The NFT market seems to be shrinking!

Over the past few months, there has been a noticeable decline in NFT trading volume and trading activity. For example, the data collected by NFTGo on the NFT market shows various signs of its decline.

According to the statistics of NFTGo, the NFT market has been in a “cold” sentiment recently. In the past three months, the blue-chip index has been in a decline, and the total market value of NFT has dropped to 4 million ETH, a drop of more than 20% from three months ago.

While NFTs offer unprecedented opportunities for artists, creators, and collectors, market instability and speculation have left many people questioning the long-term value of NFTs.

In this context, the “Three-Token Model” proposed by Wanxiang Blockchain Chairman Xiao Feng at the “2023 Hong Kong Web3 Carnival” provides new thoughts on the development direction and applications for NFTs, injecting new vitality and development opportunities into the NFT market.

Three-Token Model

Dr. Xiao Feng believes that Web3 applications must be “tokenized”. Web3 applications are networks based on the Internet of Value, blockchain, digital wallets, and smart contracts, so “tokenization” is one of its core features. However, at the application level, the single-token model is no longer applicable, and building a multi-token model has become a rigid need. Therefore, he proposed a three-token model to meet the needs of Web3 application construction and governance:

• NFT (Non-Fungible Token), which represents the uniqueness and value of products, services, and data.

• Utility Token (functional token), which represents the right to use a specific network or application.

• Security Token (Security Token), which represents the ownership of the holder, that is the equity value.

At the same time, he believes that NFT is not just artwork and avatars. NFT is self-creating, self-managing, and self-certifying. The source of the NFT value is “Play NFT to Earn” and “Play NFT to Owns”, which can connect Web2 and Web3, the real world and the virtual world, offline and online, on-chain and off-chain, products and scenarios, etc.

Three Application Scenarios of NFTs

Therefore, on the basis of the three-token model, we can expand the application scenarios of NFTs further. For example, @Shang2046, the co-founder of Mars Finance, believes that the combination of functional tokens, security tokens, and NFT can solve the problems of incentive balance between the project team and early investors and solve the compliance issue of token issuance. Functional tokens are used to open up the market, motivate users, and are not used for financing. Security tokens represent project equity, are owned by the team, and can dilute equity financing. After the project matures, security tokens will be listed through STO tokens.

Further refining the value and function of NFTs, we can get the following three application scenarios:

NFT is a product

In this dimension, NFT can be regarded as a unique digital product. The uniqueness and irreplaceability of this product endow it with unique value. For example, digital art, music, video, game assets, etc. can all be packaged into NFTs. The uniqueness, rarity, or innovation of such products will determine the value of NFTs.

CryptoPunk #5066–857 ETH

BAYC #7090–800 ETH

BAYC #4980–530 ETH

Fidenza #157–390 ETH

Azuki #3628–329.69 ETH

This form of NFT can effectively support the rights of creators and help form a more fair and positively motivated creator ecosystem.

NFT represents the right of use

In this dimension, NFT can be used to represent the right of use. Users who hold this kind of NFT can enjoy specific services or permissions according to the rights and interests represented by the NFT. For example, users who hold a special NFT can get project airdrops, participate in project governance, or use the NFT as tickets for concerts and football games.

Sports Illustrated, an American sports magazine, will cooperate with ConSensys to launch the NFT ticketing platform “Box Office”.

OKX creates NFT admission tickets for the 2023 Hong Kong Web3 Carnival and the carnival uses the OKX wallet for ticket verification.

This application scenario connects NFT with actual services and rights, enhancing the usability of NFT.

NFT is the ownership

As a unique token on the chain, NFT can be used to prove ownership, including identity, assets, rights, and interests.

For virtual land projects such as Decentraland and The Sandbox, each piece of land and the decorations on it are tradable NFTs.

All items in GameFi, such as cards, pets, equipment, etc., are tradable NFTs.

Decentralized domain names such as ENS, Space ID, and ONT ID are also NFTs, but some of these NFTs are tradable and some are not.

As a soul-binding token, SBT is also an NFT in essence, but the NFT cannot be traded in the market.

This kind of NFT is an essential carrier of asset ownership. Owning NFT means that users have the ownership and use rights of the corresponding assets, which is of great significance for promoting the digitization of assets and the wide application of blockchain technology.

Combining Three Application Scenarios: Web3 Loyalty

In the current NFT technology, we were surprised to find that a track is integrating the core viewpoints of the “Three-Token Model” and three application scenarios to build applications that serve the operation of projects in the entire industry, that is, the NFT × Loyalty project. The application is built with NFT as the core, designed to enhance user loyalty and participation through NFT as a voucher, reward, and incentive mechanism.

Based on the “Three-Token Model”, the NFT in the Loyalty project can be used as a digital asset with unique attributes and ownership to build the core mechanism of the project:

First of all, the Loyalty project creates a digital asset that can be continuously accumulated and value-added by helping the project bind the loyalty of its users with NFT. Users can obtain the corresponding Loyalty NFT by participating in the project’s brand activities and purchasing specific goods or services, etc.

These Loyalty NFTs are independently created by the project and have unique designs and attributes, such as special patterns, limited releases, or elements related to brand image. Each Loyalty NFT represents the user’s loyalty and contribution to the brand or platform. Users can collect, display and trade these NFTs, which can tell their loyalty and identity. At the same time, the circulation of NFT can help brands to gain exposure and increase its market value.

At the same time, the Web3 project can create its own equity exchange store through the Loyalty project and provides a series of privileges and benefits for users holding Loyalty NFT, including but not limited to exclusive discounts, paid content, customized services, membership activities, offline Priority participation in activities, etc. Brands can provide different levels of privileges and rewards based on different Loyalty NFT levels or standards to motivate users’ long-term participation and continuous contribution.

In addition, NFT has become an essential way for Web3 socialization. Therefore, brands use the Loyalty project to issue tradable and displayable NFTs to users, so that users can turn their loyalty into their social capital and reputation. Users who hold high-level Loyalty NFT can display their status on social media platforms and gain recognition and attention from other users. This social tokenization mechanism further enhances user engagement and brand promotion.

Summary

Therefore, the author believes that through the Loyalty project based on NFT, the project can effectively enhance user loyalty and participation, establish a stable relationship with users, extend the life cycle of users, and tap the long-term value of users through the reward mechanism and social effects. Ultimately, the project can enhance its own image, user operation capabilities, and market competitiveness.

However, at present, the NFT × Loyalty project is still in its infancy. Although Starbucks Odyssey is here, there are not many projects that can really provide the industry with complete Loyalty plans. According to the author’s research, the Loyalty projects based on NFT are:

The NFT × Loyalty business has potential. This is obviously an innovative business and application scenario for NFT. However, whether the business can be accepted on a large scale in the future also depends on the industry’s deepening understanding of user operations and the refinement of its implementation.