Cryptocurrency Youth Series: Why did you make the mistake of investing in Blur? The Bloody and Tearful History of NFT Money Loss
edits |Wu talks about blockchain
This podcast mainly discusses why investing by mistakeBlur、Magic EdenThe current status of, token valuation, and NFTs related topics. The two guests shared their views on the current NFT market, their investment experiences, and the possibilities for future market development. Overall, Magic Eden token valuations are likely to be affected by the sluggish NFT market environment, particularly on the basis of poor token performance on NFT platforms such as Blur and Tensor. Additionally, guests also discussed possible recovery paths for the NFT market, particularly its potential in terms of liquidity, IP innovation, and community building.
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This podcast is from the previous one, and I want it to be a popular podcastThree young people in the coin industry talk about their “first pot of gold and first pit”continuation of.
BLUR was purchased based on the results of on-chain data analysis, but there was an error in the NFT market situation and team judgment
Defioasis: Welcome back to the Wu Says No Crypto podcast. I'm Wu Said Analyst Defioasis. Recently on the NFT market, Magic Eden announced the launch of a new token. We also know that from last year to this year, the overall NFT market environment has not been ideal, and Blur and Tensor's tokens have not performed as well as expected. So today we invited two guests to talk about NFT-related topics. This episode will be easier, so feel free to share it with everyone. First, the guests were asked to briefly introduce themselves and share some experiences related to NFTs.
Xiao Guo: This is probably my second or third time participating in this podcast, and I also talked about some topics about the NFT market last time. My main direction is research and analysis of on-chain data. Today I also took this opportunity to talk about some of my thoughts on the NFT market.
Actually, I'm not a particularly professional NFT player, and I haven't bought many. Although I bought NFTs when they were at their peak, I don't have a deep understanding of the design of this type of product. At the time, Blur tokens were purchased mainly as a result of on-chain data analysis. Looking back now, this investment was actually quite a failure.
I think there are two reasons for failure. First, I had confidence in the recovery of the NFT market at the time, but I didn't expect the market situation to become more and more deserted. Hardly anyone is talking about NFTs now, except for podcasts like ours that talk about this topic. The second is the question of team selection. When I reflected on Blur's investment, I found that the direction the team was operating was very informational asymmetry for retail investors like us. When we invested in Blur tokens, we speculated that it might enter the Bitcoin NFT market and compete with Magic Eden, but we didn't expect it to launch Ethereum's Layer 2 solution. This was completely unexpected to us.
Blur almost stopped developing and updating Blur itself after introducing Layer 2.For Blur token holders, it feels like the product has been abandoned. Mining and staking until the end there was nothing, and the Blur team didn't seem to care about Blur anymore; it was entirely the community operating on its own. It made me reflect a lot on my team choices.
Shang: I'm Shang, currently working as an analyst at BitMEX and the host of Wu's English-speaking podcast. My roots with NFTs can be traced back to 2020, when I was interning at a Canadian startup, and my job was to report on new trends in the cryptocurrency industry every day, just when I started getting involved with NFTs through SuperRare. At the time, I was surprised that a painting could sell for hundreds of thousands of dollars, but BAYC (Bored Ape) hadn't come out yet. I later joined a team doing NFT fragmentation at the end of 2021 and 2022, and also participated in quite a few NFTs research and construction.
I also attended NFT.nyc and met Luca Netz by Pudgy Penguins. I've also bought some NFTs myself, mostly on Ethereum, such as Mad Labs.I also participated in the second phase of Blur mining. At the time, I borrowed about 70,000 Blur tokens, and later, like Xiao Guo, was very optimistic about Blur. But the results later became known to everyone.As for Magic Eden, I don't know much about it, but recently they wanted to issue coins, so I paid a little attention. Thanks to Defioasis for the invitation, today we can talk about what happened recently with NFTs.
defioasis: I started noticing BAYC at the end of 2021, when monitoring gas fees on the chain and discovered that the minting of a project caused gas fees on Ethereum to skyrocket. I didn't know much about NFTs back then. BAYC's price was about 5 to 6 ethers, but I couldn't understand this market at all. I didn't start trading NFTs until 2022, but at that time the market had already gone from a bull market to a bear market, and I lost 560 Ethereum on the NFT market.
