While we wait for Altair to secure its parachain slot I would like to discuss some points that will need to be addressed before providing liquidity to crypto native NFTs like Cryptopunks.
I think that this is a great idea for various reasons. The aspect of providing liquidity to NFT owners actually gives another use case for the said NFTs. With the said ability NFTs are actually transitioning from being ‘overpriced jpegs’ to assets that can used to finance other activities. Another reason is that Altair would be the first to break that barrier and offer NFT owners liquidity.
Said venture isn’t risk free and it comes with its own problems that need to be solved.
First mayor problem would be pricing of the assets. As we all know NFT prices are skyrocketing and this can be attributed to a few factors. That kind of price action attracted alot of market participants to the NFT market in the hopes that they will be able to acquire and flip NFTs with profit which results with growing the NFT bubble out of proportions. Another problem is artificialy inflating the value of the NFT that are being traded between a few accounts while the owner of all of the accounts is the same. In this circumstances it’s hard to price a NFT with a fair price and we can’t rely on market value.
Another point from value perspective would be subjective value of the NFT. This is best explained with an art example, if a buyer is willing to overpay an art piece of an author, then that art piece will set a benchmark for other art pieces from that author. I believe that this characteristic is also true for NFTs and that it may cause problems.
Lastly NFTs are highly illiquid assets and this begs the question how to liquidate an NFT when the borrower defaults.
What are your thoughts?