NFT = Tulipmania or Disruptive Innovation?
Views from a Non-Fungible Finance Guy
About SynFutures
SynFutures is an upcoming derivatives protocol, currently in V1 Closed Alpha phase. The team is a combination of crypto natives and Wall Street top guns, with the idea to build a solid infrastructure for future DeFi derivatives on Ethereum and other L2/side chains. In June 2021, SynFutures announced $14mn Series A funding led by Polychain Capital with participation from Framework, Pantera Capital, Bybit, Wintermute, CMS, Kronos, and IOSG Ventures. Earlier in 2021, it announced a seed round backed by Dragonfly Capital and Standard Crypto.
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tl;dr:
1. NFT boom leading to controversial arguments on whether it is a bubble or innovative breakthrough;
2. Human life itself is the largest non-fungible existence. Putting aside $ value, seeing the physical world through fungible/non-fungible lenses leads to the conclusion that anything fungible is a means to the non-fungible ends. This is the fundamental value of NFT;
3. Measurement of value requires a better price discovery mechanism. SynFutures is working with partners to build next-gen market infrastructure for NFT.
If you think NFTs are a bubble, then there’s no need to read on… unless you realized that you’re also non-fungible… aren’t you?
I’ll come back to this point later. But first, let’s compare a JPEG vs. a tulip bud.
They have a lot in common — for example, both are beautiful and have eloquent designs that make them particularly unique. Based on such a simple comparison, many have drawn the conclusion that the NFT market boom best resembles the Tulipmania, when in the 17th century
“a bulb named Semper Augustus, notable for its flame-like white and red petals, sold for more than the cost of a mansion in a fashionable Amsterdam neighborhood, complete with coach and garden.”
But things are different today. For example, an EtherRock NFT recently sold for $1.3 million, which is equivalent to the price of the average 3 bedroom condo in the Upper East Side of Manhattan. While arguably not very beautiful, the NFT does offer “a sense of belonging” for those who have it.
Therefore, I draw my conclusion that the NFT market boom is not comparable to Tulipmania. So if this is the case, what exactly is it?
A finance guy’s best friend is his trading chart. Here’s an example of Google Trends chart using “NFT” as a keyword. As a boring technical finance guy, in the beginning I also tried to make sticks on this chart (candle sticks, hockey sticks, you name it…). But the “aha” moment descended on me when I compared it with Gartner’s Hype Curve.
If NFTs are truly a technological breakthrough or Creative Destruction, as Joseph Schumpeter put it, then we’re lucky to be on the Slope of Enlightenment.
In the world of crypto, fungible tokens came first. That’s the key reason people struggle to understand the importance and value of non-fungible tokens, which have only been widely available in the form of ERC-721’s since January 2018, 9 years after fungible Bitcoin’s genesis.
In the physical world, everything bigger than molecules started as being ERC-721-like. Think about your car, hairstyle, and voice. Even if some initially produced in batches, the licence plate, curliness, and thickness of vocal cords develops with time and turn every piece unique. Even money started as being ERC-721-like; you can clearly see the differences in each piece of Rai stone on the Micronesian island of Yap, and the different sequence of numbers on the greenback. ERC-20-like matter only exists when the physical existence is melted into forms of liquid, gas, or pure numbers.
Non-fungibility represents value. Fungibility is the expression of value, the means to the non-fungible ends. And that’s the true value behind NFTs.
It may be funny to hear a finance guy talking about philosophy. He realized that his uniqueness gave him an ERC-721-like existence in this physical world, and that the biggest inner drive behind making and spending and consuming ERC-20-like money and food, respectively, is to build up and enhance such ERC-721-like uniqueness, and access to communities with “a sense of belonging”.
In Maslow’s Hierarchy of Needs, only the lowest level contains something ERC-20-like — the more advanced needs are all ERC-721-like.
Now comes the tough question: are NFTs a bubble? (i.e. is ERC-721 expressed in ERC-20 terms incorrectly?)
There’s no real answer to this question unless people put their money where their mouth is in the markets. Traditionally (I mean in the last couple of months in crypto terms), bazaar-style marketplaces and auctions have been successful in initial price discovery.
Recently, NFT fractionalization projects, such as unic.ly, offer new angles to facilitate NFT transactions with liquidity. Innovative investors such as IOSG have done deep-dive research on NFTs and DeFi.
Working together with these awesome partners and investors, and following good progress on v2 development, the SynFutures team is building the next-gen market infrastructure for NFTs to better express values, long or short, with leverage and fun.
Tune in for more details and let us know your initial thoughts. You can also follow the author and SynFutures.