I later turned my attention away from the NFTs themselves to the NFT marketplace platform. There were many innovations at the time, such as transaction mining, witch attacks, and other ways to compete with OpenSea, and Blur's Bid Pool was also a big innovation. I wrote a lot about the NFT marketplace platform in 2023, especially Magic Eden's multi-chain strategy, which seems to have been very successful so far.
However, from an investment perspective, I also experienced many failures. For example, I bought NFT platform tokens such as X2Y2 and ROSE in the early days, but now they have dropped by almost 99.99%. The results of Blur's investment were also unsatisfactory.
The inversion of the primary and secondary markets will be the norm, and it is expected that the Magic Eden token will fall below its primary market valuation after launch
Defioasis: Judging from our investment experience over the past year or two, it seems that the three of us have not performed very well in terms of investment. Back to Magic Eden because its last funding was in mid-June 2022, when the NFT market was moving from a bull market to a bear market. At the time, Magic Eden closed a $1.3 billion funding round at a valuation of $1.6 billion. Judging from the current market environment, Blur's FDV is less than $500 million, while Magic Eden's competitor Tensor on Solana has an FDV of less than $300 million. So if Magic Eden were to issue coins now, I don't think it would be able to support the $1 billion FDV. What do you guys think? If Magic Eden were to be issued, what level of valuation do you think it would reach? Shang, shall we talk first?
Shang: Well, I think this is a normal phenomenon, that is, the phenomenon of the primary market and the secondary market being inverted not only exists in the field of NFTs, but can be seen in the entire cryptocurrency industry. Especially during the bull market in 2021 and 2022, the market expanded excessively and there was a lot of financing, but the secondary market did not have enough liquidity to allow all investors to successfully exit. Therefore, if Magic Eden issues coins, its valuation may be lower than the primary market. This is not because of the problems with the NFT itself, but rather the result of the entire market cycle and industry phenomenon.
Specifically, Magic Eden is unique in that it incorporates multiple chains. You can trade assets on the Solana chain on Magic Eden, as well as assets on EVM compatible chains, Bitcoin, and Ordinals.
This may be a good story, but there are still many variables in the exact extent to which its valuation can reach. What we're most concerned about right now is how its tokens are distributed. If like LayerZero, although everyone criticizes its operation, it has a certain amount of reel chips, then its FDV probably won't be that bad. If the tokens are scattered too much, especially if there are too many airdrops, the situation may be very unfavorable. There are many recent examples of this, and the market's performance is poor, especially if these tokens aren't distributed to users who actually need Magic Eden tokens, then the performance of their tokens may plummet.
Also, on the team side, I don't think Magic Eden's team is particularly cryptography-native. This is a problem because they don't have close enough ties to the crypto community, and they haven't shown a particularly effective token economy model. Especially as an American team, they probably won't adopt some “Ponzi” structure approach. So, frankly, I'm not particularly optimistic about the future of their coin. If I had to guess, I think their FDV would probably be between $500 million and $1 billion, so it would be nice to be able to do that as much as Blur.
Magic Eden and Blur are both projects invested by Paradigm. Are there instructions so that the two don't compete with each other
Defioasis: OK, let me ask Xiao Guo, because Magic Eden also mentioned it just now; it's actually a multi-chain strategy. Much of its trading volume is now concentrated on Bitcoin's NFTs. Xiao Guo is also interested in the Bitcoin ecosystem. What do you think about the future of Bitcoin NFTs and Magic Eden's strategy?
