Fungible after all? Duplicates may disrupt NFT industry after Ethereum Merge

Fungible after all? Duplicates may disrupt NFT industry after Ethereum Merge

The Merge is the most anticipated event in the crypto industry in years, but could the multibillion dollar non-fungible token industry become an unexpected casualty?

The expected “Merge” of the Ethereum blockchain this week could raise the risk of fraud and scams in the market for non-fungible tokens such as Bored Ape Yacht Club as analysts warn original and new versions of the tokens known as NFTs could confuse buyers.

The US$200 billion Ethereum network accounted for 70% of NFT trading activity in August, making it the world’s leading blockchain for such marketplaces run by companies like OpenSea.

However, the Merge of Ethereum to a proof-of-stake (PoS) network from a proof-of-work (PoW) will create duplicates of the NFTs from the original network, something the unscrupulous could take advantage of, Anndy Lian, author of the new book “NFT: From Zero to Hero,” told Forkast in an interview.

Scams are already prevalent in the NFT industry, which lacks oversight or regulatory protection, and any added confusion could generate more. Lian said some exchanges or marketplaces might temporarily stop transactions to address any complications or confusion that arise.

The Merge

The current Ethereum PoW network involves crypto mining companies using energy-gobbling computer farms to solve cryptographic equations that validate transactions on the blockchain, for which they are rewarded with Ether.

The shift to PoS – in which users validate transactions through “staked” ether – is expected to speed up and slash energy use on the network, which may mollify some critics who say the blockchain industry contributes to global warming.

However, Ethereum miners are less than happy as they see a business model evaporate that  leaves them with redundant and expensive computer farms that cannot be repurposed. Hence, some have pledged to fork the network and create a concurrent PoW Ethereum network.

This is where the potential NFT confusion comes in. All existing NFTs on the Ethereum blockchain will be duplicated on the new PoS system, but if a PoW fork exists, the original NFTs will continue to exist on that network as well.

And this is not just hypothetical, exchanges have had to explain to users what their policy will be regarding duplicates.

Real deal

Leading NFT marketplace OpenSea, which had about four times the sales volume over the last 30 days of its nearest competitor, Magic Eden, announced it was “solely supporting NFTs on the upgraded Ethereum PoS chain.”

Competing marketplace, Rarible, has taken a different approach, saying it recognizes the authenticity of any copies of NFTs created in the same wallet address when they were held on Ethereum.

Rarible noted another potential issue, saying the aggregate number of NFT collectibles may increase, which could depress the value of collections.

“It’s impossible to predict what the actual outcome will be, but it’s highly likely that duplicate NFTs will cause confusion,” said Rarible’s chief strategy officer and co-founder Alex Salnikov in an ­email to Forkast. “Especially for less experienced NFT collectors.”

Déjà vu

This scenario is not without precedent in the NFT market. One of the most popular NFT collections, CryptoPunks, is actually a re-issue of the original — now known as V1 CryptoPunks — to fix a bug in their programming.

However, as V2 CryptoPunks grew to be one of the largest NFT collections, a significant market in V1 versions grew among collectors who were looking to own a piece of NFT history.

CryptoPunks creators, Larva Labs, tried to squash this secondary market using legal means, but ultimately the V1 community won out and both versions can now be traded freely.

Ultimately, Lian believes the market will follow the PoS network as it is recognized as the “official version” of Ethereum.

The upside

The good news for would-be environmentally conscious NFT investors is that PoS is estimated to be roughly 99.95% more energy efficient than PoW, according to the Ethereum Foundation.

“This may cause a new, environmentally conscious user base to adopt the technology which would in turn help drive greater mass adoption of NFT and Web3 technology,” said Rarible’s Salnikov.

“Increasing activity on Ethereum may also bring about new innovative use cases for NFT technology and drive the development of new tools designed for the growing Web3 creator economy,” he added.

That could be good news for buyers whose NFTs denominated in Ether have dropped in value against the U.S. dollar since a peak in November.

But Lian said he is skeptical about the Merge turning the current NFT bear market around.

“I think that’s very wishful thinking.”

