Non-fungible tokens or NFT’s have beome an integral component of the crypto or blockchain space. They range from art pieces by Beeple, monkey pics from Bored Ape Yatch Club (BAYC) or in-game assets for Axie Infinity, there is no doubt that NFTs have found their place in the crypto community.
While they’re more often traded for profit and offer some basic utility in the form of ownership and store of value (in the case of the top NFTs collections), some NFT projects have managed to build strong and loyal communities that extend the relevance of the collection beyond the blockchain.
Most NFTs are minted on a specific blockchain and have garnered strong followings. Top of these are Ethereum, Polygon and Solana. There are also purpose built blockchains such as Flow and ImmutableX that are catered specifically for NFT skewed projects.
NFT bridging between different blockchains is already a “thing” and omnichain NFTs are definitely coming in the not too distant future. But is there any real use? Currently, no.
The NFT secondary market has traded an estimated 25.51 million ether or an equivalent of $70.93 billion making this segment extremely valuable (source). But how do you capture a segment that has currently little incentive for holders to move their assets across chains?
Even with the current bearish sentiment in full swing, there has been continued trading in NFT’s. Volume has dropped but not as much as most would have assumed. The chart below shows the volume of buyers and sellers while in an overall decline has still seen sporadic increases in activity.
Expanding on the Interchain NFT Proposition
While true interoperability for NFTs may still be a ways away, there have been some interesting developments in the space that may potentially propel the interoperability use cases of NFTs. For the most part, the innovations seemed more skewed to addressing liquidity access which is in part similar to liquidity challenges faced by DeFi protocols.
1. Collateralized NFTs
With more users buying into NFTs, projects such as BAYC, CryptoPunks, Azuki and Art Blocks today hold significant value. In the past you would have to sell in order to utilize the value held by a NFT. Today, you no longer have to.
Projects such as Arcade.xyz (twitter), BendDAO (twitter), DROPS.co (twitter), JPEG’d (twitter), NFTfi.com (twitter) today allow users to lend by using their NFTs as collateral. Most are currently deployed on Ethereum but with growing NFT communities on other chains such as Solana, it makes perfect business sense for protocols to get exposure to these communities.
But rolling out duplicates of the protocols individually on different chains would not be viable over the long term. It splits the available liquidity within a protocol across a myriad of blockchains with each copy working in silo. User experience would be less than ideal when considering the fluid needs of users over time.
Being able to unlock NFT liquidity on one chain to access funds on another is a enticing proposition. But it is not without some risks, especially during market downtrends where the underlying asset deposited could drop in value greater than a set price threshold backing the loan taken out. In cases like this, the risk is that the NFT deposited as collateral can be liquidated.
This can be construed from the chart above. It is highly probable as the market downtrend continued, users that took out loans backed by their NFT’s faced difficulties to repay loans taken out. While being able to take a loan backed by your NFT for funds on your desired chain can be useful to prop up positions quickly, this service needs to be utilized with care as you could lose your underlying NFT collateral in the event you’re unable to repay.
2. Crosschain NFT Marketplaces
A cross-chain NFT marketplace is a platform that allows users to buy and sell NFTs on different blockchains. This provides greater access and liquidity for NFT assets which is important because it allows for a more diverse range of NFTs to be traded from a single platform.
To facilitate cross-chain buy and sell activity, a cross-chain NFT marketplace would typically use bridges that connect different blockchains. The bridges allow for liquidity to move easily between different blockchains to allow for trading and in the event the NFT traded is cross-chain enabled (whether by design or enabled through a bridge partner) the NFT asset itself can also be allowed to move between different blockchains.
While most think of cross-chain NFT trading as being related to NFT marketplaces such as OpenSea, LooksRare and Blur. But there is actually an underlying service needed to enable actual cross-chain features; interchain / omnichain liquidity aggregation. One interesting protocol that I’ve come across is Allspark (twitter) which is a sub-protocol of Trantor that was built on LayerZero.
