Gold Rush NFT: Potential and Crisis in the Eyes of Insiders

Author | Hu Tao

"The so-called antiques in prosperous times, gold in chaotic times, can be changed to prosperous times for NFTs, chaotic times for BTC in the crypto market." Redline Dao founder Jiong Jiong described his views on NFTs to Chain Catcher after the price of his Punk surged several times.

Since June and July of this year, with the explosive popularity of Axie Infinity and the ongoing buying frenzy for Cryptopunks, NFTs have quickly replaced DeFi as the main hotspot in the crypto market. Various industry KOLs and traditional industry giants like Alibaba and Tencent have begun to lay out their strategies in the NFT field.

First, on June 30, the blockchain game project Axie Infinity, developed by Vietnamese game developer Sky Mavi, saw its protocol revenue exceed $1 million for the first time, reaching $1.119 million. At that time, many people were still unaware that Axie Infinity's daily revenue had surpassed Honor of Kings, making it the world's most profitable game. According to statistics from mobile app data analysis company Sensor Tower, Honor of Kings generated $1.5 billion in revenue in the first half of this year, with an average daily revenue of $840,000.

Subsequently, Axie Infinity's revenue continued to soar, reaching a new record of $9.72 million in daily revenue on July 16, and the token price increased nearly sevenfold since the end of June, peaking at $2.92 billion. Under the hype of this project, NFT-based blockchain game projects like Sandbox and Mobox also quickly gained popularity.

At the same time, avatar NFT projects like CryptoPunks, Bored Ape Yacht Club, and Pudgy Penguins frequently appeared in the public eye, with transaction prices continuously reaching new highs. The most expensive CryptoPunk was sold for 4,200 ETH, equivalent to approximately $16.38 million at current prices.

Top 10 Punk by transaction volume Source: larvalabs

It was also in July that Jiong Jiong, under the "encouragement" of friends, bought his first NFT, a Punk, for 35 ETH. Since then, he has been unstoppable on his NFT purchasing journey, acquiring various types of art NFTs including Bored Ape Yacht Club, Bored Ape Kennel Club, and Rivermen, spending over 100 ETH. Now, the market value of Jiong Jiong's single Punk exceeds 100 ETH, and other NFTs have also appreciated significantly.

Another blockchain game player, Lin Yiyi (pseudonym), was stimulated by the popularity of Axie Infinity and recommendations from friends, targeting the BSC blockchain game project Mobox, investing nearly $20,000 to purchase over thirty game NFTs MOMO. During this time, he was mining and participating in game battles, and due to the sustained popularity of the track and Binance listing its token, his maximum account income also exceeded several hundred thousand dollars.

At the beginning of September, investor Zhang Rong (pseudonym), who missed multiple rounds of NFT wealth effects, decided to pool funds with a few friends to purchase a Loot NFT for 8 ETH after seeing recommendations from several media outlets. Within a day, the price doubled, and the airdropped AGLD tokens reached a maximum value of over $40,000.

The stories of Jiong Jiong, Lin Yiyi, and Zhang Rong are a microcosm of the current wealth effect in the NFT market, where almost all early participants have made substantial profits.

So, why do avatar NFTs command such high valuations? Many industry insiders believe that these NFTs serve more as symbols of identity and status, especially iconic NFTs like Punk, which are very attractive to industry KOLs. Under the influence of market sentiment, more speculators have joined this wealth game.

"As social beings, the sole purpose of many activities and consumption is to publicly display how much energy one can waste." BitMEX founder Arthur Hayes recently wrote, "From the perspective of energy, NFT art has no value, but it will represent the ultimate way to display social status in a purely digital world."

Jiong Jiong strongly agrees with this viewpoint, as friends have previously teased him, saying, "If you have a Punk, you are no longer just an ordinary coin trader; you are a digital noble."

"In the future virtual world, everyone will need their own identity certification, which naturally aligns with NFTs," Jiong Jiong told Chain Catcher. "In the metaverse, the embodiment of everyone's identity is NFTs. If you own a Punk, who else is a digital noble? Moreover, as the price of Punk rises, the label of digital noble is firmly attached."

As a result, users who purchase Punks and other avatar NFTs often use their images as their profile pictures on social media platforms like Twitter and WeChat, to enhance their image in social relationships while further promoting the concept of the series of NFTs and increasing market enthusiasm.

