By Richard, Investment Manager@Bing Ventures

Blue-Chip NFT’s Derivatives NFT “Cannibalising” the Liquidity of NFT Market

In the “Ape Universe” by Yuga Labs, Apecoin is the first step in the transformation of Bored Ape Yacht Club (BAYC) from PFP to a project spanning GameFi, MetaVerse and NFT. Apecoin lived up to expectations and became the first currency out from the NFT market, and it may be the only currency with the top 50 market capitalization, far exceeding AXS. The subsequent launch of Otherdeed created the highest gas moment in the history of the Ethereum network, which saw gas fee soaring to 8,000 Gwei. And the entire series of Otherdeed was 10W, with a total value of nearly $600 million. The transaction volume has now exceeded 250,000 ETH.

The lack of liquidity in the NFT market is a well-known problem. The reason behind it is that NFT itself is more inclined to commodity attributes, and the transactions of NFTs are based on consumer behaviour. The differences between NFTs determine that NFT transactions are more affected by subjective factors. The second is that the liquidity is concentrated in blue-chip NFTs. The blue-chip NFT has a large transaction volume and sufficient turnover, as well as a stronger price consensus. Choosing other NFTs in the market often means higher risks; the third is that the entry threshold of blue-chip NFT is too high, often close to tens of thousands of dollars. For many users, the threshold for relatively high-quality blue-chip target in these NFT markets is quite unattainable.

ApeCoin solves the liquidity problem of BAYC, and more funds can participate in the hype of BAYC, the largest blue-chip NFT. Airdrop tokens, new hype targets, and expectations of the subsequent land metaverse have earned BAYC enough popularity and voice. Traditional VCs and commercial companies outside the circle with stronger purchasing power have also entered the NFT market and joined BAYC’s buying army. In this process, BAYC’s series of NFTs have attracted funds in the NFT market and buyers with purchasing power outside the circle. The floor price of BAYC rose rapidly from 75ETH to 100ETH, and was close to 150ETH before the land sale. The token $APE has attracted players in the secondary trading market. The token price was once close to $24, and the total market value was nearly $28 billion.

On one hand, we can see that the issuance of BAYC and the launch of the derivative Otherdeed stimulated the transactions in the NFT market, bringing in more incremental funds and much needed liquidity. OpenSea’s NFT trading volume in the month increased significantly compared to the previous month. But on the other hand, the fact that BAYC’s series of operations did not ultimately drive the prosperity of the entire NFT market cannot be overlooked. Non-blue-chip NFT projects are in a mess, and the floor prices of land-type projects such as NFT Worlds, Webb Land, and MetroVerse are nearly halved, and the floor prices of PFP projects at the waist have also dropped significantly. A single NFT series has cannibalised the entire NFT Market, and it can also be said that the liquidity in the NFT market is more concentrated in BAYC and its derivative Otherdeed.

Why and how does BAYC’s launch tokens and derivatives NFT not only absorb liquidity in the market, but also drive the price of Ontology NFTs to rise? Look no further than Azuki and MoonBirds.

Azuki: The Price impetus of Blue Chip NFT’s Derivatives NFT to Ontology NFT

Azuki launched its first derivative NFT “Something” in the series shortly after BAYC, which later became Beanz Official. The overall market value of Beanz Official is close to $100 million, and the transaction volume once exceeded $250 millions. In the case of Azuki launching its Derivative NFTs, the most classic point is that we can clearly observe how the Blue-chip NFT issuing a Derivative NFT can push the floor price of its own NFT. Before its founder broke his own scandal, because of the launch of Beanz Official, Azuki’s floor price rose from 13.5ETH to 25ETH, and the highest was close to 30ETH.

