The Rise of NFT Finance (NFTfi) and OTC trading
0xe706
June 12th, 2022

Author: Alastair (Researcher of OFR)

Over the past year, the NFT space has gained traction, with more innovative initiatives coming to fruition and the NFT community expanding even more. We have witnessed the number of active NFT collections exceed over 3,000 collections by the end of 2021, the highest number yet, up from 193 at the beginning of March 2021. Over the course of the year, NFT marketplaces such as OpenSea, LooksRare, and X2Y2 have experienced record volumes of transactions and trade activity. However, as the market grew and matured, we began to see more creative initiatives, such as NFT OTC trading platforms, emerge and revolutionise the way collectors exchange and trade their assets.

NFT Over-the-Counter (OTC) trading has been gaining popularity amongst NFT collectors in the space. With collectors brokering private deals on platforms like SudoSwap, trader.xyz and X2Y2 to trade various NFTs for other NFTs or simply sell their NFT for little to no fees.

Along with NFT OTC Trading, other NFT Finance protocols (staking, lending, renting, etc.) are gaining popularity. According to an article by NFTfi.com, NFT finance is the "Web3 vertical comprising the infrastructure and set of markets for NFT-based financial products and services." The interaction of these financial markets with the underlying NFT economies creates value for the NFT area. NFT Finance has the potential to enable wider participation in the NFT space. The extent of this integration, acceptability, and value production is unparalleled since the whole market infrastructure is based on the blockchain.

So, what draws collectors to this new kind of dealing, and why does it matter? And how will the advent of NFT Finance, as shown by lending, borrowing, and renting protocols, influence the fundamental value of these crazed new digital assets? This article will look at some of the advantages, dangers, and perspectives on various efforts aimed at bringing about change in the NFT space.

What is OTC Trading?

Over-the-Counter (OTC), signifying a trade or transaction done directly between two parties without the presence of a 3rd party (e.g. an exchange, marketplace etc.). In the case of NFTs, marketplaces like OpenSea, Coinbase NFT and LooksRare are examples of platforms that most NFT collectors frequent.

The concept is simple and similar for most NFT OTC trading platforms in the market. Users can either:

  1. Create a swap request for any asset that they want to trade/sell/buy and wait for other users to accept or negotiate a deal.
  2. Create a direct swap for the other party that you have pre-negotiated a deal with, the deal will only be accessible to a specified wallet that you have entered.

All negotiations will happen in private, meaning no one else is able to “snipe” or front run your transaction, the transaction either happens 100% or not at all. Once both parties in the trade agree to a deal, each party sends their assets to an escrow contract and the contract executes the transaction without the need for a middle man/3rd party.

Despite the numerous advantages of OTC platforms, they, like all other applications, have their own set of risks. Most typically, scams that might result in the loss of your most prized jpeg (i.e. social engineering, fake sites, creation of fake collections etc.). There have been several incidents of scams employing NFT OTC platforms, with the majority involving the other side suggesting the usage of an unknown/fake site in conjunction with a harmful contract that drains your wallet. Some victims have also claimed exchanging their valuable NFTs for a bogus collection made by the other party.

X2Y2 is building a decentralised NFT marketplace designed to enhance known issues of OpenSea, and deliver an improved experience of trading with innovative features.

Features:

  • Bulk listing: traders can list multiple NFTs in one transaction
  • Batch Purchasing: traders can bulk buy NFTs in one transaction
  • Rarity Integration: ability to browse NFT traits rarities without the need for third party extensions
  • Private Sale (OTC Trading): 0% market fee and royalty; can only be purchased by pre-specified wallet address

X2Y2’s Listing Process

Their direction / Whats next:

  • Tools for NFT launches: X2Y2 provide creators a full set of tools to help better serve NFT whitelist minting and royalty management; provides real-time royalty payment at the moment of sales
  • Roadmap: Focused on marketplace features rather than OTC trading

Final Thoughts:

  • Satisfies the most basic needs of an OTC trading platform, P2P trading.
  • Does not have any outstanding features that make it stand out from its peers.
    • Suggestions would be to include a chat function within the platform to facilitate trades and negotiations;
    • This would also allow for multiple counterparties to make offers on the same trade
    • Furthermore, this might give an additional degree of security for purchasers, especially if they are negotiating on Twitter or other platforms, decreasing chances of being provided a phishing/scam link.
  • Has decent activity, about 1.3k - 1.5k DAU on the platform → greater discovery of trade listing.

