How much is the Blur airdrop worth? NFT Exchange Valuation Analysis

TL;DR

The market shares of Opensea, Blur, X2Y2, and Looksrare are 36.77%, 28.05%, 24.35%, and 7.42% respectively

But the real share after excluding Wash Trading is about 59.1%, 19.5%, 13.2% and 2.9%

Among the currently listed exchanges, X2Y2 is undervalued and Looks is overvalued

Blur's FDV valuation range is about: 382 million - 458 million US dollars

Foreword

Blur will launch platform tokens on February 14th, when everyone’s boxes and Points on Blur will be converted into tokens. Since Blur has not given detailed Tokenomics, it is not clear what utilities its tokens have. Therefore, this article mainly evaluates Blur from the perspective of comparable company valuation. At the same time, since Blur’s comparable companies (X2Y2, Looksrare) including Blur itself are suspected of trade mining (Wash Trading), this article will deal with its transaction volume to restore the real data.

 

1. Industry Analysis

The current competition in the NFT exchange industry is fierce. With the rapid development of the NFT market, more and more exchanges and platforms have begun to set foot in the field of NFT transactions, resulting in increasingly fierce competition in the industry.

Competitors include various types of NFT exchanges, such as large centralized exchanges, decentralized exchanges, exchanges that focus on a certain type of NFT, etc. In order to attract users and maintain a competitive advantage, many NFT exchanges have begun to provide lower transaction fees, higher security, etc.

The competition of NFT exchanges on different chains is different. This article mainly focuses on the valuation of Blur, so here we mainly discuss the industry competition on the Ethereum chain.

The current most popular exchanges on the Ethereum chain include Opensea, Blur, X2Y2, and Looksrare. According to the data of NFTscan, its market shares accounted for 36.77%, 28.05%, 24.35%, and 7.42% in the most recent month.

(Data source: NFTscan: https://www.nftscan.com/marketplace)

As mentioned earlier, Blur, X2Y2, and Looksrare are all suspected of wash trading. X2Y2, Looksrare’s wash trading can get platform tokens, and Blur’s wash trading can get airdrops. Due to the different trading volume logic of each platform, the following two methods are used to process the real trading volume data.

(1) Real trading volume of X2Y2 and Looksrare

Regarding these two exchanges, we all know that trading NFT requires payment of royalties and platform transaction fees, so users who perform brush transactions will mainly conduct brush transactions for NFT Collections that do not have royalties set. For example, Meebits has not yet set royalties. At that time, the wash traders on X2Y2 mainly traded Meebits to gain trading reward. Therefore, for the royalty-free NFT, the transaction from address A to address B, and then from address B to address A is defined as transaction mining. After excluding wash trading transactions in this way, the real transaction data of X2Y2 and Looksrare are as follows:

(Data source: Dune-Votan: https://dune.com/votan/X2Y2-NFT-Marketplace)

The average daily trading volume of X2Y2 and Looksrare in the last month was 3.6M and 0.75M respectively, and the average price of ETH in the 30th day was 1,546. From this, it can be concluded that the real transaction volume data of X2Y2 and Looksare in the latest month are 69,857ETH and 14,553ETH.

(2) Blur's real trading volume

Although Blur is no longer simply measuring airdrop rewards from the transaction volume in the Airdrop 3 stage, there are still a lot of wash transactions on Blur, including but not limited to NFT project conduct wash trading to increase the trading volume (because the cost is only Gas), the Rug project Swipe high transaction volume to attract users to BID to cheat money, pure wash trading to increase three-stage rewards, etc.

Because Blur does not charge royalties and platform transaction fees. Therefore, we can not use the same method as we do in X2Y2. Here we analyze from another angle, the accuracy may be reduced, but it can also provide a reference.

(Data source: NFTscan: https://www.nftscan.com/marketplace)

The above is the transaction volume data of each platform in the past month. From the data comparison, it is not difficult to find that the gas consumption of Opensea is 3.92 times that of Blur, the number of transactions is 5.43 times that of Blur, but the transaction volume is only 1.31 times that of Blur. From this exaggerated data comparison, it is not difficult to find that even after entering the Airdrop 3 stage, there are still a lot of swiping data on the Blur platform.

Of course, because many blue chips cannot collect royalties on Blur, traders tend to trade blue chips on Blur, which may cause Blur's customer unit price to be higher than that of Opensea, but the gap is not that big.

