Despite the fact that trading volume across Opensea has fallen below $50 million in August, it seems that capital is accelerating its footsteps into the market. From the earliest OG players to all in Web3 entrepreneurs, to Web2 entity industry looking for new business scenarios, and now more and more venture capital institutions choose to incubate NFT projects. The hotspot of NFT related investment seems to be no longer just infrastructure, or NFTFi protocols. And these capital-boosted NFT projects, what kind of impact will it bring to the market? As retail investors, how should we view those NFTs that we hold being spiked by a influential venture capital institution?

Hence we listed some of the most well-known NFT projects fundraising events so far this year.

Although the cryptocurrency and NFT markets have turned from bull to bear, the pace of institutional entering NFT has not slowed down and continued investing in various different types of NFT projects. Among them, especially DigiDaigaku’s freemint case that floor price stabilized above 10 Eth made the NFT market not cold at the end of August. And such a phenomenon has sparked a new trend — should retail players prefer those projects that backed by venture capitals?

For this question, we analyzed how the floor price of some of the typical projects in this category has changed over the course of a week from the date of the fundraising announcement. Surprisingly, only DigiDaigaku and Veefriends had a significant increase in floor price, over 200% and 40% respectively. Moonbirds, Jadu, and Doodles, on the other hand, have seen their floor prices decrease rather than increase, a phenomenon well worth pondering.

Let’s put aside NFT for a moment and talk about DeFi project financing. Usually those projects backed by large capital institutions means that they can accelerate the development progress, speed up the process of going public, and the greater the possibility of airdrops to early adopters after going public, the higher the value of airdrops will be. This is why a large number of individual investors choose to interactively experience projects that get quality institutional financing at an early stage in order to get a lucrative IDO airdrop return.

But the logic of NFT projects is different. First of all, as a project owner, the offering of NFT is already essentially a financing behavior, and usually the project owner prepares itself for the future roadmap it wants to achieve by offering NFT in the early stage when it has nothing. So the early holders of these project NFTs can be understood as doing venture capital themselves, and the difference is that the valuation logic of the NFT project itself and the valuation logic of the parent company are different.

In addition, although a large proportion of NFT projects will have token issuance plans, but whether the purpose of making NFT investments is for the appreciation of NFT itself, or for the expectation of future token issuance? Will NFT itself dilute the value of future token issuance? These are all questions that are difficult for individual NFT holders to verify. So for reference that DeFi project get institutional financing, and think the parent company of those NFTs that they buy and hold get financing so the value of NFT will increase does not make sense at all.

So what exactly is the connection between the parent company behind these NFT projects receiving institutional investment and the market capitalization of NFT projects? According to NFTGo, Azuki is the only NFT project that has not had public institutional financing according to its market cap, and is a very special case because its parent company, Chiru Labs, has not had a real name for a long time and stands alone through its impressive contract innovation and what is still the highest quality Asian drawing style. Azuki, on the other hand, started accumulating revenue at a very early stage and has now accumulated hundreds of millions of dollars in its treasury. You could say that the project’s explosion has made it well-capitalized by itself, so it would inevitably not have chosen the path of public financing if not for the need for strategic partnerships.

But apart from Azuki, we can clearly see that there is a big positive correlation between the success of the project itself and whether there are resources bound or capital backing. Yuga Labs was valued at over $5 billion long before the metaverse land sales, generating huge sales revenue, royalty revenue, IP peripheral merchandise revenue, offline business revenue, and ultimately Apecoin’s successful IDO. Clonex’s parent company, RTFKT, was acquired by Nike as early as the end of last year as a package, constantly trying to integrate and connect with Nike’s online business. Also for Proof/Moonbirds, the founder’s years of Web2 venture capital experience in Silicon Valley has made the project flourish since its launch.

However, there is a fundamental difference between holding equity in these companies and holding their NFTs.

First of all, as shareholders of a company, they have only one expectation, and that is the return on their financial investment. The return on the financial investment depends on whether the company will eventually go public or be acquired for tens or even hundreds of times the price of the initial investment. And what determines this final result is whether the company can generate enough profit. The logic of a traditional Web2 company is that it produces its own products, or provides its own services, in exchange for revenue, and generates profits. But as a company that distributes NFT projects, this logic changes.

Although the virtual product is “produced”, the buyer or holder purchases it with the expectation that real revenue will be generated through the appreciation of the product, or the value attached to it, such as the project owner’s airdrop. In this process, a conflict arises as to how the income, or appreciation, generated by the project itself should be distributed to the parent company and the NFT holders. If the project owner, in order to further raise the floor price, allocates more benefits such as airdrops or cash flows generated by the project’s mechanism related to NFT holders, then as a consequence the parent company’s revenue will be reduced and the profit growth rate will be lowered.

Hence shareholders will have great doubts about the future value growth potential of the company, which in turn will affect the subsequent IPO process. However, if the project owner is so focused on its brand value and revenue that it is not willing to issue airdrops or share the revenue with NFT holders, then the value of NFT will fall, which will ultimately affect the overall development progress of the project.

So for centralized NFT project teams, it becomes a constant dilemma to weigh the interests between shareholders and NFT holders. And for NFT holders, perhaps in the future, when they hear that the project they backed has received institutional financing, what is likely to happen is negative sentiment or floor-dumping. Because maybe the investment institution can bring long-term resources and empowerment to the project, but at the same time, it will also compress the profit margin that the holder himself can harvest from this project. So for the act of institutional backing, the floor may be higher for NFT projects early on, but in the long run it limits its upside and the ceiling becomes lower.

Going back to DigiDaigaku at the very beginning of this article, the project’s floor price maintained less than a few days after rising all the way to 16+ all the way down to below 10e at the moment. Leaving aside the issue of the project’s high degree of control, it is possible that the next time the public sees such compelling financing news, it will not generate such great fomo emotions as this time. After all, it is possible to narrow the holder’s profit margin when the capitalist enters the market. But if you think about it the other way around, it may be this fomo sentiment that creates profit opportunities for quantitative and high-frequency traders.

Author: @ReffoNFT

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