A teleological marketplace with zero swap fees, gas optimised - pay gas for approvals and swap, multi-asset - can trade ERC20, 721 and 1155 assets, non-custodial - assets never leave the wallet until swap accepted by both parties. Powered by 0x Protocol v2.

How it works:

  1. Create a swap - Add asset(s) you have for asset(s) you want
  2. Share swap code with trade partner to load swap
SudoSwap’s “Create Swap” function
SudoSwap’s “Create Swap” function

Their direction/whats next:

“The sudoAMM is a concentrated liquidity AMM protocol designed specifically for NFTs. Traders can enjoy low-slippage swaps between NFTs and tokens, and liquidity providers can better control the price ranges they LP for as well as set up dynamic buy/sell walls.” - gradual rollout throughout April

sudoAMM will utilize on-chain liquidity pools: anyone can create and trade with pools for any NFT

  • Traders, like every marketplace, can:
    • “swap NFTs for ETH” or
    • “swap ETH for NFTs”
  • Liquidity Providers perform functions similar to other liquidity pools (i.e. on Uniswap), select price range to provide liquidity and deposit assets.
    • “deposit ETH and receive NFTs when traders swap with pool” or;
    • “deposit NFTs and receive ETH when traders swap with pool” or;
    • “deposit both ETH and NFTs to receive trading fees as traders swap with pool”

Final Thoughts:

  • Fulfils the basic functionality of an OTC platform, being able to trade NFTs for NFTs / other tokens.
  • sudoAMM incentivizes LPs by separating price computations from token reserves. Unlike the constant product invariant, which causes pricing to worsen when fewer NFTs are left in the pool (and vice versa)
    • sudoAMM puts LPs in charge by allowing them to define exactly how their pool's price should vary.
      • adjust the price range they LP for (e.g. from [0.667 ETH, 1.5 ETH] to [0.5 ETH, 2.0 ETH])
      • adjust the current pool price (e.g. from 1 ETH to 0.75 ETH, buy/sell quotes automatically adapt)
      • adjust the fee % taken on buys/sells
    • Native NFTs are paired against ETH. No extra conversion overhead is needed.
  • Creation of liquidity pools replaces the order book with mathematical formulas for pricing assets and allowing for trade execution, enabling anyone to trade in a decentralised, trustless and transparent way.
  • Liquidity providers have access to multiple layers of earning opportunities
  • Question: what NFTs will be supported and what considerations are made to pick the NFT collections?
    • Purely blue chip NFTs?
    • High volume NFTs?

Trader.xyz is an easy way to trade your NFTs with friends. Users can instantly create a trade and send a link with their offers to securely settle the deal. With no platform fees and low gas costs. Secured by 0x Protocol v4.

How it works:

  1. Select token you want to trade (no need to manually input token address)
  2. Input price (ETH, USDC, DAI) - other tokens and NFTs (WIP)
  3. Create unique sharable link or allow only specific address to purchase - anyone with link can buy
Trader.xyz’s trade creation
Trader.xyz’s trade creation

Their direction/whats next:

We want Trader to become the end-to-end flow for trading your tokens with both friends and strangers in a secure and trustless way, whether it’s over-the-counter or through a marketplace or auction house. We believe that human-to-human interactions in a safe environment are the future of buying and selling items on the Internet.”

More Robust Trade Settlements:

  • Currently only support NFTs to ERC20s, will soon support ERC20 to ERC20 and NFT to NFT.
  • Property-based orders: creating limit orders on collections with specific traits (e.g. Pay X ETH for BAYC with XX Trait); programmable liquidity
  • Orders kept on open order book off-chain via 0x orders → eventually transition into a liquidity aggregator (across exchanges like OpenSea, Zora etc.)

