Analysis of NFT Business Models

Forward the Original Title：The Illusion of Scarcity: Why NFTs Are Neither Good Investments Nor Good Business

Key Takeaways：

• The real business model of NFTs does not revolve around the sale of scarcity and collectible value. Instead, it involves using misleading information to attract a very small number of end buyers — that is, winning trust with high-priced NFTs and selling other NFTs at falsely determined prices.
• The practice of confusing an individual’s “acknowledged price” with the market’s “consensus price” is misleading, as individual transaction prices do not represent “market consensus prices.” In reality, the true buyers of NFTs are limited, and the market depth of NFTs determines that their pricing mechanism cannot be the commonly believed “consensus pricing.”
• Issuing NFTs has almost no barriers or costs, which inevitably means the so-called “scarcity” of NFTs is an illusion. NFTs touted as “scarce” are mass-produced, making them not only not scarce but even overly abundant.
• The market has already priced in the false scarcity and actual abundance of NFTs, with the hidden consensus of the market being a lack of recognition for NFT pricing, leading to NFTs having prices but no buyers.
• Most investors and issuing teams cannot make money from NFTs. Investors are unlikely to purchase NFTs whose prices surge like lottery tickets; instead, there’s a high likelihood of becoming the “last buyer” of an incorrectly priced NFT (possibly even the only real buyer); many issuing teams simply mechanically inherit the product form of NFTs, failing to realize that only with significant financial and bold efforts can one possibly create blue chips like BAYC.
• What seems to be a fair NFT trading market and data platforms are part of the deception, using absurd statistical data to mislead investors and issuers into making incorrect evaluations and pricing.
• Moving away from focusing solely on the narrative of collecting and scarcity, correcting the misperceptions of the NFT market, and stopping the misallocation of resources are prerequisites for rejuvenating the NFT track.
• This article writes about NFTs and beyond, aiming to initiate further discussion by uncovering many illusions still present in the market.

In the venture capital world, there’s an unspoken maxim: when everyone rushes into an investment sector, it’s no longer a high-return track. Profit-seeking behavior creates a balance — any obvious profit margins are quickly seized until the real hidden opportunities for excess profits are either ignored or extremely rare. (That’s why I love trading opportunities that people don’t understand) While not an infallible doctrine, it often holds true in the realms of investment and business, leaving me perpetually puzzled by the booming NFT market two years ago:

If launching NFTs is a business model so simple that almost anyone can profit massively without initial investment, where does the extraordinary profit come from?

Since the profitability of NFTs was quickly recognized by many, almost inspiring everyone’s imagination about the future of business, how can it still be considered a potential track?

Congestion and growth, low barriers to entry and high returns, can hardly coexist. If they appear simultaneously, one must be false.

Failing to understand this relationship inevitably leads to irrational profit-chasing and various disastrous decisions.

This article will strive to clarify why the reality of NFT/like-NFT assets is mostly not as people perceive.

Two years have passed, and the market’s understanding of NFTs hasn’t advanced much, with many teams still investing significant costs into a track based on incorrect assumptions. Despite the market’s previous dismal state, teams continue to tirelessly launch new NFTs, still hoping their issued NFTs will break into the blue-chip sector. As of the start of writing this article, there are still 30 projects on CryptoSlam waiting to be minted, not to mention the new NFTs emerging on the BTC chain, riding the narrative of the Bitcoin ecosystem.

Bitcoin Frogs

Profit-seeking can inspire endless creativity, but more often, it leads to people blindly following trends and getting lost in manipulation and deception. The free market allows people to make choices freely, but it also allows people to freely create and be deceived by illusions.

The importance of interpreting illusions lies in that we will start to learn to protect ourselves, and the market will stop directing resources in the wrong direction.

The Market Size of NFTs

The NFT track research reports have always loved to mention the total market value of NFTs, describing it as a massive market, especially when it was a staggering $3 trillion figure two years ago (in November 2021); the reports also delight in the incremental users it has created for WEB3.0, with nearly 5 million unique users and over 12.6 million buyers accumulated in the NFT market as of this writing.

