NFTFi is currently facing challenges, and Teng Yan, research director at Delphi Digital, conducted data analysis and examination of the NFTFi market, believing that there are no major catalysts in the short term, and there are many obstacles to overcome before achieving “victory”. However, there are two scenarios for “winning” in the future that founders can strive for, namely the next NFT bull market driven by retail investors and the emergence of RWA in NFT form.
The total potential market for NFTFi (which is mainly focused on lending) is currently very small and shrinking. On ETH, there are approximately 69,000 NFT traders per week, a decrease of 60% from January of this year. In the short term, I have not seen any major catalysts that could significantly expand this “cake”. I believe that the TAM of NFT lending is unlikely to grow significantly in the next 6 to 12 months, unless there are any major unexpected developments.
Despite the current challenges, NFTFi founders can build two “winning” scenarios. The first is the next bull market cycle driven by retail investors in NFT. There is no doubt that we will see another epic bull market involving NFT, and the next cycle may involve the same NFT in this cycle, or it may be a set of brand new NFT that we have not yet seen, or a combination of both. Signs of the bull market will become very clear, such as the rapid growth of trading volume on OpenSea and Blur, new projects appearing every day, the surge of interest in NFT searches on Google, and mainstream media headlines about NFT.
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Unlike the previous NFT cycle, in the next cycle, traders will have plenty of simple choices to utilize and hedge NFTs, using lending protocols and futures. I anticipate there will be a lot of degeneracy and wild price swings, which could happen within two years. The fee switch will open, and the revenue from NFT lending protocols will be higher than anything we’ve seen before, but the growth driven by the bull market is essentially cyclical. There will be another low-frequency activity/low-interest/low-fee period when the speculation frenzy ends, just like what we’re seeing now.
This brings us to the second scenario: Real-world assets (RWA) as NFTs, where the rights to an asset are converted into an NFT, which can then be bought, sold, or traded like any other digital asset. Imagine NFTs representing houses and buildings, stocks, bonds, gold, cars, high-end art, and so on. This is the endgame of NFTFi. The trading frequency of NFTs representing RWAs will be lower than that of speculative digital assets (such as BAYC), but they make excellent loan collateral, as they have already proven their value and real demand in a broader world.