Xiao Guo: Before discussing Magic Eden, I'd like to talk about Blur's market capitalization and then compare Magic Eden. It might be a better reference. Actually, when I first invested in Blur, it was because one of the opinions mentioned by Defioasis made me think for a long time. At the time, Blur's total circulation market value was less than 1 billion US dollars, and the FDV of many projects at the time was at the level of 10 billion or even several billion dollars. At that time, Blur's position in the NFT market was already very advanced. Although some of the transaction volume was due to swiping and mining, overall, its valuation was still relatively low, which gave us some room to invest.
Back to Magic Eden, according to the data, although there was a brief increase in transaction volume after opening Ethereum trading, it now has a very small share of the Ethereum market, only about 1% to 2%. However, Blur still accounts for about 60% of the transaction volume. It can be said that Blur is still at the top of the Ethereum chain. Magic Eden's main market was Solana, and then it made a decisive foray into the Bitcoin NFT market, especially after the launch of the Ordinals Agreement. This brings me to the question: Magic Eden and Blur are both projects invested by Paradigm. Will Paradigm, for some reason, tell Blur not to enter the Bitcoin NFT market and choose Layer 2, which focuses on Ethereum? Maybe they don't want the two projects to be direct competitors.
But then Magic Eden launched the Ethereum NFT marketplace, apparently stabbing Blur in the back. This is just my personal guess and there is no evidence to support it. But it did make me think that maybe Blur and Magic Eden chose different markets to avoid competition.
Back to Magic Eden's market capitalization, we can analyze it through data. Currently, as can be seen from Similarweb, Blur's website traffic is about 1.3 million per month, while Magic Eden's monthly visits are about 3.4 million. Although the number of visits has also declined, the magnitude is not as large as Blur. From this perspective, Magic Eden's overall data performance is superior to Blur, particularly in the Bitcoin NFT market, where its market share has reached 50%.
Now the question is, how do you position and value Magic Eden? If you think of it as a multi-chain NFT marketplace, or as the leader of the Bitcoin ecosystem, its valuation model will be complicated. Magic Eden is currently working in multiple markets, but how can you tell the story of NFTs well? Especially when its market capitalization is compared to Blur, it's hard to give a clear judgment. Furthermore, the team's attitude was hard to understand. As an external investor, we are not in direct contact with the team and are unaware of their internal strategies and future plans. Often, we can only speculate on their next move based on publicly available market information.
For retail investors, this information asymmetry makes it difficult for us to make correct investment decisions, especially for projects with abundant cash flow, where they are not very motivated to increase the value of the token. Many projects have basically completed their tasks after the token is issued, and retail investors can only watch the rise and fall of the token, which is out of touch with the actual operation of the project itself. This is currently a common phenomenon in many token projects.
Shang: Yes, especially the US team, they won't take the initiative to promote the market like other regional teams under regulatory pressure. They can only provide some basic liquidity support, but they won't interfere too much with market capitalization. This is the case with many recent projects, and there is basically no follow-up action after the tokens have been issued.
Xiao Guo: Yes, including some established DeFi projects such as Uniswap and the renamed MakerDAO. Unlike network tokens such as Ethereum or Bitcoin, many projects' tokens have nothing to do with the project itself. How much money the project earns has nothing to do with the value of the token, and the so-called governance token doesn't have much practical significance for retail investors, because the number of votes held by retail investors cannot influence any decisions at all.
Shang: Yes, another particularly important variable is the US regulatory environment. SEC regulations on tokens prevent high-quality projects from giving any real value to the token, because once value is given, it is classified as a security, which limits many good projects. Instead, projects of poor quality can operate unscrupulously, creating a negative cycle.
NFTs are a tool for project parties to manage the market value of airdrops in the early stages
defioasis: Yes, recently OpenSea also received a Wells notice from the SEC. The SEC believes that NFTs on the platform are securities and are planning to file a lawsuit. Back on Blur, Blur doesn't actually play much of a role as a governance token. Previously during Blast mining, staking Blur tokens was also expected to receive Blast airdrops, but the final results were not ideal.