 

Source: https://forkast.news/fungible-duplicates-disrupt-nft-merge/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

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Liquidity crunch may loom for Bored Ape-collateralized loans as floor price slides

Liquidity crunch may loom for Bored Ape-collateralized loans as floor price slides

Not every NFT collection is facing the same issue, but due to the collection’s outsized influence it could have a significant impact on the rest of the Ethereum NFT ecosystem.

The floor price for Bored Ape Yacht Club non-fungible tokens, a leader among NFT collections, has fallen to an eight-month low, raising the risk that dozens of the NFTs used as collateral for decentralized lending service BendDAO may be forcibly sold.

That scenario could then trigger a cascade of further liquidations, said Anndy Lian, author of the new book NFT: From Zero to Hero, in an interview with Forkast.

BendDAO is a peer-to-peer platform that allows users to front NFTs as collateral for Ethereum loans for roughly 30% to 40% of the NFTs floor price — or the minimum price to purchase one of the Bored Ape Yacht Club NFTs on the open market.

Currently, 121 of the 227 Bored Apes collateralized on BendDAO — 2.27% of the entire collection — are considered to be at risk of liquidation as the collection’s floor price nears the level at which the tokens are valued on the platform.

With Bored Apes the second highest-selling NFT collection, Lian said a liquidation of this size would only put further downward pressure on the collection itself, others on the network, and even on the price of Ethereum itself. Combined with existing macro-economic pressure likely facing the crypto market this year, that could spell more grief for investors.

“That downstream issue [could] then create a really, really bad winter for everyone else next year,” he added.

Sick apes

BendDAO rates the risk level of a collateralized NFT via a so-called “health factor,” which is a ratio of the individual NFT’s value compared to the collection’s floor price. When that metric falls below 1, the token is automatically entered into a liquidity state for 48-hours to give the owner the chance to pay off the loan and interest to earn the token back or place it up for auction.

In response to the liquidation threat, BendDAO said Monday in a blog post they would be adjusting the liquidation threshold for these assets to 70% of the floor price by Sept. 20 over four stages with the first adjustment to 85% taking place on Aug. 30.

They also said they would be shortening the auction period to just 4 hours to improve liquidity for auctions.

“We are sorry that we underestimated how illiquid NFTs could be in a bear market when setting the initial parameters,” the BendDAO blog post read. “In the past several days, we got tons of feedback and suggestions from the community.”

The BAYC collection’s current floor price of 68.48 Eth marks a 55% plunge from a high in early May of 153 Eth, which Lian attributes to two main factors.

Merge factor

“Number one is that the overall market is not in the best condition,” he said. “Number two is there are still people with doubts on Ethereum 2.0. This adds some anxiety to people who are holding onto NFTs and using it as a collateral.”

Ethereum 2.0, usually referred to as “the Merge”, will involve the world’s second-largest blockchain mainnet transitioning from its current proof-of-work consensus mechanism to a proof-of-stake system. This change will make the network vastly more energy efficient, but will make Ether crypto miners effectively redundant, which has caused some miners to push back against the transition.

“It is actually a big concern for a lot of NFT speculators because the chances of them selling their NFT or BAYC at a certain high price is not going to come anytime soon,” Lian said of the sluggish sales figures.  “This is worrying.”

 

Original Source: https://forkast.news/liquidity-crunch-bored-ape-loan-floor-price/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

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Tax on virtual digital assets a concern for NFTs; impact may be short term: Experts

Tax on virtual digital assets a concern for NFTs; impact may be short term: Experts

A slowdown in cryptocurrency trading may have an impact on NFT transactions as well, although it could be a temporary phenomenon as investors await more clarity from the government.

The 30 percent tax on income from the transfer of virtual digital assets (VDAs) that came into effect from April 1 is a cause of concern not only for cryptocurrencies, which have seen a drop in trading volumes, but also for non-fungible tokens (NFTs) that gathered steam in India in the past year with the entry of sports and Bollywood celebrities.

“The immediate scenario is bleak for crypto and even bleaker for NFTs in India,” Raj Kapoor, strategic advisor at Acryptoverse, a crypto-marketing firm, told Moneycontrol. “NFTs in India will face a fallout with only unique models surviving. NFT creators here are popping up daily while collectors remain non-existent.”