Therefore, when restoring real data, we assume that Opensea's gas consumption per unit and transaction amount per transaction are the average level of the industry. And because many blue-chip NFTs with high unit prices do not charge royalties on Blur, the unit price of Blur will be higher than that of Opensea. Here, I subjectively estimate that the unit price of Blur is about 1.5 times that of Opensea.

On Opensea, Gas per ETH can support a transaction volume of 48.3ETH, and the unit price of each transaction is 0.177ETH From this, the weighted average transaction volume of Blur is about 98,600 ETH ((76,410.6+55,059)*0.5*1.5)

(3) Real market share

At this point, we can initially estimate the real market share of each NFT market. According to the calculation above, the real trading volume data of Opensea, Blur, X2Y2, and Looksrare in the latest month are 299,224 ETH, 98,600 ETH, 69,857 ETH, and 14,553 ETH respectively. Its market shares accounted for 59.1%, 19.5%, 13.2% and 2.9% respectively.

This data is a bit surprising, Blur's real transaction volume data performance is not as good as some statistical websites. I think there are two main factors: On the one hand, my calculation does not strictly eliminate suspicious brushing transactions based on on-chain interactions, and the equivalent calculation based on Opensea data may be inaccurate. On the other hand, due to Opensea's exclusive agreement in the past month, many Blur's transactions have been completed through Seaport, resulting in a decline in Blur's transaction data.



2. NFT Exchange Valuation Analysis

  Currently, the exchanges that already have certain market valuations are Opensea, X2Y2, and Looksrare. Among them, Opensea is the private placement round, and X2Y2 and Lookrare are the token valuations. Due to the lack of a lot of data, we need to make certain assumptions for valuation. The main assumptions of valuation are as follows:

  Opensea completed a private financing of US$13 billion in January 2022. At that time, the average weekly trading volume of the NFT market was about 5 times that of the current one, and Opensea was in an absolute monopoly position in the industry at that time. If Opensea issues token now, considering the valuation of the private round and the current industry situation, I think it is fair to give a valuation of 3 billion US dollars.

(Data source: Dune: https://dune.com/hildobby/NFTs)

It can be seen from the chart that the trading volume of the NFT market in the first half of 2022 is significantly greater than that in the second half of the year. In consideration of the current market environment, we assume that the total trading volume of each NFT exchange this year will be determined by the trading volume of the most recent month. get it. Based on the above assumptions, we can obtain the following valuation data:

Based on the price data on February 6, 2023, we got the P/S values of Opensea, X2Y2, and Looksrare as 0.51, 0.05, and 0.25, respectively. The average value is 0.27; PE are 20.25, 19.04, 16.88 respectively. The average is 15.39.

Through the above numerical calculations, if the factor of inflated transaction volume such as transaction mining is not considered, it is not difficult to see that Opensea has the highest valuation and X2Y2 has the lowest valuation. When we take transaction mining into account, we can find that Opensea’s real PE is 20, X2Y2’s real PE is 25.65, and Looksrare’s real PE is as high as 70.

Since the transaction data is divided into two types: excluding transaction mining and non-excluding transaction mining, the following valuation of Blur will also be divided into two dimensions, and considering that Blur currently does not charge transaction fees, we assume Blur will increase the transaction fee to 0.5% after the token is issued.

Wash Trading is not excluded:

From P/S point of view: Comparing the valuations of Blur to X2Y2, Looksrare, and Opensea, we can get their valuations to be 204 million US dollars, 1.144 billion US dollars, and 2.289 billion US dollars.

From the perspective of P/E: Comparing the valuations of Blur to X2Y2, Looksrare, and Opensea, we can get their valuations into USD 204 million, USD 382 million, and USD 458 million.

Excluding Wash Trading:

From P/S point of view: Comparing the valuations of Blur to X2Y2, Looksrare, and Opensea respectively, we can get their valuations into USD 88 million, USD 494 million, and USD 989 million.

From the perspective of P/E: Comparing the valuations of Blur to X2Y2, Looksrare, and Opensea respectively, we can get their valuations into USD 88 million, USD 164 million, and USD 197 million.  

