Investor story: Why we were wrong to be bullish on Blur? Loss experience in the NFT market
This podcast mainly discusses the current state of Magic Eden, token valuations, and topics related to NFTs. The two guests share their views on the current NFT market, investment experiences, and potential future developments. Overall, the valuation of Magic Eden’s token might be impacted by the sluggish NFT market, especially with the underperformance of tokens from NFT platforms like Blur and Tensor. Additionally, they explore potential recovery paths for the NFT market, particularly regarding liquidity, IP innovation, and community building.
The audio transcription was generated by GPT, so there may be some errors. Please listen to the full podcast:
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Purchasing BLUR Based on On-Chain Data but Misjudging the NFT Market and the Team
defioasis:
Welcome back to the WuBlockchain podcast. I’m defioasis, an analyst from WuBlockchain. Recently, Magic Eden announced the launch of a new token, and as we all know, the overall NFT market has been pretty rough from last year to this year. Blur and Tensor’s tokens have also underperformed compared to expectations. So, today, we’ve invited two guests to discuss NFT-related topics. It will be a casual conversation where everyone can share their thoughts freely. Let’s start by having the guests briefly introduce themselves and share some of their experiences with NFTs.
Sankin:
This is probably my second or third time joining this podcast. Last time, we also touched on some NFT market topics. My primary focus is on research and Analysis of on-chain data, and today I’d like to share some of my thoughts on the NFT market.
Honestly, I’m not a particularly experienced NFT player, and I haven’t bought a lot. Although I did make some purchases during the peak of the NFT craze, I didn’t have a deep understanding of the product design. Back then, I mainly bought Blur tokens based on on-chain data Analysis results. Looking back now, that investment was quite a failure.
I think there were two main reasons for the failure. First, I was optimistic about the NFT market’s rebound, but the market turned even colder than expected. Nowadays, almost no one is talking about NFTs, except for podcasts like ours that still discuss the topic. Second, there was a misjudgment in choosing the team. Reflecting on my investment in Blur, I realized that the team’s direction created significant information asymmetry for retail investors like us. At the time of investing in Blur, we speculated that they might enter the Bitcoin NFT market to compete with Magic Eden, but instead, they launched an Ethereum Layer 2 solution, which completely caught us off guard.
After Blur launched Layer 2, they essentially stopped developing and updating Blur itself. For Blur token holders, it felt like the product was abandoned. Mining and staking led to nothing, and it seemed like the Blur team no longer cared about Blur, leaving the community to operate it on its own. This made me reflect a lot on how to choose the right team.
Shang:
I’m Shang, currently working as an analyst at BitMEX and also host the English version of the WuBlockchain podcast. My journey with NFTs dates back to 2020 when I was interning at a startup in Canada. My job was to report on the latest crypto news, and I first came across NFTs through SuperRare. I was astonished that a piece of art could sell for hundreds of thousands of dollars, and this was before BAYC (Bored Ape Yacht Club) even existed. Later, in late 2021 and 2022, I joined a team focused on fractionalized NFTs and participated in various NFT research and development initiatives.
I also attended NFT.nyc and met Luca Netz from Pudgy Penguins. I’ve bought a few NFTs myself, mostly on Ethereum, such as Mad Labs. I also participated in Blur’s second round of mining, borrowing and mining around 70,000 Blur tokens, and like Sankin, I was optimistic about Blur. But we all know how things turned out. As for Magic Eden, I don’t know much, but I’ve been keeping an eye on them lately since they are launching a token. Thanks for inviting me, defioasis, and I look forward to discussing the latest happenings in NFTs today.
defioasis:
I first noticed BAYC around the end of 2021 when I was monitoring Ethereum gas fees and saw that a minting event caused a massive gas spike. At that time, I didn’t understand NFTs well, and BAYC was priced at around 5 to 6 ETH, which I couldn’t comprehend. It wasn’t until 2022 that I started trading NFTs, but by then, the market had shifted from a bull market to a bear market. I lost around 50 to 60 ETH in the NFT market.
Later, I shifted my focus from NFTs themselves to NFT marketplaces. There was a lot of innovation, such as trade mining, Sybil attacks, and ways to compete with OpenSea. Blur’s Bid Pool was also a major innovation. In 2023, I wrote extensively about NFT marketplaces, especially Magic Eden’s multi-chain strategy, which, in hindsight, has been very successful.
However, from an investment perspective, I’ve also experienced many failures. For example, I bought early-stage tokens from platforms like X2Y2 and ROSE, which have now lost 99.99% of their value. Blur’s investment didn’t turn out well either.