For the holders of Blue-chip NFTs, the launched Derivative NFT is equivalent to cashing out the holders’ expected profits, reducing the holder’s cost, and shifting some of the selling pressure to derivatives, which can strengthen holders’ diamond hand consensus of the ontology NFT. For the market, blue-chip NFT has a high-quality community and holder consensus, and is a strong trend trading target in the market. The holders of blue-chip NFTs can be considered as a type of high-net-worth individuals who have been screened in the market. They play the role of price anchors in the market pricing of derivative NFTs. Therefore, the derivatives NFTs launched by blue-chip NFTs are often also high quality targets of the transaction, which can easily win the attention of the market.

PROOF Collective: The Market loves NFTs with High Floor-Prices and High Transaction Volumes

The series NFT MoonBirds launched by PROOF Collective has achieved a 10-fold increase from the minting price of 2.5ETH, and the floor price has reached a maximum of 40ETH. MoonBirds also boosted the floor price of PROOF Collective from 75ETH to a maximum of more than 130ETH.

PROOF Collective is actually quite different compared to Azuki and BAYC. PROOF Collective is a community pass NFT launched by the podcast program Proof, and Moonbirds is the first PFP type NFT launched by Proof. The members of the PROOF Collective club are members of the club who hold quite a few blue-chip NFTs, including well-known NFT players Beeple, Gary Vaynerchuk, etc.

What PROOF Collective has in common with blue-chip NFTs is that the price and story itself are the main selling points, and the market especially loves NFT projects with high floor prices and high transaction volumes. However, some people on Twitter have questioned that PROOF Collective NFT has carried out “wash trading”: many wallets only have PROOF Collective NFT, and some people sell NFT back and forth between these wallets, creating a “false prosperity”, which in turn pushes up the price of this series of NFTs.

However, this news did not seem to affect the subsequent minting of Moonbirds. Each Moonbird from the public sale was minted at a price of 2.5 ETH, and the trading volume on the day of issuance exceeded 1W ETH, bringing a transaction fee of 3 million USDT to Opensea. The Trading volume of OpenSea in the week reached $237 million. Indeed, Moonbirds generated more secondary sales this week than blue chip NFT collections like Bored Apes and Azuki mustered in the past month.

PROOF Collective founder Kevin Rose responded to MoonBirds’ volume in a tweet:

“1. Once the Moonbirds held in hand are placed on the trading market, the “Nesting” status will be cancelled regardless of whether the transaction is executed or not. This means that if the holder has an inclination to sell, they cannot get the reward of “nesting”. The team has set up a robot. If the Moonbirds in their hands are placed at a price lower than the current floor price, they will be automatically purchased by the robot immediately.

2. The team hopes to use these mechanisms to motivate and trade, and cultivate the holders into “diamond hands”. Players who bought Moonbirds at a low price can indeed flip it for a quick profit, but the PROOF team prefers that they become long-term holders. “

Which means that「MoonBirds has transaction volume market making and floor price regulation.」

From PROOF Collective and MoondBird, we can see that NFTs with high floor price and high transaction volumes are more topical and wildly popular in the market. Another point is that PROOF Collective also more intuitively shows the screening function of NFT. As a form of membership, PROOF Collective screened the crowd. The holders of PROOF Collective are not only the same user group with high net worth and strong diamond hand consensus, but they are also well-known players with a certain influence on social media.

The screening function of Pass NFT

If PROOF Collective is used as a community-based NFT to unilaterally screen users, then Premint is used as a broader screening tool to help project parties and users complete two-way screening.

The Passes launched by Premint are divided into two categories, namely the Premint Creator Pass for NFT project parties and the Premint Collector Pass for NFT users. If the project party wants to release a new, relatively large-scale project sweepstakes on the Premint platform and enjoy the more advanced sweepstakes functions and advertising traffic provided by the Premint platform, they need to purchase a Premint Creator Pass from the Premint official and consume it. Holders of the Premint Collector Pass can enjoy many rights and interests in Premint, the most important being the right to purchase items sold on the platform.

For holders of the Premint Collector Pass, holding the Pass card essentially replaces the acquisition cost of a long-term whitelist, and at the same time helps the holder to screen high-quality NFTs from many NFT projects in the market. NFT projects that can buy advertising traffic are obviously more attentive than projects that simply operate on Twitter and Discord.

