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NFTs & Games
TABLE OF CONTENTS

As NFT Winter Arrives, the Penguins Come Alive

by Khor Win Win

OpenSea continues its streak of dominance over X2Y2, with the latter only making up approximately 13% of OpenSea’s trading volume for the week, while Looksrare has slipped out of the top 5. However, a new contender has risen through the ranks; BloctoBay, a native NFT platform for the Flow blockchain. While Flow has always been the home of collectible sports NFTs such as NBA Top Shot and UFC Strike, each of them had its own dedicated marketplace, where fans could only trade certain collections.

Yet, with the emergence of an aggregated platform, NFT enthusiasts can browse and explore various collections beyond their comfort zone that may pique their interest, and it seems to have worked well so far. BloctoBay currently commands close to $11M in secondary sales, mainly driven by NBA Top Shot NFTs, surpassing Top Shot’s own marketplace volume by 7x. 

top nft marketplace dappradarSource: DappRadar; Snapshot taken 22 August 2022

On the other hand, Magic Eden continues to survive even though the Slope wallet exploit has affected the Solana ecosystem greatly. Although the platform is only raking in 50% of BloctoBay’s volume, we may see a small uptick once their planned expansion into Ethereum comes to fruition, but it remains to be seen whether their foray into OpenSea’s home turf will be well-received. 

 

Top Collections of the Week

opensea top weekly collectionsSource: OpenSea; Snapshot taken 22 August 2022

NFTs, especially the blue-chip collections, haven’t been spared from the beatdown that the wider crypto market has suffered. Generally, volumes across the board are up this week, but the floor prices of top Yuga collections continued to slip. Last weekend, there was a slight hubbub about the “flippening” when CryptoPunks fleetingly overtook BAYC in floor price last Sunday - but don’t go declaring this as Punks renaissance just yet.

nft floor price coingeckoSource: CoinGecko

The floor prices of both Punks (-15%) and BAYC (-23%) have been decaying in the past month, with the latter descending at a higher pace. The same goes for other Yuga collections like MAYC (-28%), BAKC (-18%), and Otherdeed (-35%). The flippening occurred over the weekend but didn’t hold for long. Soon after, BAYC reclaimed the floor advantage, and since then, the two sister collections have been engaged in a close head-to-head race to the bottom. Yuga Labs recently announced the release of IP rights to Meebits and CryptoPunks NFT owners but still, this did little to assuage the cratering prices. On the contrary, Galaxy Digital Research Report actually found that the Yuga Labs license covering BAYC, MAYC, and BAKC contains “critical contradictions” TL;DR of this is that the NFT holders do not actually own the art, which only adds salt to the wounds of Ape owners.

Unfortunately, the same slide in floor price also applies to other top collections such as Moonbirds (-38%), Azuki (-38%), Doodles (-36%), Meebits (-18%), and Clone X (-31%), which have all suffered huge blows to their floor prices in the past 30 days. The whole NFT market has been mired in an isolated winter in the past month, with no spillover effects from the (brief) rally in the token market. But not all is lost in the world of JPEGs…

 

Are Penguins the New Apes?

pudgy penguin floor coingeckoSource: CoinGecko

One shining beacon of hope for NFTs is Pudgy Penguins, an Ethereum collection that has somehow managed to mount a resurgence in the face of bearish tides. The floor price for a Pudgy has spiked +74% within the span of one month, all thanks to a hot streak of bullish news that graced the brand recently:

  • Partnership with Non-Fungible Films to develop lore and universe narratives

  • Upcoming children’s book partnership

  • Launch of Pudgy Toys lineup

  • Launch of Pudgy Marketplace

  • Announcement of new advisory board members, including Alex Svanevik (CEO, Nansen), Sanjay Raghavan (Head of Web3, Roofstock), RJ Cilley (COO, Saks Fifth Avenue), Jess Richardson (Head of Licensing, Hasbro), Chet Kuchinand (CPO, Save the Children) and Jordan Sterling (Venture Capital Partnerships Team Lead, Meta).