Eventually, Blur returned to the form of so-called governance tokens. I think Magic Eden's token might follow the same path and become a similar governance token. Magic Eden also mentioned before that their tokens are not entirely issued by Magic Eden itself, but are managed by a foundation, which has also led to a certain split between the token and the platform owner.
Therefore, I think Magic Eden's token would also be more inclined to become a governance token like Blur. As for going the dividend route, it seems unrealistic from a legal point of view, especially for an American team. Let's move on to the next question. Everyone just mentioned that the NFT market, whether on Ethereum or on other chains, is currently in a state of confusion. The trading volume of the major platforms has dropped significantly compared to the peak in 2021. Do you think there's another wave of opportunities for NFTs? Where might the future be headed? Shang, let's talk about it first.
Shang: If I were to sum up my thoughts on NFTs, I'd say two things. First, an NFT is a type of art, and people are willing to collect it as an asset. In the traditional industry, collectibles are a very large field. Second, NFTs are a tool for project parties to manage the market value of airdrops. Because the supply of NFTs is fixed, the project party can issue NFTs relatively easily, while also being able to adjust the rules as needed. Before issuing coins, many projects will use NFTs to manage airdrop expectations or conduct market transactions.
For example, if you send coins directly, it's hard to pull orders, but it's relatively easy to pull orders by issuing NFTs. The liquidity of NFTs is not that high, and the project party can create a sense of increase through the performance of NFTs, thereby increasing the attractiveness of the project. These are the two main features of NFTs.
However, the current NFT market faces some challenges. First, can the coin industry attract external traffic? Second, trends within the coin industry are also important. Especially from the viewpoint of collectibles, the current market environment is not good, interest rates are high, and everyone has less free money. Avatar NFTs (PFP) like CryptoPunks are heavily homogenized. Buyers are now less interested in these traditional NFTs, and market demand is declining.
If you use PFP as your profile picture, you want others to identify with you and think you're cool. But now this trend is over, just like everyone used to wear Jordan shoes, but now Jordan shoes are no longer popular. If you're still using CryptoPunks as your avatar, it'll look a bit dated. As there are more Memecoin NFTs, the hype hotspot in the market has also turned to these more liquid assets rather than the expensive, fragmented, and hard-to-hype CryptoPunks.
Relatively speaking, I think the most certain point is that NFTs will still exist as a tool for project parties to manage airdrops. We've seen that projects like Berachain manage market capitalization by issuing NFTs, their NFTs are performing very well, and Mad Labs is also one of the biggest NFT projects on Solana. Many times, NFTs have a plan to issue coins behind them, or are linked to collateral and value capture for other projects.
So, if an NFT is only a symbol of culture or art, I don't think it's easy for ordinary people to use. Unless you know a lot about the art world, or are particularly familiar with the culture of the crypto industry, such as an NFT like Milady, even though it looks ugly, it's so cool that people are still willing to buy it. Otherwise, NFTs still require an actual project as an endorsement before they can exist and function for a long time.
In terms of asset standards, NFTs will last a long time, but now I can't see where the future turning point is
Xiao Guo: Regarding the question that NFTs will persist for a long time, I myself have a similar opinion. Although the simple hope in my heart is that it will last for a long time, my heart will certainly be shaken after the market continues to be sluggish. I'm sure a lot of people think this way. We can review the history of the ERC-20 token. ERC-20 tokens emerged from the 2017 ICO fire, and now 890 percent of the tokens on the market are based on the ERC-20 standard. However, many of the ERC-20 tokens issued back then are no longer there, but this asset format laid the foundation for future projects, such as the well-known UNI, DAO, and even new generation projects such as ARB and OP.
NFTs are actually similar to ERC-20; I think NFTs are one of the only asset types that have come out. In addition to homogenizing tokens, NFTs are another type of asset that operates independently on a chain. Therefore, we can also see that many blockchain projects, such as Solana, Cosmos, Arbitrum, Sui, and even TON, have drawn on Ethereum's design logic, and the system usually includes both homogenized and non-homogenized token forms. This shows that as an asset type, NFTs have taken a place in the blockchain ecosystem and will last for a long time.