For those NFT projects, the Premint pass can be used as an advertising platform to meet the marketing needs of the project party. At the same time, the Premint Collector Pass itself is a cost compared to users participating in Mint through a whitelist. The holders of the Premint Collector Pass are obviously more high-quality players in the NFT market, and the participation of these users can help the project to form a more stable price consensus.

The operation of NFT projects is becoming more mature. From the initial public Mint, the whitelist Mint+Public Mint mechanism has been developed, and the difficulty of obtaining the project party’s whitelist has soared. Invite users, Discord channel level, project-related paintings, brain-burning decryption, etc…. Meet the threshold of community contribution one volume after another. The mechanism of the whitelist is to help the project party screen out the users who have a consensus on the NFT project, and at the same time It is also a means of social media marketing, which can gain users and popularity. However, such a whitelist acquisition method obviously consumes too much energy of users, and the two-way screening of passes is obviously a more attractive option for both projects and users.

Application Prospect of Pass NFT in GameFi

The function of the pass not only plays a role in screening users in the NFT series of projects, but also has a role in GameFi, which is worth exploring. In Premint, Collector Pass functions as an identity certificate. Users can obtain the rights and interests conferred by the platform on NFT Passes. This rights and interests are one-time bound to NFT Passes. Can there be more changes in this relationship?

Battle Pass

In traditional games, Battle Pass is an electronic payment model that drives players to play with a visible reward process by bundling players’ game behaviours with game rewards. At the same time, through the parallel reward mechanism of paid and free, players will increase their willingness to pay under the thoughts of loss aversion.

Battle Pass originated from the “TI3 Interactive Tournament Guide” launched by Value’s game “Dota2” in 2013. In 2017, Fortnite added the concept of seasons according to its own game mechanism, so that this system can be used repeatedly. The paid model is gradually becoming popular, such as the king of glory, the survival pass of PUBG are all use cases of this model. According to Gamerefinery statistics, among the top 100 best-selling iOS platform games in various countries in the first quarter of 2021, nearly 60% of games in the United States use this system, more than 80% in China, and a quarter in Japan use this system, an increase of 11% over the previous year.

The basic design of the battle pass is that players can receive both paid and free parallel battle passes. The latter is received by default, the former needs to be paid for, and the former has more abundant game rewards. The paid pass has rewards at every level, and a grand prize every 10 levels or so. As the level continues to increase, the gap between the reward quality of paid and free passes will continue to expand, thereby stimulating players to buy paid passes.

There are various tasks and objectives in the battle pass. Players can gain experience points to upgrade the level in the battle pass. The level is set to “capped” and “uncapped”. The online pass will no longer be available after the level is full. The XP provided or earned is carried over to the next Battle Pass, and the rewards earned by the Uncapped Pass after reaching a certain level will be repeated.

The content of the Battle Pass is reset every season, and players have to start challenging related tasks and objectives again. The season of the game is determined by the game developer, which is usually consistent with the game’s expansion or event cycle.

The mission types of the Battle Pass can generally be divided into Seasonal Missions, Weekly Missions and Daily Missions. Seasonal tasks can be completed at any time during the entire season. Weekly tasks are unlocked weekly tasks. Tasks that are not completed in one week can continue to be challenged in the next week until the end of the season and reset. Daily tasks need to be completed on the same day and reset every day. Some games have different weekly missions for paid and free Battle Passes, or more than one type of weekly missions for paid ones.