Final Thoughts:

  • No platform fees (compared to OpenSea’s 2.5% platform fee + x% royalty for creator)
  • Seamless NFT trading between friends (ability to include specific address that can purchase NFT listed)
  • Looking to create liquidity for NFTs (introduction of property-based orders)
  • Looking to expand into multi-chain asset trading - cross chain interoperability
  • Unable to trade NFT for NFT, only ERC20 tokens available now
  • Open to social engineering scams, UI easily replicated; usage of hyperlink is dangerous, malicious parties can create a fake site with the same UI and trick other parties to connecting their wallet and allow access to the wallet.

OpenSea, the largest NFT marketplace, announced on 20 May 2022 their new Web3.0 marketplace protocol for safely and efficiently buying and selling NFTs. The core smart contract is open source and decentralised,allowing builders to build upon the protocol similar to 0x Protocol.

Features:

  • Buy/Trade: able to trade NFTs for NFTs or sell NFTs for ETH or any ERC20 Tokens.
  • Specific Criteria: when trading NFTs, buyers can set specific criteria that the NFT must have (e.g. if you want to trade your Punk for a Golden Bored Ape only, you can specify that, allowing only wallets with a golden ape to trade for your NFT)
  • Dutch Auction listing: you can set a start and end price and the duration of the auction to run (NFT listing will decrease in price until a buyer is found or it expires)
  • Tipping: the platform will support tipping (as long as amount does not exceed original offer)

What this means for the NFT OTC trading space:

  • Open Source Code: expect more and more NFT marketplaces that offer OTC trading to be built → more competition = better + faster innovation
  • NFT Summer 2.0? - this is something like a NFTs “Uniswap moment” (uniswap led to many forks and copycats across different chains, leading to massive growth and innovation in DEXs and DeFi)
  • But 0x Protocol already exists? - similar to how ERC-721A contracts became mainstream. Azuki was not the creators nor the first project to utilise it, however they marketed it well, therefore everyone in the space recognised them as the trailblazers.

A Look into NFT Finance

As the NFT space continues to mature, more great NFTs collections have been launched with some even becoming bluechip worthy competitors. However, as discussed in our previous article, the more NFTs we accumulate, the less liquid our portfolio. Therefore, there is an increasing demand for NFT financialization in order to achieve maximum capital efficiency.

Our last report studied NFTfi through lending and borrowing protocols and drew similarities to mortgage loans, where users may lend or borrow money by using these low-velocity assets as collateral for loans. In that report, we concentrated on research related to such protocols, including pricing methods of collections and other forms of strategies depending on the counterparties. We also took a deeper look into P2Peer vs P2Pool lending platforms along with a comparison of key metrics amongst the listed projects.

In this report, we will deep dive into 4 protocols, Rentable, NFTfi.com, Pine Protocol and CEDAR Protocol that set out to pioneer the NFT finance movement by offering utilities to NFT owners in order to unlock additional value from their NFTs. Let's take a closer look at their features, roadmaps and competitive advantages…

Rentable
Rentable V2, the recently released updated version, allows any platform to offer free-collateral and completely tokenized rentals with ZERO integration work. Renting NFTs on Rentable eliminates entry barriers for users while allowing owners to earn a dividend without the fear of liquidation. Making it composable allows for the unprecedented creation of new and creative use-cases.

Features:

Stake/Rent Out NFTs - NFT owners can “stake” their assets to earn a yield from renters whilst still maintaining ownership of their NFTs

  • Owners receive a oToken, a non-fungible token that serves as a unique proof of ownership and may be used to redeem the property
  • This oToken can be traded or used in any other protocol while rentals are on-going

Rent NFTs - allow users to rent from NFTs for various purposes:

  • Metaverse items: rent items, avatars etc. and use them in any metaverse that supports WalletConnect
  • Gated Experiences: rent NFTs to gain access to exclusive communities, alpha groups etc. (that is a collab.land tokenized community) and also experience all other perks of holding that NFT
  • Metaverse Parcels: aspiring builders can rent a piece of Metaverse land and start building instantly
  • Renters match the owner's listing offer and receive a wrapper called wToken that operates and appears just like the original. wTokens disappear immediately at the conclusion of rentals and allow platforms to differentiate between owners and renters in order to personalise the experience.

