As a builder in NFT area, the task I always do on a daily basis is to track how the numbers in NFT are performing, what are the most-talked-about building topics, and what are the things top-tier NFT builders are getting their hands dirty working.

Last Saturday, I aggregated my findings and did a presentation about the trending product models NFT builders should mind for the time being at Solana Superteam Vietnam’s Solana BuildStation Meetup #2. I think that now is the good time for a writing collecting all the points I presented to be out.

Notice 1: I would not mention collections as the trending product model NFT builders should mind building in this article. Well, collections being collections and the majority of newly-launched now doesn’t go hand in hand with significant users but flippers who want to make quick profits & collection owners who want to raise fast money. A new collection to be out in the next few hours would not solve any pains that are happening in NFT.

Notice 2: I will used XomNFT’s graphics on successful NFT project use-cases. As we build XomNFT for Vietnamese NFT users, the texts on the graphics are Vietnamese; however, the clear charts on them are still good enough to help you understand what the graphics talk about. So if you can’t read Vietnamese, ignore the texts and just read the charts.

Let’s question yourself that what would an individual NFT user on the NFT app layer complain at the moment? You might find your answer falling somewhere in the list below

(1) The shitty NFT I’m holding doesn’t have any utility

(2) I can’t buy or sell my NFTs immediately

(3) I’m holding NFTs but find no way to earn yields on it

(4) I’m bag-holding the NFTs that made me rekt, how can I liquidate a part of it without selling?

(5) Each Crypto Punk is too expensive, can I buy 1/10 of it?

(6) The Axies are too expensive, I can’t buy one to start playing the game

(7) (If you are creators talking to marketplaces): I want my money back! (hands up if you know I’m talking about the Race to Zero in which some NFT marketplaces switched to optional royalty mode to attract volumes and NFT creators certainly didn’t happy with jt)

(8) Which fungible coins I can ape to bet in the growth of NFT?

If you’re building some NFT thing, no matter you’re reinventing the wheel or creating something very revolutionary, your products should somehow cure the pains addressed in at least 1 in 8 complaints above. Of course there’s ones sounding too big too be solved like (1) but the rest are all reasonable that any serious builders can jump in now and make differences.

Now let’s approach the discussed topic from user journey perspective. In my book, there are 3 phases in the journey of an NFT user: Launch NFTs (for creators), Trade aka Buy & Sell NFTs, and Use NFTs.

In the next part of the article, I will try to point out the problems users are confronting and mapping them with the complaints users have above. There are builders who are trying to move the rocks and have reached specific milestones, so I will also feature them with the explanation of their products & gained tractions. If I have any building ideas, or in other meaning my points on should-be-build things that can solve the problems or somehow improve the running solutions, I will note them down at the end of each problem-usecase part.

Launch NFTs

The biggest problem that any NFT launch might face is that the sales are not sold out, hence the creators can’t raise as much as they expected. However, it won’t be something we should try to touch as the factors affecting NFT sale results, including but not limited to the general conditions of NFT Market, the reputation of creators, the market dominance of the launchpads, are not the things new builders can change. Here it is the 1st problem of Launch NFTs

Problem: Lack of minting tools securing NFT royalties for creators - mapped with complaint (7)

Race to Zero was probably the most controversial NFT topics arisen in the fall of 2022. It has become hot again recently as Blur adopts Seaport protocol to sidestep Opensea’s blocklist control. Not choosing to solve the problem by trying to talk to major marketplaces, Manifold (not the MEV tool) built out a NFT minting platform/tool enabling Web3 creators to mint their own collections. The special thing of Manifold is that the tool contract ‘allows creators to set royalties for their NFTs in order to tell the different marketplaces how much they should pay creators when a secondary sale happens’

In the middle of the royalty war, creators found something satisfying their needs. Manifold got benefited as the number of mints on the platform went nearly x4 within the first month of 2023. Total mints on Manifold outnumbers the sum of which on all other platforms and it’s now the go-to place for creators who want create their own collections.

Problem: Lack of vertical/specialized NFT launchpads

It’s a nice-to-have, not quite a big problem for now, so it doesn’t map with any complaint above. However, there’re some growing traction numbers in vertical NFT areas that make me think that specialized NFT products might be the worth-discovering niche.

NFTs can be classified into many categories such as game collectibles, PFPs, music , domains. Different NFT categories go with different user backgrounds and behaviors, resulting in building NFT marketplaces & launchpads with customized UI & features for each type of users might be a good idea.

Take Music NFT as an example. The a16z-backed Sound is an NFT Marketplace & Launchpad focusing on Music NFTs, which are the non-fungible tokens representing albums, songs, or music tracks. Below is a typical NFT launching on Sound where the American singer and songwriter Salem Ilese sold 864 NFT pieces representing her viral track named Crypto Boy at 0.1 ETH/piece.

