain auction house for crypto collectibles.

• TokenTrove: Launched in October 2019, primarily targeting the secondary market for games, especially Gods Unchained.

Application Layer -- Vertical Field -- "Data"

The NFT data field has yet to see a comprehensive data provider. Existing data either lacks comprehensive coverage of NFTs or is incomplete in terms of data dimensions. Additionally, there is a lack of a fully functional NFT search engine, which will be an important traffic entry point in the future.

• Cryptoart.io: A data platform focused on the field of crypto art, providing information on crypto artworks, crypto artists, and macro crypto art data analysis.

• Nonfungible: A data platform covering Ethereum NFTs, including mainstream NFT projects in the market, historical and real-time NFT industry data, and research related to the NFT industry.

• NFTGuru: Tracks data using Opensea APIs, featuring comprehensive search functionality.

• CryptoSlam!: Includes historical data on trading volumes for mainstream NFTs on different chains, such as NBA Top Shot. However, there is less data in the art field.

Application Layer -- Vertical Field -- "Curation and Community"

Communities are driven by intrinsic value (such as social status) and extrinsic value (such as future development). Curators' work is to create a harmonious ecosystem for these two motivations. One of the pain points for general NFT creators is the inability to gain initial traffic for their works. We now see curators bundling quality services to establish deeper relationships with their super fans. Therefore, curation projects can help NFT creators with self-marketing while allowing users to discover more potential value.

• Whale DAO: A curation community that issues a community token, based on staking "valuable" NFTs to issue FT tokens Whale. As of July 7, the Whale asset pool was valued at $4.5M.

• Flamingo: Flamingo is a DAO organization focused on investing in crypto art, where members have the right to collectively decide on the NFT artworks to purchase, and can split, lend, mortgage, and curate the NFTs purchased by the DAO. There are certain entry barriers to becoming a Flamingo DAO member, requiring a donation of some ETH as a condition of membership, and the number of members is capped at 100.

• MetaPurse: MetaPurse is a crypto community-native venture capital fund focused on investing in crypto art, virtual assets, and funding early projects, funded by MetaKoven. Unlike other ROI-driven crypto funds, MetaPurse aims to promote the NFT ecosystem as its primary goal. Recently, it showcased its purchased crypto artworks through an NFT VR exhibition.

• Friends with Benefits: FWB is a private social platform based on a Discord private server, gathering a group of creators and thinkers in the crypto space. Participants need to hold a certain amount of the native token $FWB to join this social circle. $FWB has a constant supply of 1 million.

• Collab.land: Collab.land is a solution based on Telegram Bot to help crypto startups build early communities. For NFT creators, Collab.land assists them in curation, showcasing exclusive content for different levels of participants in the creator's community.

• Ark: Ark is an investment-oriented DAO organization focused on Cryptopunks, where members can create an ARK to gather other members to jointly purchase specific Cryptopunks, or participate in an ARK to gain shares of collectively purchased Cryptopunks.

Application Layer -- Vertical Field -- "Social"

In the previous article mentioned at the beginning, we detailed our expectations for social platforms, believing that social platforms are important media for NFTs to break out.

Recommended reading:

“A & T Capital: NFTs Will Define the Final Form of Future Cultural Output”

• Nifty's: Nifty's is a social media platform focused on NFTs, connecting quality publishers, brands, and creators with collectors, curators, and the fan communities that arise around them. This innovative platform provides an easy-to-use interface that allows members to create, collect, discover, and curate digital art and other collectibles in the NFT world. Utilizing the technology of the MEME protocol, Nifty's provides creators with a high-quality, powerful, flexible, and secure platform to launch their NFTs.

• Showtime: Showtime provides a social platform for crypto art creators to showcase their works, helping creators discover value with crypto art investors.

• Nafter: Nafter is a social platform that NFTs short content. Similar to Instagram, creators can convert their posts into NFTs and profit from selling access to those posts. Users can also stake the platform's native token NAFT or share in the earnings of the content creator's personal account.

• Only1: Only1 is a social media platform focused on content in NFT form. Unlike content creators on Nafter who can sell the same NFT content to multiple people, Only1 uses an auction method so that only one person can obtain ownership of that NFT content. Users who win the auction for this NFT content can earn viewing rights for that content by collecting the native token $LIKE.

Our recent frequent research into the NFT sector is due to the potential we see in NFTs, whether from the trading increments of project parties, user increments, or the exploration of NFTs across various industries outside the circle.

In the future, almost everything can be tokenized, and NFTs can be seen as open API interfaces, allowing developers and users to unleash creativity through integration, thus creating an infinite future. We look forward to being an important part of constructing this future.

Acknowledgments: Thanks to A & T Capital interns Jeffrey and Steven for their practice in the fields of beauty and gaming.