Primary and Secondary Market Inversions Will Become the Norm, and Magic Eden’s Token Is Expected to Be Lower Than Its Primary Market Valuation Post-Launch
defioasis:
Given our investment experiences over the past year or two, it seems none of us have fared well in terms of investment. Going back to Magic Eden, their last round of funding was in mid-June 2022, during the transition from a bull to a bear market in the NFT space. They raised $130 million at a $1.6 billion valuation. Given the current market environment, Blur’s FDV (fully diluted valuation) is less than $500 million, and Magic Eden’s Solana competitor Tensor has an FDV of less than $300 million. So, if Magic Eden were to issue a token now, I believe it would be difficult for them to sustain a $1 billion FDV. What do you guys think? If Magic Eden issues a token, what do you estimate its valuation will be? Shang, let’s start with you.
Shang:
I think it’s normal to see an inversion between primary and secondary markets, not just in NFTs but across the entire crypto space. Especially during the 2021 and 2022 bull markets, the market was over-inflated, and the liquidity in the secondary market wasn’t enough to allow all investors to exit smoothly. So, if Magic Eden issues a token, its valuation might be lower than its primary market valuation. This isn’t an issue with NFTs themselves but rather a result of the market cycle and industry-wide phenomena.
Specifically, Magic Eden’s unique selling point is its multi-chain approach. You can trade assets on the Solana chain, EVM-compatible chains, Bitcoin, and Ordinals on Magic Eden.
This could be a compelling narrative, but many variables will determine its valuation. Right now, we’re most interested in how the token will be distributed. If it’s like LayerZero, where despite criticism of its operation, there are some pumping mechanisms, then its FDV might not be too bad. But if the tokens are too widely dispersed, especially with excessive airdrops, things could go poorly. We’ve seen many recent examples where projects performed poorly in the market, particularly if the tokens weren’t distributed to users who genuinely needed them. In that case, the token’s performance could fall flat.
As for the team, I think Magic Eden’s team isn’t particularly native to the crypto space, which is a problem because they lack strong ties to the crypto community and haven’t demonstrated an effective tokenomics model. Being a U.S.-based team also means they probably won’t adopt certain “Ponzi” structures. So, to be frank, I’m not particularly optimistic about their token. If I had to guess, I’d estimate their FDV would fall between $500 million and $1 billion, and even matching Blur’s valuation would be considered an achievement.
Magic Eden and Blur Are Both Paradigm-Backed Projects — Is There an Understanding to Avoid Direct Competition Between Them?
defioasis:
Great, then let me ask Sankin. As Shang mentioned earlier, Magic Eden is pursuing a multi-chain strategy. Right now, a lot of their trading volume is focused on Bitcoin NFTs. Sankin, since you’re also interested in the Bitcoin ecosystem, what do you think about the future of Bitcoin NFTs and Magic Eden’s strategy?
Sankin:
Before discussing Magic Eden, I’d like to touch on Blur’s valuation, as it provides a useful comparison. Back when we invested in Blur, it was largely because of a point that defioasis raised, which stuck with me for a while. At the time, Blur’s fully diluted valuation (FDV) was under $1 billion, while many other projects had FDVs in the tens of billions. Blur was already a leading player in the NFT market back then, even though some of the trading volume was driven by wash trading and mining incentives. Still, it seemed relatively undervalued, which created an investment opportunity.
Looking at Magic Eden, after they enabled Ethereum trading, they saw a brief spike in trading volume, but their current market share on Ethereum is very small, hovering around 1–2%. Meanwhile, Blur controls about 60% of the trading volume on Ethereum, so it’s clear that Blur remains dominant on that chain. Magic Eden’s primary market was Solana, but they quickly pivoted to the Bitcoin NFT market, especially after the Ordinals protocol launched. This makes me wonder: since both Magic Eden and Blur are Paradigm-backed projects, could it be that Paradigm encouraged Blur to avoid entering the Bitcoin NFT market, focusing instead on Ethereum Layer 2? Perhaps they didn’t want the two projects to become direct competitors.
But then Magic Eden’s move into Ethereum NFT trading seemed like a stab in the back for Blur. This is just speculation on my part, and there’s no concrete evidence to support it, but it makes me think that Blur and Magic Eden might have initially aimed to avoid competing directly.
As for Magic Eden’s valuation, we can look at some data for context. According to Similarweb, Blur’s monthly traffic is around 1.3 million visits, while Magic Eden’s monthly traffic is about 3.4 million. Although Magic Eden’s traffic has declined as well, the drop hasn’t been as steep as Blur’s. From this perspective, Magic Eden is performing better overall, especially in the Bitcoin NFT market, where they hold a 50% market share.