Outlook for Battle Pass in GameFi

1.The Battle Pass model has better user classification and conversion paths

Compared with the mode that requires the purchase of NFT to play, through the Battle Pass mode, GameFi does not need to limit the threshold for enjoying game content, and the paid and free parallel mode can obviously capture more users. After the player has a certain experience and understanding of the game, the same game content and gameplay, due to loss aversion, the player is more likely to grow from a free to play player to a player willing to pay, from a traditional game player to a player with encryption Wallet and entering the Crypto world,Battle Pass has a better user classification and conversion path. The Battle Pass mode is also a good mechanism for nesting game content and playability. Battle Pass can also be combined with in-game achievements, honors and other socially demanding scenes, and even skins, item consumption, and mission upgrades. Combined with scenarios such as the cultivation system.

In traditional games, the rewards of Battle Pass are often in-game skins and rights, which do not actually benefit users, but are essentially the game developers’ harvest of players’ wallets. In GameFi, the game project party can use the profits of the game to issue tokens, and distribute the tokens as rewards for the Battle Pass. At the same time, in-game content such as skins and items can also be traded again as NFTs. The upgrade process to the Battle Pass requires players to continuously complete tasks, and real players eventually get the rewards they deserve.

2.Battle Pass is a good carrier mechanism to help traditional games add blockchain elements

Compared with many current blockchain games, the advantage of traditional games is that they have a large user base, and the game content and gameplay have been verified. However, a large number of users are not Crypto-related users, and players’ acceptance of the introduction of NFT and token economy into the game is unknown. Many traditional games choose to open a new server or start a new game on the basis of existing games. Introducing a season’s Battle Pass that includes skin NFTs or includes token rewards, without making any major changes to the game content itself, would be a better way to try. If the user is interested in the transaction of the generated skin NFT and tokens, then curiosity is the best teacher, and a little help can make the user enter the world of Crypto; if the user has no interest in this, the skin is still the skin , the tokens produced are only the currency for in-game consumption.

In Crypto World, whether it is Axie Infinity’s “P2E” or Stepn’s “M2E”, we can see that the market is very utilitarian, that is, when it rises, countless people praise how good it is, they will found countless reasons behind it , when it fall, countless people aside how terrible it is, said that it was a just a joke. Token economic is undoubtedly a double-edged sword. The projects needs to better understand that the Token economy is still a game of capital in essence. It is very important to have good fundamentals, but the price and control of tokens may not be related to the fundamentals. At the same time, it is also necessary to accept the Ponzi economy more and think about how to use the flywheel of the Ponzi economy to enable the project to gain market attention and funds in the early stage.

3.Battle Pass allows more controllable adjustments to the game’s economic system

In Battle Pass, the rewards for both tokens and NFTs are set by the developer of the game and the rewards are fixed. Therefore, the cost and output of the user’s purchase of Battle Pass, including income and other data are predictable. The project party has a stronger control over the token economic model, and can better stress test the inflation, deflation, and output of the token economic model.

In addition, due to the “season” concept of the Battle Pass, the upgrade of the Battle Pass will have a certain time limit. This also means that each Battle Pass launched can enable feedback to the project and can make targeted adjustments before the launch of the next one. For the token economy of the game, the output tokens are not necessarily constant . It could be considered that each Battle Pass could launch the corresponding output tokens, which means that the core can be placed on the governance token of the game. In-game tokens are in a limited death spiral, the inflation of in-game tokens will not have a big impact.

We always said that Web3.0 will replace and challenge web2.0, and we are concerned a lot about how many Web2.0 users are attracted by Web3.0 applications. Maybe we should also pay more attention to the attempts of some traditional projects based on Web2.0, how to better help the transformation of Web2.0 projects/products, and use its original advantages to bloom Web3.0. Battle Pass is a major innovation in the game payment model, which enables the game and users to establish a connection based on the psychological needs of users. It has only been 5 years since Fortnite made this model popular. From Pay to Play to Free Play, it is very difficult to revolutionise the game from the underlying economic model. Whether the「P2E」 or 「M2E」, we can see the continuous improvement and refinement of the economic model. But it seems still not enough,it’s still far from our expectations of GameFi. Starting from the currently widely adopted Battle Pass mode, the introduction of appropriate Web3.0 content and NFT application acquisition is a more “down-to-earth” entry point.