The privilege of an NFT owner is to ‘own a moment’, meaning he/she can choose an available moment of the track (02:05 for example) and drop his/her comment on it. The NFT owner owns the moment, which means there’s no one who can occupy & drop their comment or delete the existing comment on the moment unless the NFT owner sells the NFT to another.

The UI & UX Sound’s created is just like Soundcloud’s - the famous music streaming service in Web2. Launching NFTs & Playing with NFTs experience on Sound are just like uploading tracks & enjoying music on some traditional music streaming platform - something that big, horizontal NFT launchpads like Magic Eden or LooksRare can’t offer.

Sound has seemed to find their product market fit with their creator users as the weekly new mints on Sound has proliferated since September 2022.

There’re also other ways to verticalize your NFT launchpads & marketplaces. Focusing on gamers & game publishers is the direction many teams follow. The example is Fractal or DarePlay with game-hub-style UIs.

My building idea: Vertical NFT launchpads for niches like Movie NFT, Book NFT, Real Estate NFT

Trade or Buy/Sell NFTs

Problem: No solution for instant trading on secondary markets - mapped with complaint (2)

9 out of 10 times in trading coins & tokens, you get the counter-assets with zero waiting time if you set buy/sell-with-market/liquidity pool orders. But it’s not like that in NFT. The trading mechanism on nearly all NFT marketplaces right now is order book & auction-style. It’s the painfully taking-forever experience: The NFT is listed at the listing price, the seller needs to wait until there’s one jumping in and accepting the listing price; the wannabe buyer can bid a smaller price and 2 sides have to all wait until there’s one busting a move.

To help the users who want to liquidate their NFTs instantly, Magic Eden launched a small feature on their marketplace named ‘Instant Selling’ allowing NFT holders to sell their NFTs instantly at a price smaller than the floor price of the collections.

Sudoswap even made a step further by building the first NFT AMM ever. Just like DeFi AMMs, Sudoswap allows NFT & ETH holders to provide assets to liquidity pools and earn trading fees. Traders can swap with liquidity pools to instantly get NFTs (buy NFT) or ETH (sell NFT). The price discovery mechanism is based on either of the following bonding curves:

• Linear curve: the price increases or decreases linearly as buys and sells happen

• Exponential curve: the price increases or decreases by X% as buys and sells happen

You can learn how Sudoswap works here.

One thing that should be taken into account about NFT AMMs is the trading-with-pool model might not be applied effectively to PFPs like bluechip NFTs as each PFP in a collection always goes with its rarity level. That explains why after having its 1-month traction rally, Sudoswap’s trading volume started to plummet and now takes only 1% marketshare of the whole NFT marketplace sector.

NFT AMM pools force fungibility onto NFTs, which might be more suitable for homogenous NFT collections like in-game collectibles. That’s the reason why TreeasureDAO, a gaming platform aiming to be the decentralized Nintendo, has launched their NFT AMM Magicswap v2 to boost up liquidity for collectible items of the games in TreasureDAO ecosystem.

My building idea: NFT AMM for more homogenous NFTs (collectibles, ERC1155, etc)

Problem: An NFT can’t be divided, it’s hard for buying and selling - mapped with complaint (4), (5) & (8)

You can buy 1/10 of a Bitcoin but can’t buy 1/10 of a Crypto Punk. If you’re holding a Bitcoin, you can sell 1/10 of your portfolio but can’t do the same thing if your portfolio contains only NFTs.

Fractionalized & tokenized NFT gradually becomes an elephant in the room in NFT as everyone knows that good solutions laid on the table can unlock huge liquidities and exposures for the NFT industry. Imagine the scene where your NFT trading experience is as convenient as fungible token trading experience and after all the hooplas about Punks, BAYC and everything, your 70-year-old senior citizen next door can give it a bet on the growth of NFT with only 1 grand as the starting amount.

NFTX, launched in January 2021, is the pioneer in building something new & cool in NFT. NFTX allows you to tokenize your NFT by depositing 1 NFT into an NFTX vault and mint out 1 vToken (1 NFT = 1 vToken), which is an ERC20 token that represents a claim on a random NFT asset from within the vault. The vToken can also be used to redeem a specific NFT from the vault. As all vTokens minted from NFTX are fungible tokens having their trading liquidity pools on Sushiswap, you can buy or sell 0.1 or 0.5 or any amount of a vToken you want.

For instant, $PUNK (0x269616D549D7e8Eaa82DFb17028d0B212D11232A) is the vToken of Crypto Punks vault on NFTX, so 1 Crypto Punk = 1 $PUNK. Here, I'm trying to sell 1/10 of a Punk for 6.09 ETH (1 $PUNK = 60.99 ETH, slightly cheaper than the current Floor Price of Crypto Punk collection 63.95 ETH). The liquidity value of $PUNK is $8.61M, which is a great number for retail trading.