So, how do we value Magic Eden? Should we consider it as a multi-chain NFT marketplace or as a leader in the Bitcoin NFT space? It’s hard to say. Magic Eden is active in several markets, but how do they frame the narrative around NFTs? Particularly in comparison to Blur’s valuation, it’s tough to arrive at a clear judgment. Another issue is the team’s approach, which remains difficult to gauge. As outside investors, we don’t have direct contact with the team and are left speculating based on public information.
For retail investors like us, this kind of information asymmetry makes it challenging to make sound investment decisions. Many projects, especially those with ample cash flow, lack the incentive to boost their token’s value post-launch. In many cases, once a token is issued, the team considers their job done, and retail investors are left watching token prices fluctuate, disconnected from the project’s real operations. This is a common issue in the token space.
Shang:
Yes, especially with U.S.-based teams. Due to regulatory pressure, they won’t engage in aggressive marketing tactics like teams in other regions. They might provide some basic liquidity support, but they won’t intervene in token prices beyond that. Many recent projects have followed this pattern, where after the token launch, there’s little follow-up action from the team.
Sankin:
Exactly, even long-standing DeFi projects like Uniswap and the rebranded MakerDAO are similar. Unlike network-native tokens like Ethereum or Bitcoin, many project tokens have little connection to the project’s actual success. How much revenue a project generates has no correlation with the token’s value. So-called governance tokens don’t offer much real utility to retail holders, who don’t have enough votes to influence any major decisions.
Shang:
Absolutely, another crucial factor is the regulatory environment in the U.S. The SEC’s scrutiny of tokens means that high-quality projects can’t assign real value to their tokens, because the moment they do, the tokens would be classified as securities. This leaves many good projects stuck in a tough spot, while less reputable projects can operate more freely, creating a negative cycle.
NFTs as Tools for Early Management of Token Valuations via Airdrops
defioasis:
Yes, OpenSea recently received a Wells notice from the SEC, which argued that the NFTs traded on the platform are securities and plans to take legal action. Going back to Blur, the role of the Blur token as a governance token has been pretty limited. During the Blast mining phase, there were hopes that staking Blur would lead to Blast airdrops, but the outcome was underwhelming.
In the end, Blur still reverted to being a typical governance token. I think Magic Eden’s token might follow a similar path, becoming primarily a governance token. Magic Eden has previously mentioned that their token will not be entirely issued by Magic Eden itself but will be managed by a foundation, which also creates some separation between the token and the core platform.
Thus, I believe Magic Eden’s token will likely become a governance token, similar to Blur. As for offering dividends or returns, especially for a U.S.-based team, that doesn’t seem legally feasible. Moving on, let’s discuss another topic. We’ve mentioned that, across Ethereum and other chains, the NFT market is currently in a state of limbo. Trading volumes have dropped significantly from their 2021 peak. Do you think there’s still another wave of opportunity for NFTs? Where do you see the future heading? Shang, let’s hear your thoughts first.
Shang:
If I had to summarize my thoughts on NFTs, I’d say there are two key points. First, NFTs are collectible items that people are willing to hold, much like traditional art or collectibles. Collecting is a massive industry in the traditional world. Second, NFTs are tools for early-stage projects to manage token valuations via airdrops. Because NFTs have fixed supplies, project teams can issue them relatively easily while also adjusting the rules as needed. Before launching a token, many projects use NFTs to manage airdrop expectations or to create market hype.
For example, it might be hard to pump a token directly, but it’s easier to do so through an NFT release. NFTs are less liquid, so the project team can create a sense of price appreciation, making the project more attractive. These are the two main functions of NFTs.
However, the current NFT market faces some challenges. First, can the crypto space attract external traffic? Second, how will the internal dynamics of the crypto space play out? From a collectibles perspective, the market is struggling due to high interest rates and reduced disposable income. Avatar NFTs, like CryptoPunks, have become too homogeneous. Buyers are no longer as interested in these traditional NFTs, and market demand is waning.
When you use a PFP (Profile Picture) NFT, you want others to recognize you and think you’re cool. But that trend has passed, much like how everyone used to wear Jordan sneakers, but they’re not as trendy anymore. If you still use a CryptoPunk as your profile picture now, it might seem outdated. With the rise of Memecoin NFTs, the market’s focus has shifted to more liquid assets, rather than expensive and fragmented CryptoPunks.
