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Origins ResearchCreepz: Everything You Need To Know
https://twitter.com/crypto__kermitCreepz by Overlord is a multimedia entertainment NFT brand that encompasses TV animation, streetwear fashion and blockchain gaming. The brand takes inspiration from Pokemon's blueprint to create an entire entertainment ecosystem of different games, digital experiences, animated series, and merchandise. This article will examine what Creepz and the Overlord is, the power of lore and high conviction buyers, as well as dive into the factors that push Overlo...
Origins ResearchNFT Burn-Redeem Mechanisms
https://twitter.com/RamiWritesIntroductionBurning or redemption mechanisms (Burn-Redeems) offer a twist to NFT collecting, making the act more interactive than has been the case historically. Many NFTs have just been held or sold previously, but can now be spent as well, and the past weeks have consequently seen many burns as a result. This write-up defines the types of burn mechanisms, their history (longer than you might expect), and a perspective on their future. Enjoy.Article OutlineHisto...
Origins ResearchSappy Seals: From Memes to Leading Content Creation in Web3
https://www.twitter.com/crypto__kermitSappy Seals is a Web3 brand that has successfully demonstrated the importance of communities in building a strong brand in the NFT space. In this article, we will cover the Sappy ecosystem: Sappy Seals, Pixlverse, and Pixl Labs. It will explore how the strength of community, and memes, can propel a brand to become a leading content creator incubator in the Web3 space.Article OutlineBackgroundThe Sappy Seals CultureThe Power of MemesUpcoming Updates To Loo...
The goal of Origins is to create value for our users by providing educational resources and actionable insights.
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Perpetual Futures or ‘Perps’ play a large role in Crypto at present. They are derivatives on underlying majors such as BTC / ETH which allow ‘tradoors’, ‘hedgoors’ and ‘speculatoors’ to take views on those assets, without buying the underlying assets themselves.
NFTs (ERC-21 tokens) by their nature being non-fungible have to date not had an active derivatives market on them. This is now starting to change with NFT Perps which can allow people to profit as floor prices go up, or down.
This article explains what they are, how they work & more importantly how they’ll impact the NFT industry.
Background
What are Perps?
What are NFT Perps?
Future Impacts
Short Selling
Market Manipulation
Other Derivatives
Closing Remarks
The trading of futures on assets has been around since ancient times, but in traditional finance (‘TradFi’), futures are highly liquid exchange traded derivative instruments that allow people to take directional bets (long or short) on commodities like Oil, Gold, Wheat or stock indexes like S&P500 or NASDAQ.
You buy or sell at a particular price and pocket the difference between where the underlying is at today versus when you bought. TradFi futures aren’t ‘perpetual’ in that they have a set expiry date (normally quarterly). So if you want to keep your exposure on them you need to ‘roll’ your position to the next expiry.
The Perps that are popular in Crypto never expire but also require a funding rate payment either long or short to maintain the position into perpetuity.
There are some great explainers for perps. This article is focused on NFT Perps but suffice to say, dear reader, you should seek to understand perps deeply before you trade on NFT Perps.
The idea of NFT Floor Perps has been around since 2021 when Dave White of Paradigm (Art Gobblers fame) articulated how they could work here.
https://twitter.com/_Dave__White_/status/1432768645843746817?s=20&t=G1Vi3J5iltaSt34sIZqmLg
However, the NFT market at the time was still very immature without the volume and established enough collections to support them in a meaningful way.
Now in 2023, NFTs have some $21B in total value secured, the time is ripe to change that. The below great explanation of their killer use cases is articulated by nftperp.xyz one of the emerging NFT perp providers.
For example, if I think the price of Azuki is going to go up, I can go long an NFT Perp with a certain amount of collateral. In this case, the notional of the perp is defined in the number of Azuki I want to ‘Long’ or ‘Short’.
So in the picture below, I can go long Azuki where the marked price is currently 14.454 ETH using my 5 WETH collateral to give me the equivalent exposure of about ⅓ of an Azuki (14.454/5 = 0.34 Azuki). This is with 1x leverage but of course, being a perp I can get up to 10x leverage if I wanted.
Here the Index Price tracks the floor price of Azuki (though see below section on Market Manipulation). But this is slightly different from the marked price where the perp trades (see the below picture for historical differences).
As a ‘tradoor’ you can be rewarded if your position helps converge to the index price (where the two differ by more than 2.5%) or likewise punished via higher fees if your trade causes further divergence of index versus the underlying asset.