All of these combined were more than enough to kindle the ignition for Pudgy’s recent takeoff. As a matter of fact, the rarest, only left-facing Pudgy Penguin was sold just this Monday for a staggering 400 ETH ($630,780). The derivative projects, Lil Pudgys (+74% floor price) and Pudgy Rods (+39% floor price), have also enjoyed similar success to their elder brethren within the same span of time.

Penguins have been well-adored by the CT crowd, with notable personalities such Alexandre Raffin, Mudit Gupta, 9x9x9eth, 0xElm0, and VincentVanDough, in addition to the council members above all being Pengu-holders, and the community has always been close-knit and united in advancing the Pengu cause.  

Just a few months ago, the NFT project was on thin ice as the community wrestled control over the collection from the creators, but things have taken quite a turn since then. It seems that Pengus are currently in good hands with Luca Netz driving more awareness and commercialization efforts at the helm, and we may well be witnessing the birth of a new blue-chip collection. Apes and Punks have dominated the space for the longest time, so much so that they are often seen as being synonymous with the term ‘NFT’ itself. 

pudgy penguin coingecko nebThe new face of NFT?

But, and this is a big but, if Netz and his Pudgys could capitalize on this upswing momentum to capture even more value, we may have a new NFT blue chip in town. 

 

BendDAO Melts Down

Overcollateralized borrowing is becoming even more prevalent in crypto and particularly DeFi, where protocols often have to liquidate collateral from users that are unable to repay their loans. Often times, the collateral can be in the form of various digital assets, stablecoins, or even digital art. Yes, the concept of NFT lending and borrowing has opened up more radical usecases and utility for holders, bolstering its status as an alternative asset class. However, as we’ve recently seen, the results of NFT lending can be quite disastrous.

Just last week, BendDAO, an NFT lending protocol, faced an existential crisis as over 50 Bored Apes, CryptoPunks, and other high-profile JPEGs that were put up as collateral by their owners were on the verge of liquidation, as NFT floor prices ground lower. Unlike DeFi lending protocols such as Aave and Maker where liquidation events are generally heavily automated by arbitrage bots, and liquidations occur instantly, it takes up to 48 hours for an NFT to get liquidated on Bend DAO.

Depending on how much a user has borrowed, which could be anywhere up to 40% of their NFT’s value in ETH, the liquidation period will begin once the health factor of their loan drops below 1 (i.e. the value of the NFT floor’s price is close to exceeding the borrowed amount with interest).  For the next two days, the collateralized NFT will be put up for auction to the highest bidder unless the borrower repays the loan within the same period. If that happens, the borrower will also have to pay a bid fine to the first bidder.

bend dao liquidation auctionBendDAO Liquidation Auctions (Source: BendDAO)

Though many were expecting the borrowers to come to the rescue of their beloved Apes, most were nowhere to be seen. While you may expect liquidators on the hunt for a good deal to take advantage of this situation, even fewer were willing to liquidate those loans and claim the valuable NFT collateral for very good reasons:

  • The parameters of the auction process require the liquidator to make a bid that is higher than the total debt accrued, as well as 95% of the NFT’s floor price on OpenSea. This is to ensure that the proceeds from the auction will be sufficient to cover the loan.

  • Prospective bidders will have to lock in their ETH to BendDAO for at least 48 hours until the auction is completed.

  • The loan will continue to accumulate interest even during the 48-hour auction period, resulting in higher accumulated debt, which would ultimately require a bid that could be much higher than the current floor price as NFT prices continue to slip.

All in all, these factors make it extremely unattractive for liquidators to take on the risk of bidding for these NFTs. The lack of a sizable discount/arbitrage opportunity coupled with a lengthy auction period where ETH needs to be locked-in ultimately disincentivizes liquidators from participating since the extremely volatile nature of NFT floor prices could render their efforts unprofitable. Assuming a liquidator successfully receives the NFT at a 5% or even 10% discount, the ETH floor price could have gone down by an even greater amount by the time they are able to receive and sell the NFT, not to mention if ETH goes even lower. Locking in ETH for two days also represents opportunity cost for liquidators, not to mention taking on smart contract risk.

