Interview: Jack, BlockBeats

Editor: Joyce, BlockBeats

Two weeks ago, a mechanism update of the NFT fractionalization protocol Floor Protocol triggered a several-day crash in the NFT market. For more information, please refer to "How did Floor Protocol cause a general decline in blue chips and crash the NFT market?". The market realized that Floor Protocol has the ability to influence the NFT market.

BlockBeats interviewed Free Lunch Capital, the founder of Floor Protocol. In the conversation, we learned about his views on NFT and its trading market. Floor Protocol is exploring feasible ways to balance the cultural and financial attributes of NFT in trading, which is based on the founder's thinking. Free Lunch Capital believes that only after experiencing enough trading frequency, the price of NFT will return to its value and find its owner.

Born at the bottom of the bear market, the Floor Protocol that grew rapidly behind the "crash"

On December 31, 2023, Floor Protocol released its first article on its Medium channel, titled "Revolutionizing NFT Trading: Introducing µToken/FLC Pairing on Floor Protocol". The announcement stated that a groundbreaking new model would be launched in January 2024, linking the price of governance token FLC to the valuation of mainstream NFT collections through µToken. What happened next was beyond the project's expectations.

BlockBeats: Please introduce the Floor Protocol team.

Free Lunch Capital: Before entering the crypto industry, I worked as an engineer at Google. After entering the crypto industry, my colleagues and I created a quantitative trading company, which did well in the industry, allowing me to have the capital to hold NFTs. After entering the NFT field, in addition to enjoying the community culture it brings, I found that it is a very primitive field. In fact, there are many trading opportunities in the NFT market, and using some very old trading models can be profitable.

So when I was still working at my previous trading company, I tried to persuade the board to explore the NFT trading field, but was rejected. The biggest reason was the poor liquidity of the NFT market, making it difficult for large capital to enter and exit. Without large capital coming in, the ceiling of NFT will forever be stuck in this place. So I had the idea of ​​creating a project to enhance the NFT trading attributes. I had this idea since early 2022, but at that time I didn't have the time and energy to implement it. In June 2023, I made up my mind and left my position as CTO of the original company to focus on Flooring Protocol. We were also lucky that the week when Floor Protocol was born was at the bottom of the 2023 stage, and since then, the prices of blue-chip NFTs have slowly rebounded. It's hard to say whether Floor Protocol has brought new vitality to the NFT market or whether Floor Protocol has benefited from the bull market of the NFT market.

The design and development of the entire product you are currently seeing was mostly done by me alone. We will continue to expand the team, although the team size has already tripled or quadrupled compared to the beginning, it is still not enough to support this market value. So when we see the price of FLC rising, we are actively recruiting people. We hope that the expansion speed of the team can keep up with the price growth rate. The FDV peak of Floor Protocol has exceeded 500 million US dollars, and sometimes we feel "what can we do". What we can do is to continue to move forward, continue to recruit people, and create new things.

BlockBeats: How did FLC empower and lead to the collapse of the NFT market?

Free Lunch Capital: When there is good news that guides liquidity to the FLC liquidity pool, many people will buy in and expect new good news. If it does not appear in a short time, they will sell. During this process, the selling pressure of FLC will be transferred to NFT. After the FLC price drops, there is an arbitrage space, and part of the NFT selling pressure is brought to Blur for digestion. Farmers on Blur feel the continuous selling pressure and will lower their bids, which will lead to the liquidation of NFT on Blend. Fortunately, this did not cause a large-scale liquidation, and the decline did not trigger the liquidation of BendDAO. Moreover, someone bought a lot of BAYC at the 22 ETH position, which stopped the downward trend. BlockBeats: Did the team expect the price changes of FLC? When binding FLC with µToken, did they consider causing such fluctuations in the NFT market?

Free Lunch Capital: My expectation for Floor Protocol is that initially it will be ignored, and then gradually noticed as it develops. Therefore, there is no definite plan for the price of FLC, and the price fluctuations are not something we can fully control. For example, on the day when liquidity pools were created on Uniswap, some traders who like to speculate on new projects noticed FLC and bought it as a meme coin, causing the price of FLC to rise 15 times, which was completely unexpected for us.

FLC's empowering design is not intended to bring the NFT market into an eternal bull market, but to introduce a self-repair mechanism. If it is not endlessly falling with the NFT market and can enter a new balance, I think its mechanism can be considered OK.

In the significant fluctuation of blue-chip NFT caused by FLC this time, we observed that NFTs such as BAYC and Azuki recovered quickly, and even some NFT series like Pudgy Penguins were basically unaffected. This indicates that the self-recovery ability of strong NFTs is very strong, which also meets our design requirements for FLC. We hope it becomes an NFT Index, where every wave of price fluctuations is a tide, and the NFTs that can survive will have a relatively high weight in this index. Excellent NFTs will maintain a good correlation with FLC, while weak projects will have lower and lower correlation with it.

If you only focus on the decline, you can only see half of the wave. It is also important to keep up with the price during the rebound. We had this idea in mind when designing, hoping that the price of FLC would be positively correlated with the NFT market. This force is mutual and crucial. If this linkage effect can continue in the future, FLC tokens themselves can serve as an investment target for NFTs.

Floor Protocol will cooperate with CEX to launch WOO X on January 23. For those who are not familiar with the NFT market but are interested in investing in NFTs, metaverse, and other related concepts, they can buy and hold FLC to enjoy the growth dividend of the NFT market. Buying FLC itself is also injecting liquidity into the entire NFT market, and the better-performing NFTs (the more closely related to FLC) will enjoy more dividends.

