An Attempt to Resolve NFT Liquidity
FloorDAO Project Analysis (Part 2: Project Evaluation)
(This article should not be taken as financial advice. Do your own research or consult a financial advisor before making any investment decision. For full transparency, I personally own $FLOOR tokens.)
TL;DR
1. In terms of uniqueness, by targeting the pain points of the NFT market, the project found that the most common attributes of NFT bidding tend to be “bottom price” or the lowest bid, and proposed the innovative practice of “collection floor price”, trying to solve the long-existing NFT market. The NFT market has long been characterized by low liquidity and low capital efficiency. At the same time, the combination of the existing (3,3) method was made to solve the project’s own development problems.
2. In terms of sustainability, the revenue had a brief surge after the launch but then declined seriously.
3. In terms of scalability, it has the potential to extend both horizontally (different DAOs) and vertically (different vaults).
4. In terms of the team incentive mechanism, the team is currently anonymous, but only a 6% option is left for the team, there is an incentive to push the project further.
5. In terms of governance mechanism, it is mainly community-driven, but there is also a “whale governance” situation. The project is further promoting ve governance, allocating liquidity to Gauge flowers, and eventually hoping to reach the vision of “meta-governance”.
6. In terms of value assessment, the LBP price $33, but late all the way down, indicating that the model is not strong enough. The current benchmark NFTX is still too high in terms of MarCap/TVL, but the current price ($18) is lower than its own asset price ($21).
7. In terms of industry competitiveness, there are competing products in similar directions, but overall they are still “competing” around different aspects of solving liquidity.
8. In general, FloorDAO tries to solve the liquidity pain point of the NFT market through an innovative approach, taking the advantages of the economic model, token mechanism, governance mechanism, etc., and also shows the web3 spirit. However, the market has not fully bought in yet. The important reason may be that this model requires a huge amount of funding and promotion to start up the “flywheel”, and the project did not gain enough resources at the beginning.
Project Evaluation
● What is the uniqueness of the project
The uniqueness of the project lies in the fact that by targeting the pain points of the NFT market, it found that the most common attributes of NFT bids tend to be the “floor price” or the lowest bid, and thus proposed the innovative practice of “pooling floor prices” in an attempt to solve the NFT market has long existed in the low liquidity and low capital efficiency problems. At the same time, the combination of the existing (3,3) method was made to solve the project’s own development problems.
● How is the sustainability
➢ Revenue stream: The current revenue stream comes from UNISWAP’s liquidity fees and transaction fees for assets pledged to NFTX. Currently, Uni’s fees are not good, except for March 1, when they reached 99,000 USD and then fell off a cliff.
➢ Looking at the other source of revenue, NFTX’s own transactions, PUNK / WIZARD’s vault did not appear in the top 15 for the last 7 days, so presumably, this part of the revenue will not be very high either.
● How is the scalability
FloorDAO’s model is somewhat scalable. It is mainly scalable horizontally (different DAOs) and vertically (different vaults). Horizontally, the project owner has already obtained start-up capital from NFTX by way of DAO TO DAO, which is a manifestation. But further horizontal expansion to other DAOs is still limited because NFTX and it are in a close cooperation relationship. Vertically, the project can be further expanded to other valuable vault aspects. The project itself is indeed improving its criteria and approach to vault selection: the recent purchase of WIZARD was decided through a community vote, and the team is still working on ways to purchase the most valuable NFTs, having recently passed a resolution to hire an outside agency to develop an NFT collection framework, research report template, and WIZARD report. Once a quality methodology is subsequently developed, it will hopefully become a powerful tool for further expansion.
● How is the team doing
The team is currently in the anonymity phase. Judging from the token distribution, the team is interested in allowing the community to form an autonomous development. As a vision for web3, this is indeed an attractive thing to do. However, the project is in the early stages of exploration and development and still needs a strong team to keep the project on track.
● How is the incentive mechanism
The team is motivated to take the project further backward in terms of only 6% of the team and just the options.