Anndy Lian, Chairman, BigONE Exchange, a crypto trading platform, said the tax on VDAs in India will impact NFT sales.

“The overall market condition is not favourable. NFT sales will drop further and only the better assets will have a place in the crypto-verse,” he said.

He added that NFTs that are more speculative in nature and driven by profit will suffer hard when it comes to tax.

Vinu Peter Immanuel, a partner at Link Legal who tracks NFTs, said that with average trading volumes on top cryptocurrency exchanges dropping 80 to 90 percent from a few months ago, the impact will also be seen on NFTs.

“Since NFTs are traded mostly by using cryptocurrencies, any slowdown in cryptocurrency trading may have an impact on NFT transactions as well. Although it could be a temporary phenomenon where cryptocurrency investors have taken a step back and are waiting for more clarity from the government,” he said.

Short-term impact

However, Hitesh Malviya, founder of IBC (It’s Blockchain) DAO (decentralised autonomous organisation) said NFTs in India are not even a $10 million market in terms of daily sales.

“We have got limited traction here if we compare it to the west. In the US, marketplaces are doing over a billion dollar sales volume every month. Since it’s a limited market, I don’t see many people have got affected as we have less than 1 lakh Indians who have bought any NFTs,” Immanuel said.

Siddharth Jaiswal, founder of Sportzchain, said the new taxation policy will have a short-term impact on NFTs.

“For all of us, this is the first year for the cryptocurrency and NFT tax framework. For many, 30 percent may seem a lot, but if you see the kind of exponential returns, 30 percent may seem less. There have been exponential gains as well, to the tune of 300 to 500 percent, so 30 percent (tax) seems less. However, the same is subjective,” he said.

Malviya noted that while it’s a tough law for short-term traders as they will be required to pay 1 percent on each NFT trade, it would be fine for a long-term value investor like him.

“I don’t mind paying 30 percent tax on my crypto or NFT assets,” he said.

The government said a 1 percent tax would be deducted at source on the transfer of VDAs starting July 1.

“The TDS (tax deducted at source) on its own is causing major havoc for crypto exchanges because the high-volume daily traders have disappeared and these are the guys that provide liquidity to the exchanges. But this impact has so far just appeared on cryptocurrencies,” said Pratik Gauri, founder of 5ire. “Still, I think it’ll become more widespread and show up on all VDAs, precisely because the tax has some mandates, like not being able to write off losses from one deal into another that will have a significant impact on the trading on VDAs, be it cryptos, NFTs, or other VDAs.”

Positive outlook

While Lian and Jaiswal said the tax will have an effect on NFTs, they also believe the outlook for digital collectibles is positive.

“Utility-based NFTs should expect an increase. This increase would be in favour for the India market as they will help the industry to hit a new level of adoption,” said Lian.

He expects India to triple its NFT sales in the next year.

Sportzchain’s Jaiswal noted that NFT marketplaces are coming up with new strategies to smoothen the entire buying process, with less reliance on cryptocurrencies as the medium for buying these NFTs.

“For example, NFT marketplaces in India have introduced UPI as one of the payment modes to buy these NFTs. So a drop in the trading volumes will not adversely impact the market for NFTs,” he said.

Unified Payments Interface (UPI) is a real-time payment system that facilitates instant transfer of funds between bank accounts.

Acryptoverse’s Kapoor said NFT stakeholders should really look at India’s gaming sector for a strong product market fit with NFTs as this sector has exploded in the past year, recording 170 percent growth. Jaiswal also anticipates NFTs on game merchandise to see an upswing.

“Additionally, with metaverse applications also gaining momentum, the uptake of NFTs will only increase in the future,” he said.

However, Malviya said that in India, fan collectible NFTs are emerging with entertainment companies and actors launching digital assets to promote their movies or brands.

“While NFTs will be used as an emerging tool of branding by many lifestyle and entertainment firms, such NFTs will not value over time. These are hype-driven assets that might never get any value in the secondary markets,” he said.

 

Original Source: https://www.moneycontrol.com/news/trends/tax-on-virtual-digital-assets-a-concern-for-nfts-impact-may-be-short-term-experts-8378261.html

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

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