If the diagram above from the Allspark website is anything to go by, it would seem they have plans to also integrate Axelar and Celer Network solutions into their protocol to support the cross-chain features. The main proposition here is to allow users to purchase any NFT from aggregated marketplaces through Allspark while using funds from whichever chain its available on. Meaning you could technically buy a Bored Ape on Ethereum using funds available on BNB for example.
However the project is very much in its early phases but it would be interesting to see how the project progresses over time. It is also important to note that it would be possible for existing NFT marketplaces to deploy across multiple blockchains before implementing a similar solution of their own.
But overall, a working cross-chain NFT marketplace does provide a number of benefits for both buyers and sellers of NFTs. It allows for a more diverse and liquid marketplace for NFTs while simplifying the process for users.
3. Blockchain Games
Blockchain games enable players to own and trade their game assets on a decentralized platforms whether in-game or on external marketplaces. When it comes to going cross-chain or interchain for games, it is definitely more complex to execute.
Blockchain games can utilize general message passing available from bridges to allow players to access from one blockchain games on a different blockchain platform. This could potentially create a larger and more seamless gaming ecosystem, where players are able to access games across multiple networks.
Currently most blockchain games still exist within the chain they were built on. Some incorporate basic forms of cross-chain features including bridging of tokens into their ecosystem or setting up liquidity pools on a separate chain.
It’s interesting to see that the WAX.io Blockchain accounts for the majority of gaming transactions, even above Ethereum. Also fascinating is that the Hive Blockchain ranks second with 9.97% of all gaming related blockchain transactions. This is one blockchain that rarely appears on anyone’s radar though it provides quite a robust ecosystem for gaming.
When you look at market share with regards to reach amongst gamers, the Hive Blockchain captures an impressive 23.42%. Generally the blockchains with lower gas fees on transactions captured more gamers with Solana, BNB Chain and Polygon coming in within the top 5.
As games tend to be more transactional heavy, its not surprising that the blockchains with lower gas fees tend to be more popular. But this also presents a unique challenge.
With Ethereum being the most liquid blockchain, games have to from the beginning be built with some interoperability in mind if they’ve been built on smaller blockchains such as Wax and Hive.
Take Splinterlands (twitter) for example, it is a game built on the Hive Blockchain which has an overall lower number of total users in comparison with the more mainstream blockchains. But the ecosystem provides opportunity to blockchain game developers to build a robust ecosystem to support the games being developed. Splinterlands currently has 204.82k unique active wallets and a total of 2.05M transactions with its smart contracts (source).
As a turn-by-turn card game, the in-game assets which in this case are packs, cards, skins, land titles and others are developed as NFTs on Hive. While these NFT’s are not interoperable per se, they are bridgeable to the WAX.io Blockchain which allow users to sell their assets on the WAX marketplace.
The game also currently features token bridges to Ethereum, BNB Chain and Tron.
Interchain or omnichain NFT functionality is something that will happen sooner rather than later. It presents opportunity for the NFT segment to expand beyond its existing limits in terms of reach and utility.
It’s still extremely early even by crypto standards for interchain / omnichain NFTs. It’s an area that is particularly complex to develop and create relevancy, particularly for the gaming segment. Best summarized in the words of Thanos; it is inevitable.
References:
- Dune Analytics – NFT Market Overview
https://dune.com/hildobby/NFTs - Dune Analytics – NFT Marketplaces Overview
https://dune.com/sealaunch/NFT - Dune Analytics – NFT Lending Aggregated Dashboard
https://dune.com/impossiblefinance/nft-lending-aggregated-dash - AllSpark Finance
https://allspark.finance/ - Footprint Analytics × CoinMarketCap: 2022 GameFi Industry Report
https://www.footprint.network/@DamonSalvatore/GameFi-in-Bull-Bear-Market?date=2022-01-01~2022-07-31 - Splinterlands
https://splinterlands.com/?ref=insomniac79 - DappRadar – Splinterlands
https://dappradar.com/multichain/games/splinterlands