Final Thoughts:

  • As there is no collateral, users may obtain premium NFTs for a fraction of their original cost for a period of time, reducing the high entry barriers of many games and platforms.
    • Also, owners never lose ownership of their own NFTs → still entitled to any airdrops or initiatives that the project launches.
    • Lenders/Owners get paid directly from the rental of their assets at the rental price they have stated or listed at. It seems that there are no price mechanisms in place to determine the rental costs.
  • Owners can earn a passive yield on assets that might otherwise sit idle in their pockets, exceptionally useful for owners who might not have the time or interest to participate in the community or use the utilities associated with the NFT
  • Rentable is also scalable in that most, if not all, NFTs can be included.
    • They use a token wrapping mechanism that wraps the original NFT into their wToken replicating the metadata to work and look exactly like the original.
    • This wToken will then vanish at the end of the rental.
  • Rentals maintain the scarcity of NFTs while expanding user access and extending platform audiences which would be great for creators and developers.
  • With their V2 launched, rentals can interact with any WalletConnect enabled dApps, requiring no integration efforts from the other party.
  • In addition, they have done away with the wToken concept and introduced a smarter and easier way for renters to utilize their rented NFTs.

Pine Protocol is the underlying blockchain infrastructure for asset-backed loans. The Pine Platform is a decentralized marketplace for lenders and borrowers using non-fungible tokens (NFTs) as collateral for instant permission-less loans; built on top of the Pine Protocol. A P2Protocol Lending Platform.

Features:

Lenders set up Pine Lending Pools (PLPs) → PLPs are added to the Pine Loan Book, structured similar to an Order Book → When a loan obligation is opened, the NFT collateral is transferred to the borrower’s Pine Wallet with a lien on it and the loan amount is sent to the borrower.

  • Each PLP is set up by a single lender, i.e. a single address on the blockchain
  • When setting up a PLP, a lender specifies
    NFT collection (e.g. a collection contract in ERC-721) that is acceptable as collateral.
    • The collection must have a live price from the Pine Pricer
  • Loan currencies
    • Default to the native layer-1 token, i.e. BAYC pool will lend out in ETH
  • Lenders fund PLPs after they are set up. The unutilized portion of the pool can be withdrawn anytime.
  • Borrowers can repay any portion of the loan obligation, including the loan amount and any accumulated interest, at any time. After repaying the whole loan requirement amount, the borrower regains full ownership and access to the NFT collateral in the Pine Wallet.
  • When the borrower fails to repay the loan in accordance with the conditions or when the loan LTV exceeds the liquidation LTV, the loan obligation becomes delinquent. The lender now has complete access to the NFT collateral in the Pine Wallet.

Borrowers

  • Get loans using NFTs as collateral
    • Term loans on Pine are structured as Loan with a Maturity Date where Borrowers have a Prepayment Option and Lenders does not have a Call Option
  • Instant loan meaning no back-and-forth with lenders, borrowers don’t need to negotiate with lenders → Less risk of being scammed
  • Receive your loan amount in another currency or blockchain different from your NFT’s native chain.
  • NFT owner never loses access to the utilities of the NFT even when it is pledged as collateral for a loan → they can still access whatever DAOs, receive airdrops and participate in their communities

An example (from their whitepaper) of how Alice can buy an NFT for 80 ETH on OpenSea when she only has 50 ETH in her wallet:

  1. Alice identifies a PLP that can provide a 30 ETH loan for this NFT on the Pine Platform
  2. In one atomic transaction, Alice borrows 30 ETH from the PLP and combines that with her 50 ETH to make the total 80 ETH purchase on OpenSea. All three parts of the transaction must be completed in the same transaction.
  3. Alice gets the NFT in a Pine Wallet and has a 30 ETH loan obligation with that PLP

Their direction/whats next?

Decentralized credit scoring

  • Using on-chain data to determine the credit rating for individual address

TradFi Gateway (hybrid TradFi and DeFi loan where the collateral factor would be higher than what pure DeFi could offer)

  • Decentralized lending and borrowing will likely have to be done in an over-collateralized way (i.e. at a low maximum collateral factor)
  • Our proposal to solve this problem is to add a gateway for borrowers to seamlessly add financing options (e.g. personal loan) from traditional finance providers (e.g. banks, money lenders, etc) to a DeFi loan obligation on the Pine Platform

Addition of multi-chain support - Solana, Binance Smart Chain, Polygon, Avalanche etc.