Perhaps due to humans’ tendency to cling to their beliefs, people are eager to find supportive information for the NFT market’s potential, full of gold, rather than attempting to prove that prosperity is unfounded.

Thus, whether it was two years ago or today, when the market value has shrunk by 99% to just $67 billion, almost no one questions the calculation method of the NFT market value.

As of January 9, 2024, NFT Market Data

The market value of an NFT is calculated as the floor price (sometimes the average price) multiplied by the total supply; and the total market value of the NFT market is simply the sum of the market values of all NFTs.

This formula, while already unreasonable for general securities market valuation, becomes even more absurd and ineffective when applied to the NFT market, akin to measuring each household’s living standard by the country’s GDP.

Generally, stocks with lower market capitalization are more prone to valuation bubbles and deviations. The real circulation of most NFT series is only 1%-2% of the total supply, with even lower circulation for non-blue-chip NFTs. Most importantly, as will be explained later, since NFT prices do not arise from sufficient financial speculation, their value reflection is even poorer.

The combination of unjustifiably high prices and negligible circulation rates creates paper wealth. It is precisely such mediocre “accounting measures” that lead market participants to overestimate the product value and market potential of NFTs, ultimately being fooled by false prosperity.

Ignoring the irrelevance of indicators and conclusions is one aspect, but there are also obvious data that could debunk the perceived prosperity of the NFT market that are seldom mentioned. For instance, as of November 28, the historical cumulative transaction volume of NFTs was $86 billion — still less than Bitcoin’s total transactions on Binance over two months.

The stock market is full of various scams, with trading volume being the sole exception.

The NFT market is not as large as people imagine. When we reorganize all the available data, we find that the only thing “huge” about this market is its bubble.

Measuring Liquidity: The True Buyers in the NFT Market

I have always been contemplating what metrics, besides the cumulative trading volume, could effectively measure the size and liquidity of the NFT market. A scientist friend of mine, @darmonren, inspired me. He mentioned casually scraping Cryptopunks’ transaction data and, after a simple sorting process, discovered that the vast majority of punks have never been traded. This revelation peeled back the veil on the liquidity dilemma of the NFT market, leading to a hypothesis: perhaps the lack of liquidity in the NFT market is due to most NFTs not having real buyers.

To test this hypothesis, I scraped data from blue-chip collections beyond Cryptopunks, and some interesting statistical results began to emerge. For the purpose of this discussion, I will use BAYC as an example to explain these findings in detail.

As of November 28, 2023, Etherscan recorded a total of 36,990 BAYC transactions across 8 major NFT Marketplaces. It is important to note that these are not all of BAYC’s transfer histories but a subset of them.

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By the time of editing, the transactions had increased to 37,183. As illustrated, among 10,000 BAYCs involved in 36,990 transactions, 10% have never been traded even once, 71% of BAYCs have been traded less than 5 times in their lifetime, fewer than 20 BAYCs have been traded over 30 times, only 4 have been traded more than 50 times, and not a single BAYC has been traded over 100 times.

These data underwent preliminary cross-verification.

I extracted 100 extreme values of BAYCs that were traded more than 10 times and only once, and compared their token ids with the sales data recorded on Cryptoslam. Cryptoslam also captures data from other unnamed marketplaces besides the 8 mentioned, and when the entire trading history of a BAYC id is confined to these 8 marketplaces, the data on both ends match; the historical data of the 100 sample tokens traded only once are consistent across both platforms.

However, some discrepancies did occur, such as with BAYC#5497. The number of transactions I scraped from Etherscan’s NFT Trade records was 21, while Cryptoslam recorded 54 transactions, with 21 of those being trades on Blur and Opensea, and the additional 33 occurring on marketplaces not covered by Etherscan. For BAYC#4970, Cryptoslam recorded 17 transactions, while Etherscan recorded 24.