As of 22nd August 2022, over 15,000 ETH had been lent to borrowers, but now, less than 1% of that amount is currently sitting in BendDAO’s lending pools. Akin to a bank-run scenario, depositors will not be able to remove their ETH from the platform until more funds are recovered from the completed auctions. Meanwhile, borrowers are unlikely to repay, given that their NFT collateral may now be worth much less than the ETH they borrowed. Finally, the shrinking ETH pool on the platform has caused borrowing rates to skyrocket, resulting in higher debt (which continues to accrue!), giving liquidators even less reason to participate in the auctions.

Following the recent situation, BendDAO has just passed its 9th improvement proposal, with aims to gradually lower the liquidation threshold to 70%, shorten the auction period down to 4 hours and remove the minimum bid restriction of 95% of the floor price. These changes are meant to make the liquidation exercise more attractive for liquidators so that more liquidators may want to jump in to participate, which will hopefully help reduce the bad debt within the protocol. Their latest proposal, BIP-10, will make slight adjustments to these plans and is currently open to voting, but it may be a little too late.

While the recent pullbacks in the crypto markets have proven to be a major test for NFTs, and particularly blue-chip collections, the events surrounding BendDAO could be the catalyst for a ‘blue-chip contagion’ within the NFT sector. Although we remain hopeful that these collections will live up to their name and weather the storm, it may take a while before these NFTs return to their former glory.

 

What else are we paying attention to

y00ts

yoots scholarship nft whitelist

Since we last covered it in our Ramblings just two weeks ago, y00ts has been gaining steam within CT, with many notable individuals like Pentoshi, zachxbt, Josh Ong, Phantom Wallet (?), and more.

For those who missed the Rambling, you can think of y00ts as an exclusive membership list that NFT projects can select their whitelist minters from. Successful applicants (like the ones above) will have a much higher chance of securing a slot in future high-profile mints. You can try your luck at y00ts their website here.

With limited spots for the scholarship, there is an expectation that there’ll be many qualified but unselected applicants (read: whales) who will be biding their time on the sidelines, ready to deploy capital into the secondary market for y00ts NFTs once they’re made available. DeGods, the creators behind y00ts, have seen their floor price jumping by 16% to 325 SOL within the past week. 

 

ImmutaSwap

While things may seem a little quiet on other networks besides Ethereum, something is quietly brewing on Immutable X. The L2 scaling solution recently saw an uptick in volume thanks to a particularly interesting protocol known as ImmutaSwap. In the past week, the ImmutaSwap collection generated over $6M in secondary volume, overtaking popular collections such as CryptoPunks and Doodles, but what exactly is ImmutaSwap?

cryptoslam nft collection rankingSource: Cryptoslam.io

Functioning similarly to a DEX, Immutaswap allows users to exchange various crypto assets on Immutable X such as ETH, IMX, and GODS using intermediary NFTs known as ImmutaBucks. Much like real-world currencies, the ImmutaBucks come in various denominations ($5,$10,$20), and some even have special designs. 

For a 5% fee, these asset-backed NFTs can be minted using the tokens that you have, which will be deposited into ImmutaSwap’s liquidity pool. You can then redeem your ImmutaBucks for other tokens within that liquidity pool. The specific amount of tokens that you will receive will be based on the exchange rate quoted by ImmutaSwap.

immutaswap immutabucks swap wizardSource: ImmutaSwap

While a traditional AMM exchange pretty much allows users to swap their tokens instantly without the need for a medium of exchange, the usage of ImmutaBucks NFTs offers a broader range of utility as an asset-backed NFT. Arbitrageurs can purchase undervalued ImmutaBucks to profit off of the price fluctuations of the various tokens supported, as well as a way for users to lock in the price of a particular asset without the need for exchanging it immediately. Even though it seems as if this novel usecase for NFTs was built out of necessity due to the lack of a proper DEX on Immutable X, we might just see more iterations of this concept appearing on other networks in the near future.

 

This article was produced in collaboration with Dillon Yap. You can follow him on Twitter here.

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Khor Win Win
Khor Win Win

Win Win is an avid gamer, interested in navigating the vast world of NFTs and the cryptoverse. Follow the author on Twitter @0x5uff3r

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