NFT BANK, where finance isn't just numbers and charts, but a vibrant gallery of NFTs. Led by Daniel, a realist in a market often fueled by hype, this platform is a game-changer. It's not just about owning digital art; it's about understanding its worth in the real world. NFT BANK stands at the crossroads of finance and innovation, proving that there's serious business behind every pixel. So, prepare to explore a domain where NFTs are more than digital fads—they're assets with a story.
Q: A quick intro about yourself, Daniel?
Daniel: "Got hooked on Ethereum tech in 2017 and joined Ground X in 2018 to launch Klaytn, an ETH Forked L1. Spent a lot of time analyzing on-chain data and realized the real action was in NFTs. Axie Infinity opened my eyes wide, showing the clear value of ownership. I knew NFTs were my calling, but Klaytn wasn't into them. So, I took the leap and started my own thing in the NFT space."
Q: Involved in any NFT communities?
Daniel: "Jumped into Axie Infinity and My Crypto Heroes (MCH) in 2018. MCH, with its pixel art, was massive, dominating 90% of OpenSea's volume.
- Rewind Crypto Kitties in 2017: NFTs were like digital souvenirs. Axie Infinity evolved this, adding real gameplay to the breeding concept. By 2018, it had SLP-based breeding and Play to Earn.
- Fast forward to 2020: Axie Infinity's breeding changes led to a minting surge, significantly impacting Ethereum's gas fees. The onset of COVID19 and a P2E boom in the Philippines caused a price spike due to demand outstripping supply. This led to a scholarship culture, with guilds like YGG(Yield Games Guild) organizing like coporates.
- Through all this, our community really shined, especially with 3 million DAUs at our peak. It was more about the community than profits.
Also I met Jiho, now Axie’s COO, in Discord and IRL. We first connected online, then met in person at Hashed's office after I left Ground X to start my venture."
Q: Can you tell us about the founding story of NFT BANK?
Daniel: "After leading the data science team at Ground X and analyzing on-chain data, I founded NFT BANK in 2020. My focus on NFTs stemmed from their potential in enabling fungibility of value. The possibilities with NFTs are endless - from the aesthetic value in art NFTs, ownership rights in game NFT to RWAs.
Take Axie Infinity as an example. It was a pioneer in Play to Earn (P2E), but being the first meant it had its limitations, like lacking a framework for monitoring funds' inflows and outflows. In contrast, Web2 games operate in a more controlled, isolated environment, unlike Web3 games, which are interconnected with the external world. This interconnection is a double-edged sword - it's great when money flows in but risky when it flows out.
Notably, even established gaming companies, servicing renowned games like EVE Online, are venturing into blockchain gaming. Triple-A games are being developed for Web3, with investments ranging from billions to trillions, and the anticipation is high.
NFTs started with visible art and PFPs, but the exciting part is how they'll evolve to increase liquidity by linking with real-world assets. For instance, NFTs are being used as bond-like instruments. We see attempts to tokenize assets like RWA bonds. US Treasury bonds, for example, are seeing yields of 5-6%, higher than current DeFi yields.
To prevent capital outflow from the crypto ecosystem, MakerDAO uses various mechanisms to sustain its DAI token. BlockTower, a crypto hedge fund, collaborated with Century Pit to create a fund by purchasing US Treasury and minting it as NFTs. This collaboration has brought in billions, offering a 5% annual yield. Such models are inspiring DAOs and foundations to gain exposure to bonds, with Century Pit playing a significant role, supported by BlockTower and MakerDAO's liquidity."
Q: What do you see as the future use cases for NFTs?
Daniel: "Think of NFTs as containers for unique assets. In our world, most things, like bags or shoes, are semi-fungible. Like stocks, they're interchangeable within a sector but not across different stocks. That's the reality for most physical assets - they're mostly non-fungible.
So, what can we encapsulate in NFTs? There's a lot to consider in terms of what and when, but let's agree there's immense potential for expansion.