In fact, discrepancies predominantly occurred with BAYCs listed on Cryptoslam’s activity leaderboard, almost covering 100% of them. A closer look reveals that the 24-hour, 7-day, and 30-day activity leaderboards consist of the same BAYCs, with their rankings unchanged, indicating frequent trades on unnamed exchanges, resulting in generally higher transaction numbers on Cryptoslam than those recorded on Etherscan.

Regardless of what caused this surge in turnover for some BAYCs, since our measurement focuses on the long-term distribution of BAYC turnovers, such extreme outliers should be excluded. Therefore, this does not affect the conclusion — 99% of BAYCs have no market (no turnover possibility) because they lack a significant number of buyers. Among the remaining 1%, if we consider each transaction as a new independent buyer, then less than 30% — only 17 BAYCs have more than 30 buyers. This means, over the past 950 days, each of these 17 BAYCs had fewer than 30 individuals willing to purchase; and among 10,000 BAYCs, only 1 achieved 60 historical buyers. This data distribution holds true for other blue-chip NFTs as well.

BAYCs’ listing rate on Opensea is 2%.

One might ask, given that 90% of BAYCs have been traded at least once, how can we conclude there are no buyers for NFTs? In fact, simply by looking at the listing rates of various NFT series on Opensea, it becomes apparent, with blue-chip NFTs of 10,000 issues nearly all having a 1%-2% listing rate — that is, only 100–200 are listed for sale on the market. If the NFTs with trading records were genuinely sold, why would the listing rate be so low? According to the data scraped, there are 1,729 BAYCs with only one lifetime transaction record. If these 1,729 BAYCs were all purchased by independent, real buyers, how could it be that only about 200 BAYCs are listed for sale on the market? While market manipulators have a motive to control the listing rate, market participants aiming for profit have no reason to buy and then not sell, allowing their capital to stagnate.

This should clarify why the NFT market lacks liquidity.

Lower Liquidity Than Expected

We often talk about liquidity, and now it’s time to give it a clear definition. I’ve observed that when people talk about the liquidity of NFTs, they are mostly referring to both the liquidity of the NFT as an asset itself and the available funds in this particular market segment.

Asset liquidity refers to the speed and ease with which an asset can be sold at a fair market value. Assets with good liquidity can be sold quickly at the current market price without significant discounts, while also avoiding high transaction fees.

Market available funds refer to the abundance of funds in the market, which depends on the comparison between the amount of funds and the number of assets. It represents the liquidity on the liability side.

The scarcity of liquidity in the NFT market is both on the asset and liability sides.

Firstly, the ease of minting and issuing NFTs through NFT Marketplaces has led to a viral growth in the supply of NFT assets, putting pressure on the overall market liquidity due to the dramatic increase in tradable NFTs.

Secondly, the characteristic of non-fungible tokens means that each NFT is its own sub-market. Even for NFTs sold as part of a series, like PFPs, each NFT exists in its own unique trading environment, ultimately leading to liquidity fragmentation.

The nature of NFTs leads to fragmented liquidity, and the constant lack of mechanisms in the NFT market to observe marginal changes in liquidity exacerbates the liquidity problem. In the FT (Fungible Token) market, any marginal change in on-site funds leads to a change in FT prices, with both liquidity exits and increases in the FT market necessarily reflected in the price.

However, in the NFT market, the marginal amount of liquidity and prices are isolated from each other. The withdrawal of on-site funds cannot be directly reflected in the prices; and even without incremental funds, the rotation of existing funds can push up the sale price of NFTs, thus inflating the book market value of the entire NFT market.

The absence of any mechanism in the NFT market to measure and lock in existing funds leads to a false prosperity — despite the scarcity of liquidity within the market, the book prices and total market value of NFTs can still maintain high levels.

For NFT investors, the lack of buyers/trading counterparts and the myth of sudden wealth created by survivorship bias ultimately result in them being lured in by high prices, only to not only miss out on the “lottery NFT” but also become the “last buyer.”

