[UNOPND Seminar — September 2022] NFT Market Awaiting the Next Cycle
Disclaimer: UNOPND hosts a monthly seminar to share market insights from various guest and in-house thought leaders. This article is an interpretation of these seminars. The seminar content reflect the presenters’ opinion only and may not represent UNOPND’s official view.
2022 was surely not the best year for NFT market as it went though significant decrease in trade activities with drop in prices of cryptocurrency. Yet, the market is transforming to prepare for the next cycle. During UNOPND’s monthly seminar in September, number of thought leaders joined and shared how NFT market is evolving and the direction it is heading.
- Sangheyok Lim, Project Manager at UNOPND, discussed about how diversification of NFT marketplace shifting the paradigm, bringing both qualitative and quantitative growth of the market.
- GD Kim, COO at UNOPND, showed how the market is becoming more mature with active discussion on copyright issues on IPs of the NFT projects.
- Finally, Kiheon Shin, Creative Director at HASHED, shared case studies and his thought on open metaverse and how different key players outside Web 3 are coming into the game.
We sincerely thank all the presenters for their precious insights. Please read on for the summary of these sessions.
Let’s dive in!
NFT Marketplace Paradigm Shift(1)
by Sanghyeok Lim
- NFT marketplace ecosystem took a tectonic shift in 2022 as new NFT marketplaces — LooksRare, X2Y2, Sudoswap — emerged to break sol-system by Opensea
- This seminar looks into reasons behind how this competitive landscape of NFT marketplaces was created and to which direction it is heading
- Other NFT market places will be discussed in next seminar
Changes in NFT Marketplaces
In this session, Lim mainly focused on general NFT marketplaces such Opensea, X2Y2, LooksRare, Magic Eden to discuss the overall shifts in the paradigm. There are, of course, art marketplaces and utility marketplaces, and they will be discussed in future seminar as well.
As most of you know, there had been a gradual decrease in NFT market volume, transaction counts, and user counts, as demand of NFT market dropped with prices of cryptocurrency.
Theses are some observations from this market change:
- the percentage of decrease was in order of trade volume > transactions > traders
- top 10 NFT collections on any chain were still ETH-based PFP or Utility NFT projects with very defensive price compared to other collections (because traders think this is a good change to press buy button on them)
- Solana NFT market volumes are rising after the recent crisis, but they are still very small compared to Ethereum market
4 Phases of NFT Marketplaces
Lim suggested there are 4 phases of NFT marketplaces and explained why and how market changed accordingly. 4 phases are following:
- Primordial period of NFT market (2017 ~ early 2021)
- Solo race of Opensea (early 2021 ~ end of 2021)
- Stop Opensea — LooksRare (Jan 2022 ~ )
- Stop Opensea — X2Y2 (Feb 2022 ~ )
What is notable here is how the chasers tried to stop Opensea from monopolizing the market. LooksRare, criticizing Opensea’s centralized system, tried to decentralize the marketplace by applying a reward system that returns trading fees to the token staker. In case of X2Y2, it also airdropped its token and lowered trading fees to 0.5%. Also, it made optional for the users to pay creator fee and provided bulk listing, which was not provided by Opensea, to increase convenience for the users.
As these chasers try to compete with Opensea by proving better functions and decentralizing the market system, discussion around marketplaces, such as issues on creator fees, function improvement, and decentralization model are becoming more active and visible.
Opensea is still leading the market in aspect of the organic trade volume, and it is unsure how long those competing marketplaces can hold on in this bear market. Still, it is worthwhile to take close eyes to following issues and changes on NFT marketplaces.
- There is continuous effort of Opensea to improve it UX — Wyvern -> Seaport change, releasing NFT drops, OpenRarity, etc.
- What if Uniswap, which has acquired Genie jumps into NFT marketplace?
- It is possible to solve liquidity decentralization problem and information asymmetry problem.
- Centralized operation vs. decentralization of marketplaces
- Maintaining or getting rid of several services fees such as protocol fee or creator fee
- Possible change in trading of NFT — orderbook method or AMM method
- Who will lead the market for multichain NFT marketplaces such as Solana, Polygon, Klaytn, Arbitrum.
Preparing for Next Cycle: NFT Copyright in terms of Business Perspective
by GD Kim, COO at UNOPND
- Projects need to understand NFT Copyrights as to protect their revenue and utilize their IP as business and marketing tool
- Several NFT projects have already applied certain copyrights for their NFTs, yet the discussion on to what extent to allow the rights of the IP is still on-going
- There is no single unified model applicable to all projects so each project should take long term view on the project identity and direction
Why NFT Copyrights?
GD Kim shared his personal opinion on the market. In next bull cycle, many services and products will come into the system, with larger institutions engaging in Web 3 businesses. Those businesses will focus more on real-life services and products, instead of focusing on the technological advancement itself. They will apply Web 3 technology to already proven business models or products from Web 2.
Then, why do we have to understand about NFT copyrights?
- as commercial usage of NFT becomes one of special benefits for the users, it is important to set right license for the project from the very beginning
- concepts of copyrights are very complicated and there are certain limitation on covering Web 3 contents with Web 2 copyright protection
- it is impossible to change the license policy of project after the launch, so it must be planned thoroughly and thoughtfully
- commercial rights on NFT can be used as a tool to expand project’s community, so must be used well
Examples of NFT Copyrights Application
Cryptopunk + Meebits
In the beginning, there were no guidelines for the IP use rights, so holders selected NFT license defined by Dapper Labs (https://www.nftlicense.org/). However, the usage was limited — commercial usage only under $100K profit, cannot change the artwork or use the IP to promote third party’s product. After Yuga Labs acquired Cryptopunks and Meebits, Yuga Labs took the IP and gave all rights to the users. (Yuga Labs own the IP and tbe users own all rights, title and interest in and to any derivative work)
BAYC + Doodles
Both BAYC and Doodles have shown good examples of business usage of NFT copyrights. BAYC allowed and granted holders of unlimited, worldwide license to use, copy, and display their NFTs. Their community actively utilized its NFTs to organically expand the IP ecosystem. Doodles, similar to BAYC, allowed commercial usage but set limit to $100K profit. It also did not allowed to change the original layer.