Final Thoughts:

  • Interesting way for investors or non-NFT people to gain exposure to the NFT market without having to bear the full risk of owning an NFT.
    • Creates more liquidity and allow great inflow of money into the NFT market
  • Allow NFT owners to unlock liquidity from the NFTs without losing ownership and enjoy all other benefits of being a holder.
  • DeFrag.fi actually has an interesting insurance concept that might be worth exploring, where the protocol automatically insures your NFT assets with a financial instrument called a Put Option.
    • In other words, to receive a loan against your NFTs, the protocol purchases insurance on your behalf via Put Options.
  • One of their new features, “Pine Now Pay Later”, is actually a really interesting concept that I believe has been missing in the space.
    • Buy Now Pay Later (BNPL) Concept: buying an NFT on leverage with a “mortgage-like” financing system
    • Borrower gains full ownership of the NFT after the loan has been fully paid off
    • This opens up even more opportunities for both long-term NFT hodlers who just want to accumulate a collection but cannot afford to buy it, and NFT traders who want to degen into a "marginalized" NFT spot trade.

NFTfi is essentially a “marketplace” for NFT loans and the leading liquidity protocol for NFTs. They enable NFT owners to use their assets to get the liquidity they require by accepting secured wETH and DAI loans from peer-to-peer liquidity providers in a fully trustless way. NFT liquidity providers utilize NFTfi to generate lucrative returns or, in the case of loan defaults, to obtain NFTs at a significant discount to market value. A P2Peer Lending Platform.

Features:

Borrowers - Receive wETH or DAI without selling your NFT

  • List NFT as collateral and get loan offers from users.
  • Once a lender accepts an offer, borrowers receive wETH or DAI liquidity from the lender's wallet into borrower’s.
  • The NFT gets transferred into an escrow smart contract for the loan duration. Repay the loan before it expires, and the NFT gets transferred back.
  • If borrower defaults, the lender can foreclose and receive the NFT. There are no auto-liquidations on NFTfi

Lenders - Receive great yield on assets lent or receive an NFT at a hugely discounted rate

  • Browse over 150 NFT collections (including CryptoPunks, Bored Apes, Art Blocks, Mutant Apes, VeeFriends, Autoglyphs, and the vast majority of other bluechips) and make loans on assets lenders are prepared to support.
  • In the best-case situation, lenders will receive a substantial APR. In the worst-case situation, the borrower defaults, leaving the lender with an NFT at a considerable discount. Some lenders also provide "loan-to-own" financing solutions.

NFTfi’s pricing mechanism is user determined - this means that borrowers can list their NFTs for any price and it is up to the lenders to counter-offer or accept as per the listing. NFTfi does however offer price information of the collection from 1. OpenSea Floor Price and Previous Price Sold, 2. Valuation from Upshot, 3. Valuation from NFTBank. This pricing mechanism would definitely cause listed items on NFTfi to be skewed from open market prices, however, it does allow for negotiations between lenders and borrowers.

The NFTfi service charge is 5% of the interest only earned by Lenders on successful loans. There is no service charge in the event of a loan default. Borrowers are also not charged a service fee.

Their direction/whats next?

  • Loans against ERC1155 NFTs and ERC998 NFT bundles
    • Take out a loan against your collection of NFTs.
  • Unlimited duration loans: Taking the foot off the brakes vs. V1.
    • Loan extensions and renegotiations: Before and after loan expiry.
  • Loans on a pro rata basis: Current NFTfi loans have set payback levels. NFTfi proposes pro-rata loans as the first new loan type, allowing early repayments at interest rates proportionate to the effective loan period.
  • Listings with binding terms: Allows Borrowers to create Listings with “minimum viable terms” that can be automatically accepted by lenders.
  • Loan Obligation Receipts: In V1, lenders receive Promissory Note NFTs as a tangible representation of their loan. In V2, Borrowers also receive an NFT called an “Obligation Receipt”.