The Myth of Consensus Pricing

So, can the price of NFTs be trusted?

Under past assertions, the price of NFTs can be considered trustworthy because, from broad discussions, both market participants and observers recognize the pricing mechanism of NFTs as “consensus pricing.”

Consensus and scarcity are the explanations people find for the high prices of NFTs.

In my view, “consensus pricing” is one of those elegant yet vague expressions that the crypto market consistently favors. The widespread acceptance of such expressions is itself a typical irrationality of the crypto market.

Once we revisit the logical starting point of the “consensus pricing” viewpoint, it’s easy to discover that “consensus” here actually refers to indicators of popularity and characteristics of group sentiment, which correspond to two assumptions:

Assumption one: If an NFT issuer is well-known and has many fans, the basis for consensus is naturally broad and solid because celebrities’ fans will eagerly participate, providing liquidity and turnover, thereby giving the NFT potential for appreciation.

Assumption two: Different groups are looking for a sense of belonging and self-expression, and communities are willing to pay a high price for NFTs that meet their emotional needs.

This is not consensus pricing; it is popularity pricing and emotional pricing.

The popularity assumption can be easily debunked by plummeting prices and real on-chain data — the actual market consensus.

Taking Jay Chou’s bears as an example, they seemed to have been “hot” in the market, but in reality, the sale ratio of Jay Chou’s bears was not even as good as that of the highly sought-after BAYC and Punk (sale ratio = issuance number/total transaction times, which I use to roughly measure the average turnover rate of a series of NFTs).

NFTs known for their “emotional value,” like mfer and azuki, have a higher sale ratio (even higher than BAYC and Cryptopunks), indicating a more solid “consensus.” I guess this is related to user positioning; celebrities’ fans are not the NFT audience, and the number of fans of a celebrity within the NFT audience (the kind willing to spend money) would not exceed those who are fans of Japanese comics or those who shout slogans of defiance.

In other words, turning celebrities’ fans into NFT audiences, or finding celebrities’ fans among NFT audiences, is obviously more challenging than tapping into the emotional needs of the NFT audience.

However, even if emotions can inspire people’s willingness to trade more than popularity, from the results, it is still not enough to form so-called “consensus.”

As mentioned earlier, each NFT actually corresponds to a single niche market. If 99% of NFTs only have one or two customers for life, or even cannot find a buyer, then who constitutes their consensus? If an NFT has fewer than 30 historical customers, is the consensus of these 30 people really a consensus?

How can we find fair prices for tens of thousands of personalized markets?

NFTs confuse an individual’s “acknowledged price” with the market’s “consensus price” in price theory. In reality, the actual buyers of NFTs are limited. Among NFTs that have been traded, 81% are held by owners who have fewer than five counterparties, including manipulative self-trading by the market makers. The depth and frequency of turnover of NFT prices determine that they cannot have a “consensus price.” The pricing mechanism is not the generally believed “consensus pricing,” but speculative pricing by a limited number of investors—namely, purchases made in anticipation of NFT growth rather than recognition of value.

But this is not entirely why NFT prices cannot be trusted.

The Emperor’s New Clothes: The Illusion of NFT Scarcity

Another factor used to price NFTs is scarcity, but once we understand the proliferation of NFTs on the asset side, the narrative of NFT scarcity also falls apart.

The NFT business model is born around the narrative of scarcity, its essence being the high-priced trafficking of scarcity — a direct application of the luxury goods business model.

I can generally understand the source of this logic; some fragmented market theories from classical economics have dominated the thinking of NFT market participants.

Although people do not fully agree that the invisible hand is the ideal way to organize economic activities, they have indeed applied it one-sidedly to the NFT market.

We simply know how supply and demand determine prices, without considering elasticity, where excess supply leads to a price decline, and shortage of supply leads to a price increase.

NFT issuers want the result of “price increase,” so they artificially create “shortage.”