In theory ‘arbitragoors’ will not let the price diverge too far given they can buy the underlying & pocket the difference. But this is limited by the royalty costs of the underlying & remains to be seen how well this operates in times of extreme market sentiment.
With only a limited amount of ‘Open Interest’ at the moment, it’s difficult to see exactly how NFT perps will impact the market longer term but here we highlight some potential issues.
Just like any other futures market the Long versus Short Open interest should be a great window into momentum as per the ebbs and flows seen so far to date on NFTPerp for BAYC (below).
This will be the first time market participants are able to express a short view against the market, and it remains to be seen how this will impact projects.
Discord/Twitter FUD, for example, is already high during the bear. This makes some participants financially incentivized to collapse the floor on a project. It seems even more likely to exacerbate extreme elements.
Finally, if we think of stocks being volatile compared to bonds, then ETH being a higher volatility bet than stocks, and then NFTs as a higher volatility bet than ETH, the wisdom of giving degens 10x leverage on NFTs may seem a bit like the ‘financial weapons of mass destruction’ of the NFT market.
One of the biggest known issues with NFT Perps is the potential for market manipulation.
There have been multiple cases in the TradFi derivatives world (e.g. Mr Copper or the Libor fixing scandal) where large participants have been incentivized to manipulate an underlying asset to benefit their derivative positions.
Given the illiquidity in smaller NFT collections or for large NFT Whales there definitely exists the prospect of such action e.g. a large NFT holder goes short the perp & then crashes the floor with their supply, or goes long then sweeps heavily.
The perp providers are not blind to this prospect, as shown below by NFTPerp’s ‘True’ Floor Price calculation methodology. They are trying to counter this possibility, but it remains to be seen how robust this will be. I fully expect there to be cases of Whales trying to manipulate in the near future.
With the advent of a liquid NFT Perp market, we will undoubtedly see other derivative types (e.g. NFT forwards) expand.
I wouldn’t be surprised to see more liquid NFT Options markets as well as potentially other types of swaps (Azuki Vol Swap anyone?!).
It remains to be seen as to whether NFT Perps can take off, but I think if we learn one lesson from the last NFT Cycle it’s that degens are ‘gonna degen’.
If there’s another way to roll the dice and win or lose some chips on NFTs then it’s a pretty certain draw to such a crowd.
If protocols like NFT Perp re-run the well-established Web 3 playbook of incentivizing users via a token (which they appear to be doing), then we can look forward to a world of NFT derivatives with all the good and bad they have given to TradFi and Crypto.
At OriginsNFT we leverage data-driven decision-making, educational resources, and proprietary analytics to remain ahead of the curve with respect to blockchain tech and specifically NFTs.
To find out more, please visit our website or Twitter. To purchase a pass, please visit our Opensea page.
Disclosure: At the time of publication the author held no financial position in NFT Perps or related tokens.
Disclaimer: None of the reference material, products or others are endorsements. They are for information purposes only. Not financial advice.
Perpetual Futures or ‘Perps’ play a large role in Crypto at present. They are derivatives on underlying majors such as BTC / ETH which allow ‘tradoors’, ‘hedgoors’ and ‘speculatoors’ to take views on those assets, without buying the underlying assets themselves.
NFTs (ERC-21 tokens) by their nature being non-fungible have to date not had an active derivatives market on them. This is now starting to change with NFT Perps which can allow people to profit as floor prices go up, or down.
This article explains what they are, how they work & more importantly how they’ll impact the NFT industry.
Background
What are Perps?
What are NFT Perps?
Future Impacts
Short Selling
Market Manipulation
Other Derivatives
Closing Remarks
The trading of futures on assets has been around since ancient times, but in traditional finance (‘TradFi’), futures are highly liquid exchange traded derivative instruments that allow people to take directional bets (long or short) on commodities like Oil, Gold, Wheat or stock indexes like S&P500 or NASDAQ.
You buy or sell at a particular price and pocket the difference between where the underlying is at today versus when you bought. TradFi futures aren’t ‘perpetual’ in that they have a set expiry date (normally quarterly). So if you want to keep your exposure on them you need to ‘roll’ your position to the next expiry.
The Perps that are popular in Crypto never expire but also require a funding rate payment either long or short to maintain the position into perpetuity.
There are some great explainers for perps. This article is focused on NFT Perps but suffice to say, dear reader, you should seek to understand perps deeply before you trade on NFT Perps.