Because the sample is only three exchanges, and the venues of their token transactions are also different. For example, Opensea’s valuation is based on its private equity valuation, X2Y2 has not yet listed on a major exchange, and Looksrare has listed on OKX. There are big differences in their valuation data. If you cover up the names, you won’t even feel that they are competing in the same industry when you look at the data.

Therefore, the valuation results we get have a large range and almost no reference, so we need to do some narrowing down.  

In the first step, do we need to use the method of excluding transaction mining data for valuation?

First of all, we must make it clear that we are in a market with very asymmetric information, and the market efficiency is very poor, which means that a large number of traders in the market do not even realize that the data they see on the data website includes a lot of trading volume .

That is to say, the market price is formed based on data that does not exclude wash trading. Therefore, when confirming the final valuation range of Blur, in the short term, I am more inclined to use the transaction volume without excluding wash trading for valuation.

But this does not mean that our previous practice of excluding mining transactions (Wash Trading) is meaningless. The real transaction data determines its long-term value. After the disappearance of the mining reward mechanism for future transactions, you can know what to expect .  

In the second step, which is the better valuation parameter, PS or PE?

The transaction volume of NFT exchanges and the final fee income are actually not completely positive linear relationships. Fee income can be disassembled into transaction volume * fee ratio. Opensea, Looksrare, X2Y2, and Blur are 2.5%, 1.5% (Looksrare will lower the handling fee ratio in October 2022), 0.5% and 0% respectively.

Leaving Opensea aside, the rankings of the remaining three exchanges in terms of fee ratios are just opposite to their rankings in terms of trading volume. The market is actually very sensitive to handling fees. If the proportion of handling fees is increased, it will easily lead to a decline in trading volume.

Therefore, the trading volume of the exchange, that is, the fluctuation of S in our value is very large. Compared with transaction volume, the indicator of service fee income is more stable and can better reflect the direct income of currency holders. So I think PE is a better valuation parameter  

In summary, considering Blur's market popularity, business data performance, and many exchanges have announced that they will list Blur and other factors, I think Blur's valuation should be higher than Looksrare but lower than Opensea. Blur's valuation should be between $382 million and $458 million .  

3. Risk analysis  

(1) Blur Token Model Risks

Since Blur has not yet announced its tokenomics, we cannot be sure whether its tokens can capture handling fees like what Looks and X2Y2 do, and we cannot determine its initial offering ratio, the relationship between its MC and FDV. The above-mentioned uncertain factors are important parameters affecting its valuation, so the final calculation results may be different from the actual ones.

(2) Blur competition risk

Due to Opensea's exclusive agreement, Blur's transaction volume has been greatly affected in the past period. Although Blur recently circumvented Opensea's restrictions by using the Seaport contract, if the actual contract where the transaction occurs is Seaport instead of Blur, Blur is not able to apply any utility to its tokenomics based on Seaport. Also, by using seaport as transaction contract, Blur can not generate any transaction fee.  

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1. Competitive landscape of NFT exchanges

(1) Rapidly growing NFT market

As of June 30, 2022, the cumulative transaction volume of the NFT industry has reached US$67.818 billion, and approximately more than 50,000 NFT traders participate in transactions on the chain every day. The figure of $67.818 billion may not seem like much, but what if you were told that a year ago this figure was only $1.3 billion? In just one year, the cumulative transaction volume of NFT has increased nearly 50 times.

(Data source: cryptoslam.io)

(2) Three stages of NFT exchange competition

1. Introduction of X2Y2

X2Y2 is a semi-decentralized NFT exchange platform established in Feb 2022. Daily trading volume has already reached 25M USD four months after its launch and has around $4.5M volume after deduction of wash trading. The platform’s token, which shares the same name as X2Y2, has a market capitalization of $3.425M and an FDV of $28.5M. The most iconic property of X2Y2 tokenomics is that the token holders share the platform's 100% profit (transaction fee). Despite the project’s value-driven nature and outstanding data performance, the market still does not give X2Y2 a reasonable price. This article aims to process a rough evaluation of X2Y2 and propose some reasons why the project is undervalued.