The first step is concept substitution, claiming the uniqueness of non-fungible tokens equals scarcity; furthermore, issuers will divide attributes and grades among a bunch of NFTs, making “scarce” even more “scarce.”

However, the market’s real demand for NFTs is clearly not considered.

Prices are influenced by supply but determined by demand. The demand for NFTs includes consumption and investment needs. For consumption demand, which emphasizes cost-effectiveness, NFTs obviously cannot support the cost-effectiveness of high prices, leaving only investment demand. But as NFTs that can be continuously produced, they may have very low consumption value but absolutely do not have the investment value like genuinely scarce (but never lacking in the market) antique collectibles.

In the real art market, the price of paintings also shows a 20/80 distribution, where the works of a few famous artists are invaluable, while the works of most painters cannot sell for a price.

This is where the market’s peculiarity lies; although the illusion of scarcity has been created, the market has not easily bought into it on a large scale.

Data results show that none of the 10,000 NFTs in various blue-chip series can be fully bought and sold (in fact, the market’s trading willingness for the “most promising” 200 is also quite limited). Currently, there is no scale to measure the market’s real demand for NFTs, but the oversupply of NFTs is a clear fact. Although the supply of NFTs in a series is limited, the total supply of NFT assets in the market is excessive.

NFT Numbers Issued from October 2023 to January 2024

This precisely illustrates that the myth of NFTs’ high prices and trillion market value attracts not more “buyers” but issuers supplying NFTs.

But looking at the ultimate result where most NFTs remain obscure, it’s clear that the majority of issuers have not understood what actually makes NFTs successful.

Who Blew Up the Bubble

Due to limited real demand and liquidity, issuing, selling, or investing in NFTs is not a profitable venture, especially when the costs involved are high. But how was it initially packaged into an industry filled with excessive profits, boasting a trillion-dollar potential?

In 2021, I once combed through the development history of the NFT market, discussing digital scarcity, cultural change, and the bullshit of encrypted cultural expression. Looking back, the most important takeaway from writing that article was discovering that NFTs became a business opportunity starting with various crypto art markets actively facilitating sensational high-price auction events in 2020 (especially Nifty Gateway and Async Art), and reaching a climax with the promotion of Beeple, Pak, and Cryptopunks by Christie’s and Sotheby’s.

In other words, it was the crypto art markets and traditional auction houses progressively pushing up the heat and pricing in the NFT market.

In 2020, just two months after AsyncArt went live, it facilitated the auction of “First Supper” for $344,915, and then transactions worth hundreds of thousands of dollars began to appear frequently. Nifty Gateway hosted three curated auctions for Beeple from October to December 2020, with a total transaction value of 258 ETH (worth about $180,600 at that time).

In December 2020, Pak became the first crypto artist to earn over one million dollars. In March 2021, Beeple’s “Everydays: The First 5,000 Days (2008–21)” was auctioned for a staggering $69.34 million. That same month, Sotheby’s announced that it would hold an auction for Pak in April, taking its first step into the NFT field.

The most significant event, however, was in February 2021, when CryptoPunks 6965 was sold for 800 ETH (equivalent to $1.5 million). Following closely, on March 11, CryptoPunks #7804 sold for the equivalent of $7.5 million. Consequently, Christie’s announced on April 8 that it would auction Cryptopunks at Christie’s 21st Century Evening Sale.

The emergence of PFPs and the rapid expansion of NFT asset scale truly began after these milestones. The minting dates of some leading PFP projects across the network are as follows:

April 23, 2021, BAYC started minting at 0.08ETH

May 3, 2021, Meebits

July 1, 2021, Cool Cat

July 28, 2021, World of Women

September 9, 2021, CrypToadz

October 17, 2021, Doodles began minting

December 12, 2021, CloneX

January 12, 2022, Azuki

March 31, 2022, Beanz

April 16, 2022, Moonbirds

These are the minting dates of the top ten blue-chip PFP projects on the internet.

