1/ The current state of the market: illiquid jpegs. BAYC turns over 5-10% of the collection in unit terms per month.
2/ One of the reasons for this low liquidity is the limited amount of capital dedicated to NFT market making and liquidity provision. This is going to change dramatically over the next 12 months. Why?
3/ the opportunity is too rich to ignore: a multi-billion dollar market in which spreads are wide and a significant percentage of trading volume is retail.
4/ favorable venues for market making are emerging. With low fees and 0% royalties collected by the protocol, @sudoswap is one attractive new venue that creates new possibilities for cross-market arbitrage and provides new tools for automating liquidity provision.
5/ enabling tools are ready. For a subset of collections, ML-based valuation models are getting accurate enough to inform trading. And investors are getting confident enough to allocate capital to strategies informed by these models.
6/ So who will be NFT market making? Whales, funds, collector DAOs, fungible token market makers, NFT finance DAOs, and liquidity management protocols.
7/ Just as importantly, retail NFT traders and NFT community members will be able to participate as well. @sudoswap gives retail users the tools to easily provide liquidity–something that is difficult to do systematically on other marketplaces.
8/ Why does this matter? A broad increase in NFT market making is going to kick off a virtuous cycle that will reinforce the attractiveness of NFTs as assets, stimulate the growth of the market, and lay the ground for new NFT financial primitives
9/ The virtuous cycle: liquidity→ tighter spreads and lower volatility → more reliable valuations → more liquidity
10/ This dynamic is just one of the reasons that I’m so excited about NFT financialization as a theme. I’m always eager to talk with projects and market participants (lenders, MMs, LPs). Hmu if you want to chat!
11/ And if you’re interested in opportunities at Variant portfolio projects, check out the list of open roles and our talent form at variant.fund/careers/
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