Final Thoughts:

  • NFTfi has proven to be a solid project with a great track record of successful loans on huge bluechip collections like BAYC, Doodles, Moonbirds, Otherdeeds etc.
    • They have seen great month on month growth in terms of both borrowers and lenders;
    • And boasts a total loan volume of over 59.3k wETH and 42.6m DAI
  • Making a comparison to BendDAO, also a non-custodial NFT-backed decentralized borrowing and lending P2Peer protocol
    • NFTfi has a max LTV ratio of 50% compared to BendDAO’s 40%
    • In terms of the number of supported collections, NFTfi has BendDAO beat with over 150 collections compared to BendDAO’s 7 collections.
    • For price mechanisms, BendDAO utilizes Oracles and the TWAPs system while NFTfi gives lenders the ability to decide.
  • NFTfi also has really great strategic partnerships with some of the biggest names in the NFT space, Flow and Animoca Brands.
  • One area that NFTfi pales in comparison to Pine Protocol is in borrowers being able to retain “ownership” status even when NFT is being used as collateral
    • At the beginning of the loan, the NFT will be moved into an escrow smart contract → de facto owner of NFT during duration of the loan is the smart contract → no one, including NFTfi team, has access to the collateralised NFT
    • This means that borrowers will not be able to access the utilities of the NFT and/or receive any airdrops (depending on the airdrop mechanism).
  • Their user-determined and customisable pricing mechanism comes with a reduced time-to-liquidity and scalability since lenders and borrowers must wait until they strike an agreement.

CEDAR is building a Buy NFT Pay Later protocol, which can truly help these NFT enthusiasts enjoy both the appreciation and utility of the NFTs. CEDAR lowers the barriers to entry to accessing NFTs and helps NFT lovers access the NFT they want at a more affordable price. CEDAR also helps NFT projects build and expand their community sustainably.

Features:

How it works:

  • Pick an NFT
  • Make first down payment and immediately access all the benefits of the NFT.
  • Once the loan is paid off, the NFT goes to your wallet.

All NFT perks, including as play-to-earn, community events, membership privileges, token airdrops, and whitelist inclusion, are available immediately.

Pricing Mechanism:

CEDAR has partnered with SPICYEST, a pricing and analytics platform for NFTs, to provide the most accurate price estimations for each NFT collection. As NFTs are used as collateral in the CEDAR lending protocol. A dependable and accurate NFT pricing feed is crucial for managing risk associated with price volatility and market variations. This is when SPICYEST enters the picture.

CEDAR will collaborate with SPICYEST to determine the eligibility, risk parameters, and health factor for each loan in the NFT collection. The SPICYEST machine learning model takes and processes data from numerous sources. The Spicy Estimates are then created by using data from traits, listings, and previous sales.

Final Thoughts:

  • CEDAR’s partnership with SPICYEST is definitely great especially when it comes to providing accurate price estimates for NFT collections.
    • This would allow for greater risk management for both LP and borrowers.
  • CEDAR, however, might not be able to capture that great of a market share with just their BNPL protocol.
    • CEDAR does not have a great competitive advantage over other projects like Cyan or Pine Protocol
    • But at first glance, comparing CEDAR and Pine Protocol, both are offering the same service but as Pine also offers other NFT finance solutions (lending and borrowing), we can expect that they would experience greater traffic and discovery of their product by the community.
  • The whole concept of BNPL is definitely intriguing and definitely worth a look at especially for collectors who want to enjoy all the benefits of owning the NFT but want to free up liquidity for other collections; or even for those starting out and might not have enough liquidity to fully purchase an NFT from their favourite collection
    • Would be essential to learn more about CEDAR’s future plans before coming to a conclusion

Conclusion:

What kind of NFT OTC product does the market really need?