The myth crafted by the crypto art market and traditional auction houses for Cryptopunks inspired the most astute gold diggers in the market, those with the keenest sense of smell and the most experience in capital gameplay — hence, the meteoric rise of BAYC.

“People make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past.” — Marx

Bull markets always arrive this way—certain elements in random events are intentionally magnified, turning into narratives that spread by word of mouth and into products that can be replicated. As the progenitors and founders of PFP, Cryptopunks and BAYC essentially set the template for all subsequent NFT releases — with BAYC mimicking the product structure of Cryptopunks, while other NFTs imitate BAYC’s (apparent) business model and promotional scenarios.

The Magician’s Sleight of Hand — Price Manipulation in NFTs

The founding team of Bored Ape Yacht Club (BAYC) were masterful dimension-reducing geniuses in the NFT market at the time.

While most people were still baffled by NFTs, the BAYC team had already planned how to use sleight of hand and exploit cognitive biases to turn BAYC into the next myth.

As we’ve previously mentioned, only market makers have the motive to control the listing rate of NFTs—manipulation starts from the minting phase.

I crawled 5,000 minting records of BAYC and found in this sample, which is nearly half of the total volume, that: 668 unique addresses participated in the minting, among which one address minted 16% of BAYC (800 items), and 46% of BAYC (2,311 items) were concentrated under 20 addresses. Moreover, over 87% of BAYC were minted in bulk by single addresses (with a one-time minting volume greater than four).

The Magician’s Sleight of Hand — Price Manipulation in NFTs

The founding team of Bored Ape Yacht Club (BAYC) were masterful dimension-reducing geniuses in the NFT market at the time.

While most people were still baffled by NFTs, the BAYC team had already planned how to use sleight of hand and exploit cognitive biases to turn BAYC into the next myth.

As we’ve previously mentioned, only market makers have the motive to control the listing rate of NFTs—manipulation starts from the minting phase.

I crawled 5,000 minting records of BAYC and found in this sample, which is nearly half of the total volume, that: 668 unique addresses participated in the minting, among which one address minted 16% of BAYC (800 items), and 46% of BAYC (2,311 items) were concentrated under 20 addresses. Moreover, over 87% of BAYC were minted in bulk by single addresses (with a one-time minting volume greater than four).

Partial BAYC Minting Records

During BAYC’s initial sale, the number of minters was significantly less than 1,400, leading us to reasonably suspect that the minting was done quite discreetly within the team. Coupled with the collection of a minting tax, this set the first psychological price barrier for BAYC, initiating its first step in a highly controlled market.

The second step was to create a price myth.

From a transactional perspective, the biggest difference between NFTs and fungible tokens (FTs) is that manipulating NFT prices is simpler. NFTs don’t require the process of price suppression and chip recovery; market makers can accurately avoid tokens not in their possession, making only those they hold become high-priced targets.

The nature and trading method of NFTs ensure that market makers can decide whom to buy and whom not to buy.

If we were involved in the FT or stock market, as long as we chose the right target, we would inevitably benefit from growth (whether due to capital games or fundamental improvements), even if no retail investors entered, there would still be an exit opportunity in the market maker’s indiscriminate price increase.

But NFTs are different. For average investors, the only way out for liquidity is other retail investors.

The brilliance of the BAYC team lies in creating “price”.

As we’ve said before, FTs have a non-discriminatory price; at any given time, the value of one FT is equal to another, and the price of an FT is a real “consensus price”, determined by the real-time bidding of buyers and sellers, supported by transaction volume. In other words, “transactions” can change prices.

However, NFTs do not work like this. The price of the other 9,999 NFTs is determined by one NFT priced at an anchor point.

This is why they had to create a price myth, and as a result, there were numerous gaps in BAYC prices — the first time it was sold on the market, it reached a transaction price of hundreds of ETH, or the first transaction price was merely 3 ETH, and the second transaction price suddenly increased by 139 times.

Why are such price gaps never a natural price increase?