Due to the high enthusiasm of users for NFTs, internet giants like Alipay and Tencent have also launched NFT issuance platforms, collaborating with IP copyright holders to issue corresponding NFTs for users to purchase, helping third-party institutions and enterprises enhance user stickiness and diversify monetization channels. For example, Alipay has successively collaborated with the Dunhuang Academy, the animated series "Assassin Wu Liuqi," and the movie "White Snake 2: The Tribulation of the Green Snake" to issue payment code skin NFTs.

In mid-August, one of the development teams for the Chinese version of "Minecraft," a Bilibili influencer known as "National Architect," officially launched NFT blind boxes based on the pixel version of "Along the River During the Qingming Festival," with a total of 10,000 units priced at 0.04 ETH, equivalent to a total sales volume of nearly 9.98 million yuan.

Entering September, the wealth effect of Loot was even more astonishing, with NFTs that users received for free appreciating to nearly $100,000 in just over a week. Due to the "LEGO brick" combinable nature of the project's NFTs, many KOLs consider it to be "NFT building blocks" and a "paradigm shift in NFTs," similar to the evolution from BTC to ETH, which also creates a closer relationship between image NFTs and blockchain games.

Loot NFT

"Loot is the first investable crypto-native game; Dark Forest was the first but not investable; Axie Infinity is not crypto-native but similar to Pokémon, not solely enabled by crypto." Multicoin Capital co-founder Kyle Samani stated on Twitter after the firm invested tens of millions of dollars in Loot.

Electric Capital founder Avichal Garg views Loot as the third significant innovation in NFTs. The first major breakthrough was collectible NFTs represented by CryptoPunks, the second was generative art NFTs represented by Art Blocks, and Loot leads the third major breakthrough with its "community-owned game."

"This is the first time the NFT ecosystem has value derived from the community rather than the creators. It reverses the current model of creating and evaluating NFTs," Avichal Garg stated. "If Loot is effective, it can achieve the long-desired interoperable gaming platform for players—carrying your robes and swords across games, as developers finally have a way to achieve interoperability."

Currently, innovations in the NFT field continue to occur, and various phenomena can be described as "crazy." The future trends and potential risks have also drawn the attention of many industry insiders and players, especially regarding the liquidity of many NFTs and the sustainability of market enthusiasm.

A well-known crypto analyst tweeted that he believes NFTs currently do not have a bubble, but once they are fractionalized and traded as derivatives on a large scale, it will be the time for bubble expansion. "The scenario of a major short and the 2008 real estate crash applies equally to the future NFT market."

Ouyang Yan (pseudonym), a player who invested tens of thousands of dollars in NFTs, told Chain Catcher that he believes 99% of NFTs are bubbles and will ultimately become bubbles. "However, in the process of new technology applications, a huge bubble often arises, which is a difficult rule to change."

"However, from the perspective of user volume and transaction volume, the NFT market is still in its early stages, and many traditional artists and major IPs have yet to enter." Therefore, Ouyang Yan remains optimistic about the future of the NFT market.

Jiong Jiong also stated that he believes that when the market shifts from bullish to bearish and the craze subsides, 90% of NFTs will go to zero. However, in the future, all non-fungible assets of humanity will be recorded and circulated based on blockchain NFT protocols, and its value is undeniable. It just requires extra caution when selecting NFTs, focusing on those with long-term value, such as assessing community consensus, scarcity, and liquidity.

Ouyang Yan indicated that he primarily judges the value of NFTs based on team operational capabilities, the recognizability of the works, and IP attributes.

Currently, the floor price of Cryptopunks NFTs has dropped over 30% from its peak, with a trading volume of 1,240 ETH in the past 24 hours, shrinking nearly 97% from the peak trading volume of 43,871 ETH on August 28, reflecting a significant decline in market sentiment.

At the same time, the floor price of Loot NFTs has also dropped over 68%, falling back to the price before the explosive popularity on September 2.

In the long term, the price drop may only be the beginning of more crises facing these NFT projects. "Like all community-owned projects, Loot will have its hype cycle and the valley of disillusionment will soon arrive. It must survive at least one survival crisis—vampire attacks, hacking, or serious design flaws. If it survives, the community will become stronger," Avichal Garg stated.

The same goes for all other NFT projects; only by undergoing more cycles and crises can the community consensus behind NFTs transcend the current price dimensions and lay a solid foundation at the cultural level of the community.

Note: NFT assets have high volatility, and this article does not constitute any investment advice.