The Need For Scalable NFTs
Written by Conflux Network’s DeFi Analyst Sami Tannir
While non-fungible tokens or NFTs have been around since early 2018, the market for this unique token standard largely remained a niche for hardcore blockchain enthusiasts until an uptick in innovation saw the sector explode in the second half of 2020 where volume increased more than 200% topping more than $9 million. Picking up steam in 2020, the market is now having a DeFi-Esque moment where 7-day volume is just shy of $67 million. With some market analysts now projecting the total market cap for project-based NFTs could rise to more than $1.3 billion in 2021.
When compared to the yield-farming craze of DeFi summer, NFTs generally demand fewer transactions out of the user, with the majority of NFT applications enabling users to simply purchase and hold their digital assets. Compare this to the ever-demanding DeFi space where the process to go from a single asset to a yield-farming LP token vault could rack up six to ten transactions. With the current congestion of public chains and astronomical gas prices, it is no surprise that we have seen DeFi go cross-chain, with the majority of DeFi DApps shifting focus to L2 and new L1 migration. However, with the current hype and seemingly unstoppable force that is NFTs, most would argue that the need for NFT-based projects migrating to new chains and scaling solutions is not as much of a priority as DeFi, due to less of a need for fast and cheap transactions.
On-chain metrics would beg to differ, all-time high gas prices on Ethereum have dissuaded many users from following through with their NFT-based transactions, holding back the true potential of non-fungible token mass-adoption.
Throughout the DeFi summer, where fast-food DeFi apps ran up the price of gas, the slowly growing NFT market found a big drop in volume. Whereas post-August, when gas dropped, NFT volume picked back up, as seen in figure one. Other metrics captured in the yearly NFT-report by Non-Fungible show that with high-gas prices, the market was almost exclusively open to whales, with the majority of transactions were coming from high-value NFTs, giving new artists and new traders a harder time to penetrate the market, averaging roughly 2,000 active buyers per week during the peak in gas late-August.
One specific sector of non-fungible tokens that have faced gas-related problems since its inception is decentralized gaming. In 2020, daily activity across all blockchain games on Ethereum dropped 45%, where other sectors like art marketplaces grew 226% and general daily active wallets in the NFT space grew 35%. To put this drop-in activity into perspective, for users locking up thousands or even millions into DeFi LP positions or purchasing one piece of digital artwork, the gas incurred on a single transaction would not phase many traders, whereas in gaming — a sector known for capitalizing on microtransactions and a constant stream of payments, the gas fees could begin to rake up. If Fortnite asked users to spend 15$ to approve spending their credit card, then another 45$ in gas fees to purchase $20 worth of V-bucks, would Fortnite become the powerhouse it is today?
At Conflux Network, we believe blockchain gaming has the potential to be the next killer use-case of not only NFTs but blockchain as a whole. A recent survey conducted by Andrew Steinword at Zima Red found that from a group of random NFT holders, no matter the vertical they come from (gaming, art, virtual land, collectibles) 26% of respondents listed gaming and application of their tokens as the reason they hold NFTs. However, as evident in on-chain metrics, there is not much to do beyond purchasing and HODL, Bitcoin style. When the market can find efficient ways to make blockchain gaming affordable and scale the applications of NFTs in some fashion, the potential for a groundbreaking movement in the market may be underway, tapping into a $160 billion market.
As scalable, public, and permissionless networks like Conflux grow, and developers continue to build new games and in-game advancements, blockchain technology is set to improve the user experience through ownership, globalization, and more. As mentioned earlier, with the success of microtransactions in the current gaming market, developers have found that users are willing to put in that extra dollar to customize and level-up their characters in-game, Activision recently announced the company netted over $1.2 billion in revenue due to this new monetary feature in a single quarter last year. However, gamers still do not own the digital assets. Current infrastructure always enables game developers to change, increase, or even remove in-game assets at their discretion.
On top of this, the current blockchain infrastructure is not efficient enough to enable true-ownership of assets and microtransactions. On average, microtransactions range from $2–10, and with gas costs for a basic transfer on Ethereum costing ~$15 at the time of writing, blockchain developers are not able to monetize a game and include the largest driver of revenue in the market into their platform. It is with modern blockchain technology like Conflux that we believe we can make building decentralized games worthwhile, with gas costs costing less than 1 cent, and at times even free, Blockchain-enabled games will soon allow for a natural transition to the next evolution of in-game microtransactions and decentralized gaming, transferring the ownership of assets to the players. With developments in the space, gamers are now able to monetize their skills and efforts put into a game, whether that be through selling their game-winning digital assets, exchanging with, or even buying from other players to progress in their favorite games.
Envisioning a future of decentralized gaming on the blockchain, Conflux Network is focused on scaling our efforts and giving out the resources to help bring these ideas to life. Whether that be through our recent addition to the Blockchain Game Alliance or our 2.4 billion $CFX grants program. We aim to provide developers and builders all the tools needed to help create and scale their blockchain games in different economies and markets. If you are a game developer or an NFT engineer interested in entering the Chinese market, with a focus on cross-chain bridges and advanced scaling solutions, we encourage you to join us in our mission to help scale decentralized gaming through Conflux Network with our new grants program.
About Conflux Network
Conflux is a public, permissionless blockchain bridging Asian and Western communities and economies, to enable the secure flow of assets and data across borders, protocols & applications. The Conflux protocol is fast, scalable, and solidity compatible, with zero congestion and low fees. Headquartered in Beijing China, Conflux has expanded its global operations with a diverse distributed team across four continents, and additional offices in Toronto, Canada and Lagos, Nigeria.
Conflux originated in the research lab of Turing Award recipient Dr. Andrew Yao at Tsinghua University. It is based on a Tree-Graph consensus mechanism that optimizes for security, scalability and decentralization.
In 2018, the Conflux Foundation was formed, and a regulatory compliant fundraise was completed to build an open infrastructure based on this breakthrough consensus mechanism. Established as the only state endorsed public, permissionless blockchain in China, Conflux is advancing education and research in blockchain development through the Tree-Graph Research Institute, in partnership with the government of Shanghai and the Key Laboratory of Blockchain Infrastructure & Applications with the government of Hunan.
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