Because those large transactions of BAYC were never listed on the market, nor did they almost ever have a record of being auctioned; the transaction records were all direct deals.

From another perspective, how could a BAYC, which has never been priced by the market, suddenly be worth millions of dollars overnight?

The Sky-high Jump in NFT Prices

Market makers and sellers may set exorbitant prices, but buyers have no reason to purchase at such inflated prices, whether for consumption or investment purposes. Indeed, transactions of high-priced Bored Ape Yacht Club (BAYC) NFTs are extremely limited — not because no one is buying, but because after one or two sky-high transactions, they are no longer listed on the market.

The buyers at sky-high prices are not genuine buyers.

But do genuine buyers exist?

Yes, but they are exceedingly rare. As mentioned, the number of real buyers will not exceed the market’s listing volume.

The few real buyers are those who believe in the “scarcity narrative” and the potential appreciation of NFTs. These are the people who only see the potential for gains and believe they can win the lottery — the real target audience for NFT issuers.

Participants enter with the mindset of lottery investment, but the “winning ticket” is designated by the market controllers. Their sole purpose is to escalate the price and then list at various price levels to ensure someone is always there to take over — essentially, “just sell it.”

The true business model of profitable NFTs is to raise the price and then find a minority of buyers who believe in the narrative.

The significant price increase of specific BAYC NFTs, the raising of the floor price, and the control of the listing rate are crucial components.

The price of NFTs is unrelated to scarcity, consensus, or intrinsic value. The “scarcity narrative” packages bad assets together as if they were gold, much like the subprime mortgage crisis of the past —

This is possible because in the NFT trading market, raising the “floor price” only requires listing prices to increase, not the actual value or the last lowest transaction price.

Indeed, the floor price of NFTs does not increase upon transaction — in the NFT trading market (at least on OpenSea), the listed floor price is the asking price, not the last lowest transaction price.

For example, on December 1, 2023, the floor price of BAYC on OpenSea was 28.8 ETH for BAYC #8864, which was its current listing price. OpenSea showed its last transaction occurred six days prior at 29.4 ETH, but CryptoSlam showed it traded eight hours ago at an unnamed exchange for $16.98.

The lowest transaction price for BAYC #8864 was below the floor price shown on OpenSea at the same time.

Meanwhile, BAYC #9196 traded at 19.9 ETH at an unnamed exchange two hours ago, and BAYC #7410 traded at 28.1 WETH an hour ago. These prices all occurred within 24 hours and were lower than the 28.8 ETH price, but OpenSea’s displayed floor price for BAYC was still 28.8 ETH.

Seemingly fair and open NFT issuance platforms and trading markets are part of the price illusion.

And they are the biggest winners in this sleight of hand.

Market Value Maintenance Exposes Flaws

Furthermore, we can prove the scarcity of real NFT buyers through a phenomenon: the price of BAYC has not returned to its minting cost line to date. In a long-term bear market, it is reasonable for prices to gradually return to the cost line. The first visible cost line for BAYC is the minting price, and the second cost line is the initial sale price of 90% of BAYCs (ranging from 2ETH to 1000ETH). Assuming all minting and initial sales were made by real buyers, after a long period of market stagnation, there could still be significant discrepancies in the listed prices, but the floor price would return to the cost line.

However, as of December 1, 2023, the floor price of BAYC on Opensea was 28.8ETH, still far from both the minting price and the lowest price of initial sales.

This anomaly suggests something unusual. The possible reasons are either there is no existing market with real buyers whose cost line is at 0.08ETH, or even below 20ETH, meaning no market real buyer bought BAYC at minting and at initial low sales. This indirectly indicates that the floor price is still under the control of market manipulators.

Alternatively, it could be that a very few low-price buyers still hope to win big, but being unwilling to sell does not mean there is no intention to list. The listing rate of BAYC on Opensea is 2%, with a total market listing rate of 3.43%, indicating that only about 300 BAYCs are circulating for sale in the market. With price distribution still under manipulation, the number of real BAYC buyers must be lower than the listing number (343), and almost no buyer’s cost line is at the minting price.