RTFKT (acquired by Nike)
In case of RTFKT, it applies different IP usage rights for different conditions. For example, holders of NFTs with Murakami traits are not allowed to use its IP as it is owned by Takashi Murakami. so there are stronger restriction on Murakami traits. This approach is questionable as RTFKT provide wearable partz that can be wore into avatars, but what if a holder wants to use his/her NFT that wears one wearable NFT with Murakami trait? Then, how the copy rights would be applied?
- Web3 projects giving IP licenses to communities became a common play
- As the usage of NFT becomes more diverse, the complexity of copyright is bound to increase
- the team should set its policy on copyright/IP licenses before the NFT sale from the perspective of long-term planning throughout the project
- There is no single unified model applicable to all projects so we need to set the direction of the project clearly
- IP usage rights are only one of several approaches to the problem of ownership and are not an unconditional answer
Direction of Open Metaverse from Web3 Perspective
by Kiheon Shin, Creative Director at Hashed
- Ultimate direction of Web 3 industries would be creating an open metaverse
- There have already been attempts to create such experience even from Web 2 companies, however, still limited to certain operation system or IP ownership
- Utilizing NFT can open up next form of meta experience and eventually to creation of an open metaverse
Last session was by Kiheon Shin, Creative Director at Hashed.
Shin started the session by describing metaverse that Hashed and UNOPND is trying to realize. It will be in form of open metaverse, which will eventually expand to the physical world we are living in.
Led by large tech companies, metaverse is moving beyond technical implementation to the stage of philosophical and existential concerns. Corporations have come up with their own method of realizing metaverse such as GLTF(GL Transmission Format), USD(Universal Scene Description), NVIDIA Omniverse, Unreal Engine, Unity, etc.
The physical-based real world will still be important as long as we are subordinate to the body, but as part of the real world gradually transforms its existence and value into a digital-based virtual world, some of the experiences and values that are important to us will begin with and end with the virtual world.
Then, to which direction are we heading for this open metaverse?
Open Metaverse in Web 2 Perspective
Shin explained there had been gradual progress toward creation of an open metaverse, and it is visible from Web 2 games.
Super Smash Bros Ultimate by Nintendo Switch is one of best examples to show how Web 2 game industries had already used interoperability within its operational system. Within the Nintendo system, user avatars cross-play multiple games, for example in the Super Smash Brothers, they can play in a one world view with popular characters such as Pokémon, Super Mario, Zelda, etc.
However Shin pointed out that such interoperability can work only within the operational system made by Nintendo so it is completely controlled by the company. All the digital assets and IP usage is owned by the game developers.
In the case of companies that have secured a number of IPs such as Disney, after several failures, they recently introduced a game called Disney Dreamlight Valley, which connects popular characters and stories of Disney and Pixar with one another based on cross-platform. In the game, players can directly define and use their creations within the Disney world through their avatars. When multi-play functions are added in the future, interactions between multiple players will also be possible.
Niantic Lab’s Pokemon Go showed how such interoperability can be applied to the real world:
- Ownership of the physical space in the real world can grow infinitely as it is repeatedly utilized within a number of virtual worlds.
- Each individual can perceive different values of the same place based on their own experience and possession in the virtual world
- Even before the maturity of sufficient technology, efforts to connect the real world to the virtual world have continued
- However, in the face of fragmented connectivity, the protocol for integrated connectivity is still in progress
How NFT bridges Web 2 and Web 3
Web 2 industries are putting a lot of efforts to utilize NFTs.
- Instagram’s digital collectable function allows to post your NFTs
- Starbucks implementing NFT for its reward system, aka Starbucks Odyssey
These show the possibility of Web 3 mass adoption.
Shin points out that NFT will take important role in an open protocol, as it can operate seamlessly with its composability and interoperability.
Direction Toward an Open Metaverse from Web 3 Perspective
There needs to be six components to create an open metaverse in perspective of Web 3.
- Avatar — seamlessly represents the user across different platforms
- e.g. Cryptopunks on Ready Player Me, Adidas - Oz world
2. Ecosystem expansion
- e.g. Parallel Tommy Hilfiger clothes that both real-life user and virtual character can wear
3. Virtual space and writing tools
- e.g. Spatial - a virtual meet-up platform for multi-play across multiple access environments, including desktop, mobile, and meta-quast (VR)
4. Utilization of NFT based on blockchain
- e.g. Mona
- A space designed (modeling, artifact placement, portal placement, etc.) through Unity game engine is issued and sold as NFT through Mona platform
- Players who purchased NFT through marketplace can redesign the space and reveal it on the Mona platform
5. Community-based scalability
- e.g. Fabricant Studio x World of Women
6. Large scale/real-time access & communication
- e.g. Yuga Labs / Otherside / Improbable / M2(Msquared)
- where thousands of people can simultaneously connect and share audio
- Still, there are many different perspectives and interests around creation of an open metaverse, so it is still in a chaotic situation
- Currently, large IT corporates are trying to take the supremacy, yet with keen perspective from Web 3 POV and insights on technology, business, and people, Unopnd can surely play significant part in this.
- By introducing the case of Ready Player Me, it was explained that Avatar created in it can cross several services, spaces, and brands, implementing the closest experience to the concept of open metaverse among all existing services. It is said that in expanding this concept, technical elements are important, but community elements are also important.