The market needs an NFT OTC product that can satisfy 3 essential factors

  • Security: collectors would definitely prioritise the security of every trade; transactions that are not susceptible to malicious attacks and able to safeguard against potential scams.
  • Costs/Fees: Gas prices, for example, should absolutely be optimized and kept to a minimum.
    Royalty issue: certain projects rely on royalties generated on every sale to continue building and growing; if OTC trading is used, these projects will be unable to earn the royalty, potentially affecting their growth. My solution: enable collectors to choose the percentage of royalties they want to donate to the community. While this is not a perfect technique, it would allow collectors who are deeply committed to a project to partake in the royalty system.
  • Cross Chain Interoperability: with NFTs being more popular in chains like Solana, NEAR etc, I believe that cross chain compatibility would definitely attract collectors that want to gain exposure to NFTs in other chains.

Although existing NFT OTC products have met the basic needs of the majority of NFT collectors who have adopted OTC trading. The fundamental requirements include the ability to exchange NFTs for other NFTs (for example, Mutant Ape for 2x Azuki) and simply selling their NFTs for other tokens like ETH, USDC, or DAI without incurring hefty fees.

I believe that as the NFT space matures into a more sophisticated asset, the demand for OTC trading platforms will alter; a platform that can meet all market expectations now may be inadequate in the future.

How will NFT Finance continue to grow and benefit the NFT space?

As prominent projects like BAYC, Sandbox, and many more continue to release new content and projects in the space, we should expect to see more NFT financialization primitives and a narrative shift toward NFT lending and borrowing protocols. We should also expect a higher infusion of money, particularly from DeFi natives looking to capitalize on the lucrative yields given by some of these protocols. This would result in more liquidity in the NFT market, allowing for more consistent growth projections in the years ahead.

In terms of NFT rental protocols, this may be a significant market for GameFi enthusiasts. Collectors of GameFi NFT assets now have a more sustainable manner of loaning out their assets as the GameFi narrative swings away from the unsustainable guild structure. This might give players with a lower barrier to entry for all of the AAA titles that are set to release this year.

E.g. Instead of needing to completely commit and purchase an NFT for 2 ETH to begin playing, gamers could rent one for 0.2 ETH for X amount of time to test out the game and determine whether it is worthwhile to acquire one after that.

How can new builders develop a better product than current peers?

Some of the most challenging issues in developing the "ideal" NFTFi product, particularly with relation to the Lending, Borrowing, and Rental protocols, are the valuation of NFTs and understanding the liquidity slippage for NFT-AMMs. In terms of collection valuation, various projects such as CEDAR have created strategic partnerships with pricing systems in order to provide its users with the most accurate real-time prices. Such collaborations would allow new protocols to focus on their core offering while remaining confident in the valuation of NFTs for their users. In terms of liquidity slippage, NFT-AMMs must devise a formula distinct from DEXs such as Uniswap, especially when dealing with high volatility and low liquidity assets such as NFTs.

Furthermore, these platforms may be used in conjunction with other NFT technologies to provide even more value-added services. Consider NiftyMate from Numeus.xyz, an NFT pricing engine that enables collectors in calculating the most realistic "fair price" for their beloved jpegs. A service like this would allow first-time buyers to precisely estimate the price of an NFT with a certain attribute, making the NFT market less intimidating when making their first purchase. This would provide collectors as much information as possible before making a purchase.

As for NFT OTC trading, I anticipate that more builders will use the new Seaport Protocol, which will increase security and creativity in the NFT OTC market. The incorporation of basic features such as the ability to verify the validity of the NFT would protect users while engaging in transactions.

One of the most significant use cases I see for NFT OTC trading is in GameFi. The exchange of gaming assets (equipment, accessories, weapons, etc.) between players, comparable to the trading system used in Web2.0 games such as MapleStory and RuneScape. Traditional games let players exchange any in-game assets or items for other items or even in-game money. These trades were often low-cost, if not free; it was a primitive but effective technique of moving assets between players.

With the narrative turning to MMORPG games such as Treeverse and Embersword, the desire for a quick, low-cost, and secure exchange of NFT assets will increase. Hence, platforms wishing to expand their services in terms of NFT OTC trading may consider collaborating with GameFi projects to either incorporate their services within the game or become an official platform where players may trade their assets.

When it comes to merging NFT Financing and OTC trading strategies with the development of the Metaverse / GameFi projects, the possibilities are endless. I have no doubt that we will see increasing adoption by NFT natives in the next months/years. And I'm looking forward to seeing more innovation that will take the NFT market to higher highs.

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