Physical items, for instance - minting real luxury goods as NFTs for collateral loans. But how can we trust off-chain assets on-chain? Resolving this 'oracle problem' is crucial. Blocktower, for example, has tackled this by relying on reputable custodians. Platforms like 4k protocol and Kettle Finance take physical assets in custody and issue NFTs as receipts. The focus isn't so much on trading these NFTs as on redemption. Crypto offers access to global liquidity, making it feasible to get loans against clear underlying assets like Tiffany jewelry or Rolexes.
It's like how the Korean secondary market platform Kream revolutionized the trading of used goods. However, I'm bearish on real estate NFTs, preferring assets that are more efficient in terms of space and value.
Still, with real estate, fractionally owned properties offer little beyond capital gains, making REITs a better choice. Real estate turns to crypto only when traditional liquidity and popularity fail. Like the 'lemon market' in used cars, real estate might face similar issues, with only problematic properties entering the market."
Q: NFT valuation seems challenging. How do you approach it?
Daniel: "Our initial goal was to show accurate prices, considering traits and rarity, beyond simple floor prices. We aimed to present a singular, interpretable number, factoring in market demand. We used machine learning models to analyze transaction data, metadata, and probabilities of wallets purchasing NFTs to determine fair market values.
Valuing NFTs is complex. We looked at how tangible assets are valued, especially stocks. Stocks use a Discounted Cash Flow (DCF) method, which we partially incorporate. This approach works well with debt instrument (bond) NFTs, where valuing future principal, interest, and present value of risk-free interest is straightforward.
We're developing modularization, tailoring valuation formulas to individual NFT collections' characteristics. Another exciting area is real-world assets. We're working on aggregating transactions from OTC and NFT markets for valuation.
Blockchain regulation can be a significant booster in this realm. NFTs, unlike other tokens, have enjoyed more freedom, especially regarding security issues. However, if NFTs show security-like characteristics, they might be treated as securities. So, we're cautiously advancing, considering both regulations and technological developments."
Q: What value does NFT BANK aim to provide?
Daniel: "Consider the economy in games. Why is there a primitive economy but no finance? For example, in gameplay, you might grind daily, like hunting squirrels and gathering acorns, to buy a specific sword. In the real world, you could use credit and collateral to make such a purchase. What if we could facilitate VC funding for guilds that excel in castle sieges, assuming there's an expectation of profit? The complexity lies in the need for financial licenses and game developers' approval, which is why it hasn't been pursued. However, NFTs can accelerate this by resolving informational asymmetry, bridging the virtual and real worlds. Essentially, they enable a sustainable financial lifestyle."
Q: Despite its reputation, NFT BANK seems less known among users in Korea.
Is the business primarily B2B focused?
Daniel: "Yes, we're currently centered on B2B operations. Most services offering NFT portfolio management use our API. A notable example is MetaMask, where the NFT tab utilizes NFT Bank's API. We're involved with various companies across platforms:
- P2P Lending Platforms like NFTfi, Arcade.xyz, and X2Y2.
- P2Pool Lending Platforms like Pine and Unlockd Finance.
- BNPL Platform CYAN.
Our B2C services have seen positive responses, especially the Tax Filing feature. We haven't charged for B2C services as market penetration was the priority. In the U.S., due to IRS regulations, not filing taxes can lead to significant penalties. We've been the only service capable of handling tax filings for NFT transactions, especially popular among high-net-worth individuals. When we tracked user assets, the total was around 4-5 trillion won. Many had bought cheap and held long, making personal back-data management nearly impossible without our help. We haven’t charged for this service, though others might charge around $300.
While our B2B focus has slowed B2C updates, we have various updates planned, so stay tuned!"
Q: ls there a dedicated research team in the company?
Daniel: "We don't have a separate research team in the company. As the CEO, I feel it's my responsibility to stay updated on these matters. I personally enjoy exploring these topics and consider it natural to keep up with them as part of my role."
In a world filled with NFT possibilities, NFT BANK stands as a beacon of financial wisdom, guided by the pragmatic visionary. It's not just about owning digital art; it's about understanding its true value. NFT BANK bridges the gap between finance and innovation, where every NFT holds a meaningful story. Peace.
