NFT Futures: What Are They and How Do They Work?
NFTures, an upcoming futures trading product from SynFutures, will make going long or short on collections a possibility for millions of NFT enthusiasts and traders.
Our mission at SynFutures is to democratize derivatives trading and truly make it accessible, hence our tagline: Trade Futures: Anything. Anytime.
When the NFT market started booming last year, our team discussed the idea of connecting with NFTs projects and creating a product that the market had never seen.
A Booming Market Creates More Opportunities
NFTs have been around since 2014, but the market only started to see a significant increase in activity last year, with NFT trading reaching $17.6 billion, an increase of 21,000% from 2020. From Beeple’s $69 million NFT sale to the rise of collections like Bored Ape Yacht Club, NFTs took the mainstream by storm, spawning new interest in the blockchain and digital assets (and a few memorable memes as well).
While the crypto market may be down now, NFTs are poised for continued growth well into the future. Major brands, including Asics, Taco Bell, and McDonald’s have hopped on the NFT bandwagon, and legacy finance institutions like Goldman Sachs are “examining non-fungible tokens (NFT), particularly the ‘tokenization of real assets.” And with more metaverse initiatives on the horizon, NFTs will have even more value for users in the virtual world.
As NFTs become a bigger asset class, the sector will need financial instruments that allow market participants to take both sides of the market to better hedge risk and create arbitrage opportunities. We believe NFTures has the potential be one of these instruments, opening up new trading opportunities and bringing more liquidity to the NFT market.
4 Important Features of NFTures (NFT Futures)
We often get questions about how our NFT futures trading product works:
How do you short/long an NFT?
Don’t NFTs have liquidity issues?
How do you prevent floor price manipulation?
These are all valid questions, and to answer them, we’ve compiled a list of the most important features of NFTures.
1. Prices Are Based on Fractionalized NFTs, Not Individual NFTs.
As you may be aware, ERC-71 tokens are non-fungible and don’t have a steady price. In other words, there is no continuous liquidity for NFTs. For this reason, we’ll use fractionalized NFT prices as a base rather than individual NFT prices for NFTures.
Fractionalized NFTs become fungible after fractionalization — or ERC-20 token standard-compliant. Fractionalization is common in traditional finance, as investors can expose their portfolio to a particular asset, whether it be a luxury car, home, or another expensive asset, without having to own it. In the NFT space, fractionalization space works similarly; users can get exposure to big NFT projects, such as CryptoPunks and Bored Ape Yacht Club, without having to actually own them.
One of the most common questions we’re asked is how we can ensure there is liquidity on NFTures. By basing our NFT prices on fractionalization, we’re able to capture more diversified pricing and liquidity isn’t an issue.
2. Traded Prices Over Floor Prices
Floor prices refer to the lowest amount a good or service can be sold and still function as part of the supply and demand model. While we considered choosing floor prices as a basis, we realized these prices are not necessarily reflective of the actual traded price. Going with the floor price, or auction price, could potentially open the door to price manipulation and enable investors to take advantage of unfair arbitrage opportunities. This is also why we believe fractionalized NFT spot prices are better, as they reflect the traded prices.
3. Permissionless Rather Than Permissioned NFT Futures
From day one, the SynFutures platform has been permissionless. That’s part of our ethos, which was long established before NFTures was even a thought. So, of course, NFTures is permissionless. In fact, the same smart contracts powering our core crypto derivatives product also support NFTures.
While we’re creating a product for the NFT market, we can’t predict what projects will grow, decline, or stay stagnant. As a third-party platform, we’re focused on connecting our users with trading opportunities, allowing the market prices to ebb and flow naturally.
4. Making NFT Futures Trading Accessible
NFTs are a channel for mass adoption, and with this in mind, we’ve designed NFTures to appeal to a wide range of traders, including those who have yet to trade on our platform. We realize that derivatives trading is one of the more complicated activities for both experienced traders and newbies, as they often don’t have experience in traditional derivatives. We realized that if we’re going to empower the next billion crypto users, we need products that are familiar and easy to use.
Say a CryptoPunks enthusiast wants to express their views on whether the collection is overvalued or undervalued, but they don’t want to necessarily buy a Punk given it’s not liquid. With just two clicks, the user will be able to long or short a piece of the collection with up to 3x leverage on NFTures.
The user interface for NFTures may look familiar and that’s for a good reason. As mainstream audiences view NFTs as an accessible gateway into the crypto and blockchain space, creating an easily navigable user interface and exciting user experience is crucial. With that in mind, we wanted to make trading NFTures fun and easy to use with an experience similar to popular social and dating apps.
While these are not the only features of NFTures and why we believe this futures trading product could be a game-changer for the NFT ecosystem, we hope this provides you with a little more insight as to what you can expect.
SynFutures is a next-generation derivatives exchange focused on creating an open and trustless derivatives market by enabling futures trading on anything, anytime, anywhere. By cultivating a free market and maximizing the variety of tradable assets, SynFutures is lowering the barrier to entry in the derivatives market, creating a more equitable derivatives market.