● How is the governance mechanism:
The current governance is mainly through gFloor. Due to the low percentage of teams, it is actually driven by the community. In practice, there are still cases of “whale governance”. For example, in the recent vote for new NFT goals, a whale voted overwhelmingly for the Wizard series at the last minute, even over well-known projects such as Doodles and MAYC.
The project is currently advancing a new governance model with the introduction of the ve model, Gauges flowers, and a future vision of “metagovernance”.
The ve model takes Curve’s ve concept and takes gFLOOR a step further by locking in veFLOOR for up to 4 years, and the voting power in the agreement increases proportionally with the lock-in time. This allows the project to screen for long-term investors who will grow with the project over time, which is beneficial for increasing the stability of the agreement itself.
The project also uses the concept of “meters”, where veFloor holders vote to allocate the native token Floor to liquidity providers in different liquidity pools, with each liquidity pool “meter” receiving FLOOR emissions proportional to the votes it receives, similar to the previous Curve War for CVX.
Metagovernance: The project’s vision is to eventually have a share of discourse power of the various NFT pools through NFTX vault tokens, making FloorDAO an NFT metagovernance giant. While the vault tokens owned by FloorDAO are not direct NFTs, they do represent a “claim” on those NFTs, and thus have the potential to be included in governance decisions as the NFT pool becomes a DAO over time.
● Value assessment
The performance of the coin since its launch has been unsatisfactory. Only in the initial stage, it briefly surged higher, and then declined all the way to $18.5, which is far lower than the $33 price when it was launched. It shows that people did have high expectations for Floor’s narrative at the beginning, but later on they gradually found that the model was not strong enough, so it gradually went down.
In terms of TVL, NFTX is 11x Floor, but only 3.7x on the MarCap side, partly indicating that Floor’s valuation is still at a relatively high level.
On the other hand, Floor’s own vault is worth $8.61M (analogous to TradFi’s net worth), and there are 405,000 FLOORs in circulation, which means Floor has an endogenous value of $21, above the current price of $18.64 (2022–3–14 22:58)
● How is the industry competitiveness
There are already a number of companies in the market that are working on different aspects of the liquidity problem. Rather than competing with FloorDAO, they are all “competing” and complementing each other’s efforts around different aspects of the market’s pain points.
➢ NFTX (@NFTX_): aggregates and tokenizes the same type of NFT to provide liquidity and generate revenue.
➢ Abacus (@abacus_wtf): decentralized NFT evaluation tool
➢ Gradient Protocol (@GradientFinance): decentralized NFT lending platform (based on abacus’ algorithm)
➢ JPEG’d (@JPEGd_69): synthetic stablecoin PUSd generated by pledging CryptoPunk, providing liquidity and gaining revenue through DeFi.
● Project summary
FloorDAO has indeed put a lot of thoughts into trying to solve the liquidity pain points of the NFT market through an innovative approach, taking the best of all worlds in terms of economic models, token mechanisms, governance mechanisms, etc., and it is also quite web3 in spirit. From the point of view of running for a period of time, the market did not fully buy. This is certainly related to its market performance (TVL/revenue, etc.), but more importantly, it may be caused by the possible flaws behind this model.
Under ideal situation this model can solve the problem of “depth”, but that’s the problem, this “depth” is the need for a huge amount of money to do the initial push. The “flywheel” has to be funded and leveraged on both ends, especially on the supply side (i.e. high quality blue chip NFT). Without further funding, it is difficult to create a market that is convincing in terms of market confidence and economic strength. “Market makers” are similar to “internet platforms” in the web2 market, where the essence of the business is to attract the demand side with a huge push (capital) and to get the supply side with a lot of pull (offline promotion). We can get a glimpse of the amount of money and promotional efforts required from the previous network taxi subsidy wars.
On the micro level, the project needs to work further on getting blue-chip projects that can actually generate revenue. This is exemplified by the fact that the community-picked WIZARD project did not top the earnings list in the NFTX market. All other financial tools such as bonding, rebase, and governance tools such as ve, gauge, etc. can only really work if the projects themselves are effectively blood generating. The project owners are aware of this problem and have already taken action. Looking forward to see further development of Floor.