The idea of NFT Floor Perps has been around since 2021 when Dave White of Paradigm (Art Gobblers fame) articulated how they could work here.
https://twitter.com/_Dave__White_/status/1432768645843746817?s=20&t=G1Vi3J5iltaSt34sIZqmLg
However, the NFT market at the time was still very immature without the volume and established enough collections to support them in a meaningful way.
Now in 2023, NFTs have some $21B in total value secured, the time is ripe to change that. The below great explanation of their killer use cases is articulated by nftperp.xyz one of the emerging NFT perp providers.
For example, if I think the price of Azuki is going to go up, I can go long an NFT Perp with a certain amount of collateral. In this case, the notional of the perp is defined in the number of Azuki I want to ‘Long’ or ‘Short’.
So in the picture below, I can go long Azuki where the marked price is currently 14.454 ETH using my 5 WETH collateral to give me the equivalent exposure of about ⅓ of an Azuki (14.454/5 = 0.34 Azuki). This is with 1x leverage but of course, being a perp I can get up to 10x leverage if I wanted.
Here the Index Price tracks the floor price of Azuki (though see below section on Market Manipulation). But this is slightly different from the marked price where the perp trades (see the below picture for historical differences).
As a ‘tradoor’ you can be rewarded if your position helps converge to the index price (where the two differ by more than 2.5%) or likewise punished via higher fees if your trade causes further divergence of index versus the underlying asset.
In theory ‘arbitragoors’ will not let the price diverge too far given they can buy the underlying & pocket the difference. But this is limited by the royalty costs of the underlying & remains to be seen how well this operates in times of extreme market sentiment.
With only a limited amount of ‘Open Interest’ at the moment, it’s difficult to see exactly how NFT perps will impact the market longer term but here we highlight some potential issues.
Just like any other futures market the Long versus Short Open interest should be a great window into momentum as per the ebbs and flows seen so far to date on NFTPerp for BAYC (below).
This will be the first time market participants are able to express a short view against the market, and it remains to be seen how this will impact projects.
Discord/Twitter FUD, for example, is already high during the bear. This makes some participants financially incentivized to collapse the floor on a project. It seems even more likely to exacerbate extreme elements.
Finally, if we think of stocks being volatile compared to bonds, then ETH being a higher volatility bet than stocks, and then NFTs as a higher volatility bet than ETH, the wisdom of giving degens 10x leverage on NFTs may seem a bit like the ‘financial weapons of mass destruction’ of the NFT market.
One of the biggest known issues with NFT Perps is the potential for market manipulation.
There have been multiple cases in the TradFi derivatives world (e.g. Mr Copper or the Libor fixing scandal) where large participants have been incentivized to manipulate an underlying asset to benefit their derivative positions.
Given the illiquidity in smaller NFT collections or for large NFT Whales there definitely exists the prospect of such action e.g. a large NFT holder goes short the perp & then crashes the floor with their supply, or goes long then sweeps heavily.
The perp providers are not blind to this prospect, as shown below by NFTPerp’s ‘True’ Floor Price calculation methodology. They are trying to counter this possibility, but it remains to be seen how robust this will be. I fully expect there to be cases of Whales trying to manipulate in the near future.
With the advent of a liquid NFT Perp market, we will undoubtedly see other derivative types (e.g. NFT forwards) expand.
I wouldn’t be surprised to see more liquid NFT Options markets as well as potentially other types of swaps (Azuki Vol Swap anyone?!).
It remains to be seen as to whether NFT Perps can take off, but I think if we learn one lesson from the last NFT Cycle it’s that degens are ‘gonna degen’.
If there’s another way to roll the dice and win or lose some chips on NFTs then it’s a pretty certain draw to such a crowd.
If protocols like NFT Perp re-run the well-established Web 3 playbook of incentivizing users via a token (which they appear to be doing), then we can look forward to a world of NFT derivatives with all the good and bad they have given to TradFi and Crypto.
At OriginsNFT we leverage data-driven decision-making, educational resources, and proprietary analytics to remain ahead of the curve with respect to blockchain tech and specifically NFTs.
To find out more, please visit our website or Twitter. To purchase a pass, please visit our Opensea page.
Disclosure: At the time of publication the author held no financial position in NFT Perps or related tokens.
Disclaimer: None of the reference material, products or others are endorsements. They are for information purposes only. Not financial advice.
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