Frequent trading is the correct way to accurately find the value of NFTs

This incident has made the community aware of the significant impact of Floor Protocol on the NFT market. Various NFTFi solutions have long been seen as a double-edged sword for bringing liquidity to the market. While these solutions activate more trading volume, they inevitably impact and blur the cultural attributes of NFT assets by emphasizing their financial properties. The NFT market needs liquidity, but it cannot flow just for the sake of flowing. How to handle the multiple values of NFTs? Facing such a balancing problem, Flooring Protocol has thought it through.

BlockBeats: Some voices believe that FLC may "bias the NFT market". Will Flooring Protocol consider introducing a "correction" mechanism?

Free Lunch Capital: If the entire contract is considered as a wallet to determine its net worth, the Floor Protocol is worth approximately 40 to 55 million US dollars. In fact, wallets of this size are second only to Blend in the NFT protocol. In fact, the net worth of Floor Protocol exceeded Blend for more than a month. The project's token has not yet been unlocked. If it is unlocked instantly, the selling pressure of over 40 million FLC will quickly pull the NFT market to a very low position. Of course, we will not let such a thing happen. From a price perspective alone, Floor Protocol is definitely influential in the NFT market.

Regarding the concept of "bias", I believe that the NFT market is a very complex and high-dimensional social network that can connect many people. I have attended many NFT gatherings, especially during the period of October 2022 when the NFT market experienced a long period of decline. At that time, the people who still held NFTs were those who had achieved some success in their careers and had the capital to hold onto an image worth tens of thousands or even hundreds of thousands of dollars.

So I have always believed that NFTs, especially blue-chip NFTs, are a type of multi-attribute asset. They are not only a high-quality social network, but also a financial product. The mission of Floor Protocol is to make the asset and transaction properties of NFTs stronger. The strongest NFT projects can compete with the top 50 projects on CoinMarketCap, but without an NFT fractionalization protocol, this would be difficult to achieve.

BlockBeats: When NFT becomes the ultimate trading asset, the boundary between it and FT becomes blurred. What is your opinion on this issue?

Free Lunch Capital: Blue-chip NFTs like Bored Ape Yacht Club and Azuki are actually divided into two parts internally. One part is considered a collectible by the community, and the turnover rate of these NFTs is very low, as they remain in the hands of collectors. The other part may not be rare enough or may not have enough visual appeal, and is considered a non-collectible, and is often traded back and forth on the Blur or Opensea markets.

For the non-collectible part, they exhibit the same financial attributes as FT, but due to the need to pay royalties and platform fees, these NFTs will suffer some value erosion when traded on the NFT market. In a bear market, the profits generated by these NFTs during the trading process are very low. We believe that those parts of an NFT series that are close to the floor price should be treated as FT, so that they can circulate in the market with lower transaction fees. Only when trading activity is active, can this NFT series be fully priced, and the price it exhibits in the market can better reflect its value.

If the trading frequency of an NFT series is very low and it cannot be traded for a long time, the price it shows may deviate greatly from its actual value. Only when its trading frequency is sufficient, its pricing is sufficient and meaningful, and there can be a quantitative comparison standard in the NFT market. BlockBeats: In addition to the aesthetic value of the appearance of NFT itself and the marketing empowerment like Pudgy Penguins, what do you value more in which dimensions NFT reflects its value? How does Floor Protocol help NFT discover this value?

Free Lunch Capital: NFTs and FTs have fundamentally different characteristics. At the end of last year, when the floor price of Pudgy Penguins was around 3-4 ETH, I scanned more than 150 of them. This was because I met some people who work in exchanges, VCs, and other institutions at the Token 2049 event in Singapore. In the contact group we formed, four out of five people had Pudgy Penguins as their avatars, which made me feel that the holders connected by Pudgy Penguins are a group of people who may not be very active on Twitter, but have achieved something in the field of Crypto. People use Pudgy Penguins to identify each other and then communicate, which is something that FTs cannot do. This is the value of NFTs.

Using Pudgy Penguins as an example, it has a total of 8,888, but it is not possible to connect with 8,888 people overnight, as can be seen from the number of unique HOLDERS. If the mission of an NFT Collection is to find 8,888 high-net-worth or capable individuals, then this process is very long and may take several years. Before this mission is completed, a large number of NFTs will be traded back and forth, and this process can be imagined as NFTs searching for their owners.

An NFT series either goes towards death or success, and this process is completed through transactions. Floor Protocol adds transactional attributes to NFTs, and the more active the transactions, the more its value is recognized. For an NFT project that loses transaction volume, its future is not very clear.

Free Lunch Capital: The most important thing is to make the Vault bigger and have enough NFTs inside. This is also a prerequisite for the operation of the Safeboxes mechanism. Floor Protocol is collaborating with DeFi protocols such as Wasabi and Particle, whose mechanisms and DeFi gameplay in 2021 are different. For example, Particle is exploring leveraged trading of derivative products without the need for oracles, while Wasabi is developing products similar to NFT perpetual contracts. The DeFi designs of these teams are becoming increasingly sophisticated. We also like these contract protocols that do not require oracles, as they can handle bad debts on-chain without relying on oracles, which greatly enhances their security.

Related reading: "Understanding Particle: The leveraged trading platform that Arthur Hayes returned to after a year".

BlockBeats: The last question, does Floor Protocol have any plans for financing?

Therefore, for this reason, I am gradually reaching out to new investors in the hope of bringing in more vocal and influential capital from the cryptocurrency community to participate in the future of the project.

欢迎加入律动 BlockBeats 官方社群：

Telegram 订阅群：https://t.me/theblockbeats

Telegram 交流群：https://t.me/BlockBeats_App

Twitter 官方账号：https://twitter.com/BlockBeatsAsia