It’s recognizable that NFTX can also solve the problem of buying and selling NFT instantly tackled by Sudoswap above. Now NFTX is holding more or less $35M value of NFT assets and serving around 1,000 users everyday according to the Dune dashboard here.

My building idea: Just more fractionalized / tokenized NFT platforms. We need more to drive outside-NFT liquidities into NFT.

Problem: Lack of renting platform for NFTs that have real utilities - mapped with complaint (6)

NFT lacks utility, thus NFTs that have real & strong utilities trigger high demand of renting them. Case in point, scholarship programs in NFT games back in the play2earn mania connected investors who stock up game items with the purpose of earning passive incomes and newbie gamers who want to play to earn but can’t afford buying their first items. Another case, if the Crypto Punks go hand a hand with a very great privilege like joining some private clubs, you can go for the option of paying $20K to rent a Punk in 1 month instead of paying more than $100K to buy the whole one.

There’re games building renting features allowing for renting & leasing NFTs within only the games. The first platform that serves the universal renting demand was reNFT. You can rent NFT on reNFT platform with collateral-required or collateral-free style. You specify the rent duration, then pay the renting cost (=rent duration * daily renting price pre-set by NFT owners). An amount of money equal to the collateral value (pre-set by NFT owners) is required to be locked and will be released back to the renter’s wallet when the deal expires, if you go for collateral-required style. For collateral-free style, you only need to pay renting fee.

reNFT has raised $5M from notable investors such as Gemini, The Sandbox and OpenSea. The picture of traction on reNFT is not bright for now though.

It’s convincing that a renting platform can perform well if it’s a vertical focusing solely on NFT games where the collectibles have real & strong utilities. That’s why at DareNFT, we’re building out the DarePlay rental marketplace for NFT games that will be out in Q1 2023. DarePlay allows the new type of NFT (we call it NFT 2.0) issued from DareNFT’s NFT Vaults to have multiple derivative versions that preserve the important metadata points (skills, power score, levels, etc) and can be used in-game to play normally just like the original NFTs. The derivative NFTs will be automatically burned when the renting deal expires. So, renting NFT via DarePlay’s rental marketplace is truly collateral-free. The first users on our platform will be the games in DareNFT ecosystem.

My building idea (also what we’re building): Rental marketplace/platform specialized for game collectibles

Problem: No index token that the average Joes can buy to bet on NFT - mapped with complaint (8)

To bet on the growth of Crypto Punks, folks can buy vToken of Crypto Punks vault on NFTX ($PUNK) but, say, to bet on the growth of top 20 NFT Bluechip collections, what would be a single fungible asset they should buy? NFT lacks index tokens like $US30 in TradeFi or $DPI representing Top DeFi coins.

Recently, Cryptex Finance announced that they have launched $JPEGz, The Worlds First Total NFT Market Cap Token on Arbitrum. $JPEGz will track the market capitalization of the 10 popular NFT collections including Azuki, BAYC, Crypto Punks, etc. It’s still too early to evaluate the performance of $JPEGz so let’s wait more.

Building NFT index fund token is still a suggestion builders can consider. The most notable player in index fund token area is Index Coop who has raised $10M from 1kx, Galaxy Digital, 1confirmation, Wintermute, Defiance Capital, Assembly Capital, etc. So if you’re planning to build an NFT index token project, Index Coop can be a good benchmark.

My building idea: Just more NFT index tokens. The index token representing Yuga Lab’s collections for example

Problem: Users always want to find best deals. Standalone marketplaces can’t offer best prices

The dramatic raise of Blur urges me to add this part to the mix. It’s a nice-to-have, doesn’t map with any complaints, but still triggers great building ideas.

In a sense, NFT marketplaces are like Web2 e-commerce platforms. And just like Amazon’s or Alibaba’s users, NFT traders aka NFT marketplaces’ users, always look for places offering the best deals with the best prices. There’s a growing demand for a tool aggregating the NFT price information on all major marketplaces and doing the trades at best prices. This is where marketplace aggregators jump in the NFT marketplace war.

Blur, the aggregator backed by Paradigm, was launched in Q4 2022 and is now doing more daily volume than the old-timer Opensea. The growth of Blur marketshare is probably the craziest thing in NFT in the last quarter of 2022.

So what’s your opportunity? Thing is that NFT traders are as fickle as shopping platform users out there. Now the #1 is Blur but actually the marketplace aggregator of choice has shifted from Genie (acquired by Uniswap) to Gem (acquired by Opensea) and now to Blur if you look at this Dune dashboard.

This picture leaves a lot of room for competition and innovation to happen in the future. Taking the lesson learnt from DeFi, 3 players is not the end-game numbers for NFT marketplace aggregators scene.