Of course, its future popularity does not necessarily depend on micro-innovation or mechanism design, but on the inflow of market capital. Just like we experienced the ICO boom in 2017, I probably thought the ICO model would never return, but I didn't expect Solana to relive the ICO gameplay in the recent boom. Although there were some changes after the ICO was combined with the AMM automated market maker, it is essentially an ICO.
Therefore, I think NFTs will go through a similar cycle. It may not be this year or next, but after three or five years, it will once again attract market attention with its new gameplay. However, it is not necessarily known whether there were any market players like Blur or Magic Eden at that time. Let's take a look at past examples, such as Loopring (Loopring), a Layer 2 project that already existed in the ICO era. Although it was leading the way at the time, it didn't keep up with the subsequent Layer 2 craze, and EtherDelta completely disappeared. So, even if the NFT wave were to arrive again, it's not necessarily certain whether it will happen on Ethereum.
In this regard, I think Magic Eden does a better job than Blur because it doesn't bet on a single ecosystem, but instead supports multiple chains of non-homogenized tokens as much as possible, such as entering multiple chains such as Bitcoin and Ethereum. However, the entire NFT ecosystem currently lacks wealth effects, making it difficult for retail investors to see its value points. This is my current opinion of NFTs and my expectations for the future.
Defioasis: Then I'll share a little bit. As for the development of NFTs on Ethereum this year, there has actually been a certain increase in floor prices.One of the projects that performed well was Pudgy Penguins (Pudgy Penguins). The success of Fat Penguin is that it has evolved in the direction of IP by launching physical products, such as plush toysIt has entered the real-world trendy gaming market and successfully extended the value of NFTs to the offline market. This is a case worth watching.
In fact, there are a lot of trendy games in today's society. When we go to the mall, we see many brands, some of which we haven't even heard of. The core of trendy games is to visualize IP images, such as making stuffed toys or other objects, or even games like Pokémon, to promote IP to the real world and generate cash flow through these methods.
Once you have cash flow, you can use it to do more things related to NFTs, such as market value management, or even direct trading, to bring more financial rewards to holders. I think Fat Penguin is doing a better job now; it creates real-world returns through IP materialization. In addition, big projects like LayerZero are also willing to airdrop Fat Penguin holders. From this perspective, Fat Penguin is a project worth watching.
Also, from an asset class perspective, an NFT asset format like ERC-1155 won't die out anytime soon. But it's hard to see in what form it will become popular again in the future. Whether the NFT market can survive for a long time remains a question. Earlier, the popularity of OpenSea in 2020-2021 was impressive, but its valuation has dropped 90%. Instead, many people now switch to Blur or Magic Eden. Whether these platforms will continue to exist in three to five years, or whether NFTs will usher in a new flashpoint, is still unknown. Therefore, I remain pessimistic about the future of the NFT market. If you want to invest in the NFT market, now might not be a particularly ideal time.
NFTs require new liquidity solutions, but abandoning the characteristics of NFTs, it's better to promote Memecoins
Shang: Do you remember Pandora?
Defioasis: Yes, Pandora used to be fun too. It focused on the duality of coins, but now it's gone.
Shang: Yes, if the duality of coins doesn't work well, the role of the NFT market will be further reduced.
Xiao Guo: Regarding Pandora, its problem actually goes back to the ERC-20 liquidity issue we mentioned earlier. Initially, Uniswap solved the liquidity problem of ERC-20 tokens through an automated market maker mechanism, but Pandora was actually an exploration of NFT liquidity. The second explosion of NFTs will definitely require new liquidity experiences or ways to play. Examples include the fragmentation and Pandora we've tried before, and Sudoswap, an AMM-based NFT platform, these are all explorations of liquidity.
From my point of view, Pandora has made many liquidity attempts, including DeFi staking and iteration, many of which are ideas borrowed from ERC-20. There will definitely be more exploration of NFT liquidity in the future. As for larger IPs or more beautiful images, I don't think they'll have much impact on the overall NFT ecosystem.
