Is NFT’s current high liquidity just a flash in the pan?
Written by: Pacman, Founder of Blur
Compiled by: Babywhale, Foresight News
Recently, due to the expected airdrop of Blur Phase II, the trading in the NFT market has become unprecedentedly vigorous. However, the increase in trading volume caused by the "airdrop" has caused the market to worry about its unsustainability and market manipulation. In this regard, the founder of Blur believes that Blur's incentive mechanism actually introduces the concept of "market makers" to the NFT field and further promotes the development of the NFT industry:
1/5 The vast majority of trading volume in traditional and token markets comes from a small number of market makers (less than 10 in fact). The trading activities of market makers are completely different from those of collectors. I see a lot of misunderstandings about this, so I will explain it here.
2/5 Before Blur, there were few market makers in the NFT field. Franklin and Machi Big Brother (Huang Licheng) were the first batch of "market makers" with a certain trading scale (relatively speaking). They are equivalent to Jump Trading and Jane Street in the NFT field. When the field matures, you will see more and more market makers.
3/5 What you need to understand is that market makers are not wash traders. They provide liquidity and profit from the spread that fluctuates around the true value of an asset. They pay royalties to creators for every trade they make.
4/5 Their trading activity is different from what NFT enthusiasts are used to. But their participation can bring more players into the field. The liquidity they provide makes it safer to buy new collectibles, leading to higher trading volume and higher income for creators.
5/5 The world of tokens is exploding with the impetus from improvements in infrastructure and liquidity. NFTs will also see massive growth in the future, and the addition of market makers is just the beginning.
In addition to the above tweets, Pacman also quoted some views of Sugar Shane, who previously worked as a market maker at the Chicago Board Options Exchange. Sugar Shane believes that market makers in the traditional field make profits by buying low and selling high, and provide liquidity for newly established trading platforms, so market makers need professional trading strategies to achieve this.
However, Sugar Shane also said that for Blur, a large number of traders on the platform in the past few months cannot be called real traders, because their bids and asks do not set a reasonable spread, and these users just want to get more token airdrops. However, whether it is more profitable to maintain a reasonable spread or to just "brush airdrops" will only be known when Blur issues the next round of airdrops.
Overall, Pacman believes that the strategy of its project operation has introduced market makers to the NFT market, thus bringing higher liquidity, but this liquidity is likely to shrink rapidly with the end of the airdrop activity. Whether Blur can establish a stable market maker mechanism and user habits in such a short period of time remains to be seen.