At this point, we finally understand the intricately woven net that NFT buyers are facing.

However, not everyone is as skilled in this game as auction houses and the BAYC team.

NFTs represent a market where only platforms that collect tolls have an absolute advantage. For most participants, engaging in this market is almost unprofitable, both for buyers and sellers. Launching NFTs is not a guaranteed profitable business—while issuing NFTs is easy, finding buyers for them requires financial resources and courage. It depends on investing a massive amount of resources in the right places. The success of BAYC and other blue-chip tokens is due to the teams’ substantial financial resources and a deeper understanding of market operations. They knew how to use sleight of hand to lure people in from the beginning, but many people still fail to understand the market, hence they continue to hope for the NFT market to somehow regain its glory.

Conclusion

I have always wanted to write a true insight into the NFT market, hence this article. The concepts mentioned are not entirely new; they likely have crossed the minds of many who have deeply engaged with the NFT market at some point. However, I believe it is still necessary to systematically clarify the market’s past misconceptions about NFTs. We cannot yet prove what NFTs are, but we can prove what they are not—they are not inherently scarce and are, in fact, overly abundant; their pricing is based on manipulation rather than consensus; the NFT market is one of limited liquidity and buyers, with most NFTs lacking real purchasers. The vast market size stems from ludicrous formulas; the high returns of NFT business cannot be achieved simply through the low barriers seen by the public eye.

Those seemingly professional NFT Marketplaces, data platforms, including top auction houses, are also part of the illusion. They are keen on deepening people’s misunderstandings of the market and embellish certain erroneous valuation factors as professional indicators, with the least motivation to debunk this magic.

Recognizing the dysfunction of the NFT market is equally important—it has not improved the overall economic welfare of the crypto industry as anticipated. Worse, it has led to misguided resource allocation, affecting both investors and entrepreneurial teams.

Current NFTs are neither a good investment nor a good business. We should not continue further in the wrong direction. If the NFT market itself lacks liquidity, how can liquidity be unleashed through NFTfi? If there are no real buyers for NFTs, how can they be used for pawn and liquidation? If NFT prices are built on thin air, how would the market recognize lending against market value?

Seeing the situation clearly, discarding illusions, and preparing to struggle give hope for reshaping the NFT sector. If NFTs cannot be priced on scarcity and consensus, then we should start boldly experimenting with new pricing mechanisms. Recognizing that individual NFTs lack trading depth, we would consider aggregating rare but dispersed liquidity when developing NFTfi, developing new indicators to filter NFTs with real buyers and liquidity for lending or pawning, rather than merely determining life or death with “blue-chip” status.

As an anti-anxiety fighter, I also hope to take this opportunity to convey a fact—reality is not as we see it. Sky-high prices and exorbitant profits are often lures based on lies. If you want to seize an opportunity, it’s best to first understand how the magician takes coins from our pockets.

Once you thoroughly understand how profits emerge and disappear in a frenzied narrative, you might start to let go of the question, “Why is it always others who make money?”

Myths do not exist, and magicians are not merely a profession; perfect scams still rely on substantial capital. Moreover, the price scams of NFTs are not unique cases; deception is both common and inevitable. If we have a vulnerability, there will always be scammers waiting for an opportunity to exploit it. This means we need to learn to guard against misleading stories and eye-catching focuses, and it also means we will start taking measures to resist the negative aspects of the market.

We do not need a perfectly flawless industry, but we do need a relatively healthy ecosystem. Hopefully, this is a good start.

Disclaimer：

1. This article is reprinted from [Uikyou’s Cryptoevolution Theory]. Forward the Original Title：”The Illusion of Scarcity: Why NFTs Are Neither a Good Investment nor a Good Business”，Copyright belongs to the original author[Uikyou’s Cryptoevolution Theory]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.