On the other hand, I think it’s almost certain that NFTs will continue to serve as tools for managing early-stage token airdrops. We’ve already seen projects like Berachain using NFTs to manage their token’s market value, and their NFTs have performed exceptionally well. Mad Labs is another example, being the largest NFT project on Solana. In many cases, NFTs are tied to future token plans or related to other projects’ collateral and value capture mechanisms.
So, if NFTs are purely cultural or artistic symbols, I don’t think they will easily resonate with the average person. Unless you’re deeply immersed in the art world or the crypto culture — like Milady NFTs, which, despite looking odd, are still considered cool and continue to attract buyers — NFTs will need a real project to back them for long-term success.
From an Asset Standards Perspective, NFTs Will Persist, But It’s Unclear When the Next Turning Point Will Be
Sankin:
I share a similar view regarding the long-term existence of NFTs. Although I hope that they will remain relevant, the market’s prolonged downturn has caused doubts, even for myself. I think many people feel the same. We can look back at the journey of ERC-20 tokens. ERC-20 tokens emerged from the ICO boom of 2017, and now, the vast majority of tokens in the market are based on the ERC-20 standard. However, many of the ERC-20 tokens from that era have disappeared, but the asset format itself laid the foundation for subsequent projects like UNI, DAO tokens, and newer projects like ARB and OP.
NFTs are quite similar to ERC-20 in this regard. I think NFTs are one of the two asset formats that have successfully emerged in the blockchain space, the other being fungible tokens. So, we can see that many blockchain projects — like Solana, Cosmos, Arbitrum, Sui, and even TON — have adopted Ethereum’s design logic. Their ecosystems usually include both fungible and non-fungible token formats. This shows that NFTs, as an asset type, have carved out a place in the
blockchain ecosystem and will continue to exist for the long term.
Of course, their next big breakthrough may not depend on small innovations or mechanism tweaks, but rather on an influx of market capital. It’s similar to how we thought the ICO model would never return after the 2017 boom, but then Solana brought back ICO-like behavior in recent years. Though ICOs have changed somewhat through their integration with AMMs (automated market makers), they are fundamentally still ICOs.
Thus, I believe NFTs will go through a similar cycle. It may not happen this year or next, but three or five years down the line, NFTs will return with new mechanisms that capture the market’s attention again. However, whether Blur or Magic Eden will still be around by then is another question. Let’s look at past examples, like Layer 2 projects from the ICO era, such as Loopring. While it was ahead of its time back then, it didn’t keep up with the recent Layer 2 boom, and EtherDelta disappeared entirely. So, even if the NFT wave comes back, it’s uncertain whether it will happen on Ethereum.
In this regard, I think Magic Eden has done a better job than Blur by not betting on a single ecosystem. Magic Eden is trying to support multiple chains, including Bitcoin, Ethereum, and others. However, the overall NFT ecosystem currently lacks the wealth effect, and it’s hard for retail investors to see the value. This is my take on NFTs and my expectations for the future.
defioasis:
I’ll add to that as well. This year, Ethereum NFTs have shown some price increases, with one of the standout projects being Pudgy Penguins. Their success lies in expanding their IP into real-world merchandise, such as plush toys, thus tapping into the real-world toy market. They’ve successfully extended NFT value into the offline market, which is something worth paying attention to.
There’s a phenomenon of pop culture and collectibles in the real world. When we visit shopping malls, we see many brands, some of which we’ve never even heard of. The core of the collectible toy market is the materialization of IP, turning it into physical items like plush toys or even games, much like Pokémon did. This creates cash flow.
Once you have cash flow, you can use it to do more NFT-related things, like managing market cap or even pumping token prices, giving holders economic returns. I think Pudgy Penguins have done a good job by monetizing their IP, and this is why projects like LayerZero are willing to airdrop to Pudgy Penguins holders. From this perspective, Pudgy Penguins is a project worth watching.
Looking at NFTs from an asset class perspective, formats like ERC-1155 won’t disappear anytime soon. But it’s unclear what new form or mechanism will cause NFTs to boom again. The question remains whether the NFT market can survive long-term. In 2020–2021, OpenSea’s explosive growth was impressive, but its valuation has since dropped by 90%. In contrast, many people have now shifted their attention to Blur or Magic Eden. Whether these platforms will still be around in 3–5 years, or whether NFTs will have another breakthrough, remains an open question. So, I maintain a rather cautious outlook on the NFT market. If you’re looking to invest in the NFT space, now might not be the best time.