2. Investment highlights

(A) On the trend of the fast-growing NFT market

If 2020 is the Defi year, then 2021 is the time for NFT. The total market capitalization of NFT excesses $17.7B in 2021, which was an astonishing 22000% pump from that of $80M in 2020. Many ‘Lambo dreams’ come true from the shocking bloom of some NFT collections such as Crypto Punks, BAYC, Azuki, and Goblin series. But these outstanding NFT projects are few, and most NFT projects can barely survive shortly. For non-professional and less engaging investors, discovering prime staking projects in the modern fast-growing studs-or-duds market is a hardship. Therefore, if we are pretty confident that NFT will keep blooming in the future, we need to get on the ‘train.’ NFT exchange platform is undoubtedly an excellent train to catch the trend. The reason behind that is the same as BNB several years ago and holding brokerage stock in a bull market, as an analysis perspective on the demand side. On the supply side, the choices for retail investors are X2Y2 and Looksrare only- so limited that busy investors who cannot involve too much in the market can save a lot of time on investigating.

(B) Value capture and empowerment

You can stake the X2Y2 token, earn the staking reward (in X2Y2), and share 100% of the transaction fee (in WETH). The current staking reward is shown below.

The APR of X2Y2 staking reward and market fee reward is 99.1% and 64.8%, respectively, as of 7th June 2022, which means you can still come to a breakeven point within two years even if the X2Y2 token goes to zero in the worst case.

Unlike Defi staking, you can earn WETH directly from the staking pool rather than project token (now you can earn more X2Y2 even with X2Y2 Compounder!). For an NFT exchange platform whose main income stream is transaction fees, X2Y2 shares 100% profit with the staking holders, which is rare in the modern trend (If to say the price of UNI and ENS is from their governance, consensus, and future value capture, the value of X2Y2 comes from its instant and future cash flow). “The value of a stock attributes in its present value of future cash flow.” It is not a strange experience that I feel painful explaining to my friends the values of some cryptos as I need to go through all the concepts of consensus, decentralization, and governance. In contrast, it is comfortable to present the value of X2Y2 just by showing my frenz the staking mechanism since it is very similar to that of stock.

I want to describe the mechanism as “almost perfect” because I do not want you to think this will be another ‘risk-free’ opportunity. X2Y2 is excellent, but we still need to think about another side of the coin.

When a regular publicly-traded company distributes dividends, a portion of profits is distributed while most are reserved for investment. Therefore, X2Y2 distributing 100% profit to stakeholders may be a disadvantage (10% treasury may be insufficient).

Moreover, there may be compliance risks, which may be one of the reasons UNI emphasized it would not accept any value capture in its IPO period. X2Y2 is unknown, but it may be the center of attention once it becomes more significant. Crypto investors shall take this into account too.

3. Valuation analysis

Valuation for the crypto sector is always a problem since people cannot evaluate most crypto projects with financial analysis methods commonly seen in traditional finance. Luckily it is easier to assess an exchange platform since it has stable profit models and income cash flow, which help us to identify undervalued and overpriced projects. I will analyze X2Y2 using Comparable Analysis and DCF Analysis below.

(A) Comparable Analysis

The latest NFT exchange financings are Opensea and ZORA, evaluated at $13.1B and $0.6B, respectively. Opensea is now the biggest NFT exchange, while ZORA is a decentralized NFT exchange that is currently free of charge. It thus cannot be analyzed with P/E ration evaluation, but it may start collecting fees according to its V3 update.

According to the graph above, X2Y2 and Looks’s PE ratios are 6.25 and 3.67, respectively, while the PE ratio of Opensea is 21.03, referring to its valuation in PE Round this January.

Let’s talk about the FDV of X2Y2 and Looks first. You may find that the data set is quite suspicious at first glance since most still believe X2Y2 is lower in value than Looks, but the fact was that X2Y2 lagged behind ten days ago. The turning down of Looks may attribute to the current deduction of its token incentive. On the other hand, X2Y2 had a solid bottom, and the price was pretty stable. Besides, while the current fee on Looks is 2%, X2Y2 is 0.5%, and thus the transaction fee of Looks is double of X2Y2 despite X2Y2 possessing two times the trading volume that of Looks.

If we evaluate them with MC, we can use the APY generated by current transaction fee rates for comparison. The current profit margin of X2Y2 from transaction fees is 54%, while Looks is 28.21%. We can conclude that the PE ratio of X2Y2 and Looks is 1.85 and 3.57, respectively.

