The current DeFi era and NFTs’ role in DeFi

28 Sep, 2020

In our previous article about NFTs, we already had an overview of this “seemingly” complex term. In today’s article, we are going to learn about its history and how NFTs can be used to help DeFi develop.

I. Historical development of NFTs

Everything has its own history. Understanding NFTs’ history may not make us rich immediately, but we should at least get a glimpse of how NFTs progressed, what it has achieved as well as will be achieving in the near future.

Early stage: Before the introduction of CryptoKitties

Before CryptoKitties appeared, the Bitcoin system witnessed the appearance of “colored coins”, that is, coins running on Bitcoin’s Blockchain with distinct characteristics. These can be considered as the first NFTs, namely the Rare Pepes (Pepes cards).

The first NFT project to be built on the Ethereum Blockchain was CryptoPunks, which consists of 10,000 virtual characters built on the ETH platform. Developed by Larva Labs, CryptoPunks also created their own trading market for users to buy, sell, or exchange using MetaMask wallet. Currently, CryptoPunks is still active, however, it is not as well-known as newer projects.

And it was the premise for the most famous NFT, which is CryptoKitties.

Inception stage: The introduction of CryptoKitties

CryptoKitties was the first project to bring NFT to Mainstream. Launched in 2017, CryptoKitties is a virtual cat game, in which you buy or create a virtual cat on ETH Blockchain (ERC721 format). Then, through a special algorithm created by the CryptoKitties team, players can crossbreed cats to create their own NFT, which is a special cat with a unique personality. Although many gamers have criticized that CryptoKitties is not really the same as video games, we think that CryptoKitties is a successful project.

At the same time, CryptoKitties is considered an example for other projects to follow, such as:

• Monetization model: The monetization model of CryptoKitties is quite simple. Build “virtual cats”, “crossbreed” them so that they can breed “new cats”, sell them at a higher price, and then repeat. It is this model that has created a whole “cat farming” community, in which users constantly crossbreed to create new breeds of cats. As long as the community is alive, the game will live and thrive. During its peak, CryptoKitties witnessed 1-day transactions go up to 5,000 ETH and this volume even caused network congestion. Scarce cats such as Founder Cat #18 were priced at 252 ETH (about $100,000 at that time), or Dragon cat that was sold at $170,000. With that high price, many users rush to “feed cats” to make a profit.
• The ability to go viral: One of the things that makes CryptoKitties famous and a role-model for other projects to follow is the ability to go viral beyond the Crypto community. Why is this important? Because NFTs’ ultimate goal is to reach buyers, the more buyers the better, regardless if they know about Blockchain technology or not. And to reach these buyers, projects need to have their own stories. CryptoKitties, for example, their story is a virtual cat game with cats worth tens of thousands of dollars and a large number of players that clogged the Ethereum network. This story has been spread throughout the newspapers, causing many people flocking to search for “virtual cat” to make money.

Construction stage: 2018-2020