Instead of focusing on investing in the entire ecosystem of NFTs, I personally prefer to focus on how to create new NFT liquidity directions. Of course, there will definitely be many failed attempts. We have seen three or four failures in the past. But if the NFT ecosystem is to prosper, new liquidity solutions are key.
Shang: Yes, I think the liquidity of NFTs is actually a multiplying effect in the end. If the NFTs themselves have no value, no matter how good the liquidity is, 0 multiplied by any multiple or 0. If an NFT is really valuable, even if there is no perfect liquidity solution in the market, people will still be willing to trade it; the price is just an issue.
Xiao Guo: Yes, judging value is really difficult. Like many meme tokens, its value stems more from culture and consensus. The same goes for Bitcoin; its value is difficult to measure using a realistic framework. I think the IPization of NFTs has some similarities with Meme Tokens; their value lies in building consensus.
Defioasis: Yes, many liquidity solutions nowadays, whether it's collateral lending, fragmentation, or the duality of coins, ignore the unique properties of NFTs. Ultimately, these solutions simply treat NFTs as just another form of token. If you completely abandon the rarity and uniqueness of an NFT, then it's no different from FT (homogenized token). In this case, it's probably faster and more straightforward to fry Memecoins directly.
Shang: Right, there's no need to complicate things at all.
Defioasis: Yes, so in order to pursue liquidity, if the unique attributes of an NFT were abandoned, then it would lose its meaning of existence. From this point of view, NFTs are meaningless; it's better to just go ahead and fry Memecoins faster.
Share an NFT project that you personally follow or are optimistic about
Shang: Before we finish, I think we can talk about whether people are currently optimistic about any NFT projects.
Xiao Guo: Actually, when NFTs were at their peak, I thought about buying a Punk when the market was bad. Because I love Punks' design philosophy, especially its combination of elements to play. But then Yuga Labs — the parent company of Bored Ape — bought Punk, which dispelled me from thinking. I think Yuga Labs commercialized NFTs, which is a bit contrary to the idea of early NFTs.
Also, I've considered buying some ENS domains. ENS is both an NFT and a domain name asset. But I'm a little disappointed with the ENS team. Although they have received a lot of revenue through ENS DAO, it seems that these funds are not being returned to ecosystem construction, but are controlled by the company. I'm baffled by the way ENS works, which is why I didn't buy an ENS domain later.
Shang: Well, I understand your point. The imbalance between the team and the market really raises doubts about the long-term nature of the project.
I'm currently optimistic about Mad Labs, which is one of the biggest NFT projects on Solana. They're also developing an exchange called Backpack, which focuses on compliance issues.The Mad Labs community is very active and the vibe is great. In addition, I also own Berachain's Bit Bears NFT. Berachain has many innovations in the token economy model and has great potential for future development.
Defioasis: Mad Labs is indeed a project worth watching, especially within the Solana ecosystem. Fat Penguin is also a project I'm investigating. Many big project parties are willing to airdrop to Fat Penguin holders. I'm also currently considering whether to get started.
Overall, if the NFT market picks up, I'll probably be more inclined to invest in leading projects like CryptoPunks or BAYC. However, at present, the market is still quite bearish, and I will not enter this track on a large scale for the time being.
One idea is to buy NFTs that are likely to be airdropped in the future. Hold these NFTs and look forward to the expanded effects of airdrops in the future. This kind of thinking is probably speculative, and I've been thinking about this strategy recently. Like Mad Labs, I actually pay attention to it. Mad Labs has a huge influence on the entire Solana ecosystem. I'm also considering whether other major projects will be airdropped on it in the future; maybe I'll find an opportunity to get one.
The other one is the fat penguin mentioned earlier. Recently, I've seen that some big projects are willing to airdrop Fat Penguin holders, so Fat Penguin is also one of the projects I'm investigating. Here are some investment ideas for NFTs and the NFT market.