Then we compare X2Y2 with ZORA and Opensea. Suppose you agree the evaluation of Looks is similar to how Crypto Native evaluates NFT exchanges. In that case, you shall also agree that the assessment of ZORA and Opensea is identical to how traditional VC evaluates similar projects. The PS of ZORA is 162.6, and Opensea is 0.42 with a 21.03 PE ratio. The valuation of ZORA is overpriced. Institutions give Opensea about 20 PE ratio scores, 6.25 times of X2Y2’s.

I think if Openaea is finally listed, its PE ratio will exceed 20 because the above PE is based on PE Round data. But for the convenience of analysis, we apply the 20 PE. Opensea dominated the market with a 99% market share during the PE Round. Thus, the industry leader valuation premium applies to Opensea. The type of investment is Equity Investment, and the institutions can share all kinds of profits (not just transaction fees); thus, an additional 20% Premium applies. After deduction of these Premiums, the PE ratio of Opensea is around 14.02.

Since Opensea is undervalued, we can develop a more reasonable PE ratio- 14 for an NFT exchange with a deduction of other markups. For that ratio, the price of X2Y2 shall be 0.63U.

(B) DCF Analysis

DCF Analysis method requires more subjective parameters than Comparable Analysis, not to mention that X2Y2 is just like a newborn baby (there is a lack of data), so the accuracy of this method shall be lower. Thus, I am going to conduct a rough DCFF analysis here.

The first parameter is the Discount rate; I use Risk-Free Rate + Equity Risk Premium. While the traditional financial industry uses the yield of Ten-year Treasury bonds as the Risk-Free Rate, I use the ETH staking rate for the representative in the crypto industry, which is 4%, according to LIDO real-time data. As for Equity Risk Premium, I input 16%, and therefore the discount rate is 20%.

Secondly, we need to evaluate the annual growth rate of X2Y2’s profit. Assuming there will be fast growth for five years from 2022 before it reaches a stable state and starts alleviating. We divide the situations into optimistic, neutral, and pessimistic. My rating is 60%, 40%, and 20%, respectively, and 5% estimated growth at a stable state.

In optimistic, neutral, and pessimistic situations, the valuation of X2Y2 is 0.41U, 0.68U, and 1.07U, respectively, all are higher than the current price of 0.28U.

Since I think the potential of the NFT market is super huge, an annual return growth rate of 60% may still underestimate the trend. For a tech-driven and user-friendly NFT exchange that already shares a portion of the market, the growth rate of X2Y2 can outperform the benchmark. Therefore, 1.07U may still is an underestimated price.

4. Why X2Y2 is underestimated

“All that is real is rational, and all that is rational is real.” X2Y2’s price has been between 0.2 to 0.3U for almost three months. If this is an underestimated range, what are the reasons?

Pessimistic emotion of macro market: The price of BTC dropped from $45k to $30k, while that of ETH dropped from $3.5k to $1.9k. Most investors believe that the crypto market has already been in a bear market, and the performance of X2Y2 has been comparatively well during this time.

Low circulation: X2Y2’s tokenomics encourages holders to stake, and thus 90% of the circulation is in the staking pool. Institutions are not able to absorb big chips in the market. Meanwhile, the lack of circulation may result in low trading volume even if X2Y2 is listed on some big exchanges (personal speculation). But this is a double-edged sword situation since the price is more controllable so that the price can quickly pump on the other hand.

Selling pressure due to high staking yield: This is an old problem in crypto. Some investors use the current 100% staking yield to manage their own portfolio risk and contribute to selling pressure.

Missing the debut bonus: I think this is the most significant reason. X2Y2 had no strong kick-off, a huge disadvantageous competition in a first-mover-advantage-driven industry. Also, X2Y2 was not the first exchange launching vampire attract to Opensea, and investors may not buy X2Y2’s vampire attract as attractive. Furthermore, there was a parameter setting mistake at the first stage of staking, resulting in colossal selling pressure, and the price rushed from $4 to $0.15. The sudden rush might scare some speculators who did not conduct a comprehensive investigation of X2Y2. More importantly, the active NFT traders are still a tiny group containing only 2M people; a few realized X2Y2, not to mention investing. Opensea is still dominating.

Last but not least, I am not writing this article for propaganda. It is evident from the above content that my expectation of X2Y2’s price is between $0.5 - 1.5, which is less than ten times the current price. Why do I still believe X2Y2 should be on our watchlist even in the crypto market where X100/ X1000 ‘Lambo Dreams’ are widely spread?