My building idea: More NFT marketplace aggregators not just on Ethereum but on other chains where NFT is active such as Solana, Arbitrum, Polygon, etc

Use NFTs

The biggest problem with using NFTs is that the assets don’t have much real utilities rather than just for buying and setting avatars on social networks - mapped with complaint (1). It’s not the problem I’ll try to figure out solutions for in this article. I want to discuss the 2 below

Problem: Users don’t want to sell but borrow some money against their NFTs - mapped with complaint (4)

NFT lending protocols solve it. Many builders have thought about this problem for long; that’s explain why lending is the most active sector in NFTFI at the moment.

The first NFT lending protocol ever launched was NFTFi (2020). January 2023 marked the time NFTFi reached the all time high in monthly loan volume (17.9K ETH ~ $28M).

According to Defillama, NFT Lending protocols are holding ~$285M value as TVL. To put it in perspective, DeFi Lending sector is holding $13.5B and is #2 largest protocol category in terms of TVL. NFT Lending is ranked #16 but is the #1 among NFT-related categories (The #2 is NFT Marketplace holding around $76M value). I would say if new values flock to NFT, NFT Lending would be one of the best categories of choice.

The list of NFT Lending protocols can be found from the graphic above. The most notable names are BendDAO ($196M TVL), ParaSpace ($38M), JPEG’d ($25M), etc. As NFT Lending sector will keep growing, it won’t be surprised if we see new players hopping in, optimizing existing protocols, and building out more efficient NFT lending protocols.

One of the current problems with major NFT Lending protocols now is that they work with mostly top-tier/bluechip NFT collections. What about smaller NFT collections that the majority of NFT users are holding? There’s not a lot building efforts being poured in this matter, but at least we’re seeing top builder Axie Infinity recently launching MetaLend on their Ronin Network. The new lending protocol allows Axie Infinity players to borrow ETH against their Axies and plots of land.

My building idea:

1. Capital-efficiency NFT Lending protocols

2. Vertical NFT Lending protocols

Problem: Put NFTs to work or earn yields on the NFTs- mapped with complaint (3)

With the innovations of DeFi, you have now a multiple ways to earn yields on the ETHs you’re holding. Now if you’re holding a BAYC, there’re only a handful of ways. AMMs, fractionalized & tokenized, and renting platforms can all help you. Let me list down here 4 yield strategies you can apply right at the present time.

• Adding NFT liquidity on Sudoswap

Having the fee market working like DeFi AMMs’, Sudoswap allows Liquidity Providers to earn trading fees on the NFTs they add as liquidity. Here’s a case where a LP earned 630% APR on a 100ETH-worth investment.

• Renting out your NFTs on reNFT or DarePlay

If your NFTs have real utilities and there’s demand for the utilities, renting them out is not a bad idea. Take the deal on reNFT here, it’s gonna be $70 profit on the NFT value of $500 in 1 week, so 728% APR for you as the NFT owner if there’s demand for renting this girl in lingerie.

• Adding vToken (NFTX) liquidity on Sushiswap

The strategy here is to deposit your NFT into NFT Vault on NFTX and get 1 vToken, then add liquidity including 1 vToken and ETH to the vToken <> ETH trading pair on Sushiswap. Example, the $PUNK <> ETH pair on Sushiswap collects $371 in the last 7 day. If a liquidity farming program rolls out, you can even earn more with by farming with your $PUNK <> ETH SLP tokens.

• Staking your NFTs on NFTX

NFTX platform generate fees when users mint out vTokens from NFTs or redeem NFTs from vTokens. As per NFTX’s document, currently 100% of protocol fees are paid out to those who stake & lock NFTs. You can know earn 1.94% APR on your Crypto Punk or 9.79% on your Pudgy Penguins now. Find the list of NFT staking pool on NFTX here.

Unlike DeFi area where composability shows its power, NFT area is still fragmented. That’s the reason why we don’t see many yield strategies applied on NFT. I believe that if yield routing platforms or yield aggregators are built and become workable products, that will be the game-changers in NFT. Just recall how liquidity farming or products like Yearn Finance brought DeFi to the next level back in 2020.

My building idea: NFT yield aggregators

Conclusion

I hope that the insights above can be the good recommendations for how should you tackle the problems and what you should build. The mentioned products are definitely not the end-games solving the mentioned problems; some even doesn’t have impressive traction numbers or hasn’t been launched or still has a lot of problem in product mechanism. However, from my perspective, at least, they are the first attempts that can be your inspiration for building new cool things. Good luck, builders!

About me

I’m Jason (hanjay.eth on Ethereum).

I’m building DareNFT - the protocol for NFT 2.0, DarePlay - The Web3 service hub for MetaFi projects & users, and XómNFT - The #1 NFT content source in Vietnam.

I’m also an active member of Space Ventures DAO and SqrDAO.

I’m building my personal space at Han Jay Crypto.

Part 1

Part 2