NFTs Need New Liquidity Solutions, But Stripping NFTs of Their Unique Attributes Makes Them No Better Than Trading Memecoins
Shang:
Do you guys remember Pandora?
defioasis:
Yes, yes, Pandora was interesting. It was about exploring the duality of token and image, but now it’s gone.
Shang:
Exactly, if the duality of token and image can’t be effectively implemented, the role of the NFT market could shrink even further.
Sankin:
Regarding Pandora, its issue goes back to the ERC-20 liquidity problem we mentioned earlier. Uniswap solved the liquidity problem for ERC-20 tokens through its automated market maker (AMM) mechanism. Pandora was essentially an attempt to solve liquidity for NFTs. The next major breakthrough for NFTs will definitely require new liquidity experiences or mechanisms. We’ve already tried fractionalization, Pandora, and Sudoswap, which is an AMM-based NFT platform — these are all liquidity experiments.
In my view, Pandora made several attempts at liquidity, borrowing many ideas from DeFi and ERC-20. There will certainly be more attempts at creating new NFT liquidity solutions in the future. Of course, there will be failures along the way, as we’ve already seen with three or four failed attempts. But if the NFT ecosystem is to thrive, new liquidity solutions are key.
Shang:
Yes, I think NFT liquidity is ultimately a multiplier effect. If the NFT itself has no value, then all the liquidity in the world won’t help — it’s still worth zero. If an NFT truly has value, people will be willing to trade it, even without a perfect liquidity solution. Price might just be a temporary issue.
Sankin:
Right, it’s difficult to assess value. Many Meme Tokens, for instance, derive their value from culture and consensus. Bitcoin is similar — its value is hard to measure using traditional frameworks. I think NFT IP has some similarities with Meme Tokens, where their value lies in the consensus formed around them.
defioasis:
Exactly. Many of the current liquidity solutions — whether it’s collateralized lending, fractionalization, or the duality of token and image — ignore the unique attributes of NFTs. In the end, these solutions treat NFTs as just another form of token. If you strip NFTs of their rarity and uniqueness, they’re no different from fungible tokens. In that case, you might as well trade Memecoins for faster returns.
Shang:
Right, no need to overcomplicate things.
defioasis:
Yes, so if we sacrifice the unique characteristics of NFTs in pursuit of liquidity, then they lose their inherent value. At that point, NFTs become meaningless, and you might as well trade Memecoins instead.
Personal Favorite NFT Projects
Shang:
Before we wrap up, let’s share if there are any NFT projects you’re currently watching or find interesting.
Sankin:
During the peak of the NFT craze, I thought about buying a Punk during market downturns because I liked the design philosophy of Punks, especially their modular combination of elements. However, after Yuga Labs — the parent company of Bored Apes — acquired Punks, I changed my mind. I believe Yuga Labs commercialized NFTs in a way that diverged from the original ethos.
I also considered buying some ENS domains. ENS is both an NFT and a domain asset. But I was disappointed with the ENS team. Despite earning a lot of revenue through the ENS DAO, it seems that the funds haven’t been reinvested into ecosystem development and are instead controlled by the company. This left me puzzled, which is why I didn’t end up buying any ENS domains.
Shang:
I understand your perspective. The imbalance between teams and the market can certainly make one question a project’s longevity.
As for me, I’m currently bullish on Mad Labs, the largest NFT project on Solana. They’re developing a platform called Backpack, which focuses on compliance. The Mad Labs community is very active, and the atmosphere is great. I also hold some Bit Bears NFTs from Berachain, which has a lot of innovation in its tokenomics and strong future potential.
defioasis:
Mad Labs is definitely a project worth watching, especially within the Solana ecosystem. Pudgy Penguins is another one I’m keeping an eye on, as many large projects are willing to airdrop to Pudgy Penguin holders. I’m currently considering whether to get involved as well.
Overall, if the NFT market does recover, I’d be more inclined to invest in blue-chip projects like CryptoPunks or BAYC. However, the market remains bearish, and I’m holding off on making any major moves into the space for now.
One approach I’m considering is buying NFTs that might lead to future airdrops. Holding these NFTs could result in a large airdrop if the project grows. This is a more speculative strategy, and I’ve been pondering it recently. For example, I’ve been watching Mad Labs closely. They hold significant influence in the Solana ecosystem, and I’m considering whether other major projects might airdrop to them in the future, so I might pick one up.
Another project I mentioned earlier is Pudgy Penguins. We’ve seen some large projects willing to airdrop to their holders, so they’re also on my radar. These are some of my thoughts on NFTs and the NFT market.
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