🔍 The Rise of Blur

Blur is the latest entrant in the race to dominate the NFT trading arena. Targeted at experienced traders and power users, Blur is a hybrid platform that combines a marketplace and an aggregator. Blur was in closed beta for nearly a year before going live in October 2022. Since then, it has surpassed the OpenSea behemoth to become the largest venue to trade NFTs.

Volume market share for Blur has reached 53% within a few months of launch. On the other hand, OpenSea is struggling to maintain its stronghold with a 37% share, down from almost all of the market at the beginning of 2022.

So what do NFT traders see in Blur? For one, there are zero marketplace fees and an option to skip or reduce the royalty payments. This turns Blur into one of the cheapest venues to trade NFTs and attracts volume from power users who regularly traffic in NFTs. Once they’re roped in with the low-cost approach, Blur tries to lock them in with portfolio and market analysis tools. The platform offers faster NFT sweeps (purchasing a bunch of NFTs from a collection at the floor price) and NFT snipes (purchasing mispriced NFTs listed below market value).

Over the past year, NFT royalties have emerged as one of the biggest topics of debate. Royalties are simply a commission that traders pay to NFT collection creators any time a buy or sell transaction is executed. Set by creators themselves, these royalties tend to be in the range of 2-10% of the sale price for most NFT collections. However, these payments are not enforceable on-chain and need to be implemented by each individual NFT marketplace.

Blur’s zero marketplace fees and optional royalty payments have turned up the heat on OpenSea. In losing the battle for volume, OpenSea has responded by dropping its marketplace fees from 2.5% to zero. While OpenSea initially implemented mandatory royalties, it has also stopped enforcing them as of Feb. 18, 2023. Even though a majority of volume now trades on Blur, OpenSea has managed to retain a large portion of its traders. The trader market share for Blur has only reached 30%.

On the other hand, Blur executes a lot of high-value trades with an average NFT sale price of $1,365 vs. OpenSea’s $351. OpenSea’s large, mass-market userbase trades smaller values. But Blur’s smaller target audience of NFT power users trades larger values.

But the biggest reason for Blur’s rise in market share, apart from low fees and fancy tools, is the BLUR airdrop. The platform is currently distributing its governance token to traders, based on a point system. This model rewards users for providing liquidity to the order book through listing NFTs and bidding on them. Users are rewarded for both, the amount of liquidity provided as well as the risk of the liquidity provided. Higher bids and lower asks, relative to the order book, will increase the point value of your orders. This mechanism gives weight to each order that incentivizes real liquidity to fill Blur’s liquidity pool order books.

To maximize the number of points, traders can place bids as close to the floor price as possible on collections with high trading volumes. Accepting bids may reduce the chances of receiving rewards, which is why some traders place and cancel bids repeatedly. This creates a bidding wall of user-provided liquidity on Blur. Traders exchange these points for Care Packages, which contain an unspecified amount of BLUR tokens.

When properly designed, token airdrop mechanics can fuel a flywheel of behaviors that can jumpstart a project’s user adoption. As our NFT analyst Teng writes in his tweet thread, 90% of traders have claimed their airdrop, out of which 26.5% are still holding the token.

Blur’s structure offers NFT traders the lowest fees as well as the deepest liquidity on the market, and it’s working. Blur’s marketplace is outperforming OpenSea while Blur’s aggregator is outperforming Gem.

Blur has found product-market fit while leveraging its token to capture market share from OpenSea. Blur is proof that tactical incentives powering quality products rule the world. With decentralized blockchains, unenforceable royalties find themselves in a race to zero, one that Blur has fully embraced. The platform has now entered the “Airdrop Season 2” phase which will go on for an unspecified period of time.

We cover the BLUR airdrop in more detail in our NFT Debrief for January 2023, available exclusively for Delphi Pro members here. Here’s an edited snippet from the report:

“Once the BLUR airdrops are completed and incentives fall off, we will see whether Blur can continue to retain its user base as well as bid & listings liquidity. We think it has a very reasonable chance of being one of the top NFT marketplaces, largely because it has established a good product-market fit among NFT traders with its superior trading tools. As sure as the sun rises every morning, there will be new marketplaces that will arise to compete with Blur. That will be the true litmus test.”

📅 This Week in Delphi Research

NFT Debrief – February 2023

Catch up with the latest in the NFT space as YH takes you through the current state of the market in this monthly highlight. Apart from exploring some upcoming mints that are worth watching, he takes a look at Jack Butcher’s Checks NFTs. The collection experiments with some interesting game theory that engages holders in a race of status chasing.

The State of ZK-Bridges

Recently, there has been a significant effort to use ZKP technology to build cheap light client-based bridges. These bridges seek to reduce the gas costs of on-chain verification. In this report, Vaish and Can present the current state of ZK-bridges and outline the bull and bear case for their future. The report concludes that as infrastructure rails for ZK-bridges mature in the next year or two, we will likely see an explosion of growth in the app-specific bridging arena.

How to Navigate Token Unlocks

Token unlocks often have a huge impact on price movements and traders who track them have made huge profits. Using real-life examples, this video by Nick and Priyansh explores the four factors that affect token unlocks: the size of the unlock, liquidity, perpetual futures, and tokenomics. Find out how to analyze projects and their unlocking schedules in the 5-min video or read our extensive report on token unlocks here.

📖 Delphi Reads

BLUR was not the only NFT token to launch this week. SudoSwap’s SUDO token went live on Feb. 18 with the effort to distribute 45% of the token supply to its community. SudoSwap is an NFT marketplace that offers an AMM with customizable bonding curves. Recently, a governance proposal to make SUDO transferable was passed, causing a surge in its value. Read more about how the SUDO airdrop is behaving on-chain in a tweet thread here.

Cat-in-a-Box Finance, a dynamic lending protocol for yield-bearing assets, is launching soon. Users can mint a synthetic token on a 1:1 basis by depositing yield-bearing assets like stETH from Lido. The yield is used to pay back the loan or compound deposit balance. Read more about the protocol and how it works here.

Royalty payments are not enforceable on-chain and need to be implemented by each individual NFT marketplace. This goes against the ability of smart contracts to be incorruptible and provide iron-clad guarantees on-chain. So how does this happen? Read more about the technical restrictions faced by smart contracts in natively enforcing on-chain royalties here.

🔥 Meme of the Week

After the Blur and Sudo airdrops, speculators are once again asking when Arbitrum will unveil its fabled airdrop. While the market is certainly ready for the token, the team is not necessarily incentivized to release it.

The more the protocol is used, the more valuable it becomes. It’s uncertain how much of the Arbitrum’s usage is in relation to “airdrop farming” but we can be confident it’s a significant chunk.

Meme via @Bagsy.