In a bid to build more sophisticated financial tools within the burgeoning NFT sector, a group of investors is betting on NFT perpetual futures exchanges.
Nftperp, a decentralised perpetual futures exchange for NFTs, raised $3 million in a Series A round led by venture capital firm 1kx, the project announced Thursday.
“We want to be able to have … either the same even more [volume] than spot trading activities on OpenSea, Blur, these traditional exchanges,” Joseph Liu, the founder of nftperp, told DL News.
And Blur, the largest NFT marketplace by trade volume, is expected to feature something similar on Blast, its forthcoming Layer 2 blockchain, according to Joseph Liu, the founder of nftperp.
“We see them as our major competitor going forward,” Liu told DL News.
Blast has already attracted more than $750 million in user deposits.
Liu pointed out a significant contrast in the liquidity of spot markets for blue-chip cryptocurrencies like Bitcoin and Ether compared to NFTs.
“Whereas for NFTs, the spreads are usually really, really wide” — anywhere from 1% to 5%, Liu said.
In the case of major cryptocurrencies, the spreads — the differences between buyers’ bid prices and sellers’ ask prices — are usually quite narrow, reflecting a more mature and stable market.
Conversely, when it comes to NFTs, Liu said there is a markedly different scenario. The spreads in the NFT market are substantially wider, often ranging between 1% to 5%.
“Most of that is because the market makers who provide liquidity don’t have a place to hedge their inventory,” Liu said.
That underscores the relative infancy and volatility of this digital asset class compared to its fungible counterparts.
In lending and borrowing, the ability to hedge one’s exposure can lower interest rates.
“We all know what happens in a low interest rate environment,” he said. “Borrowing demand goes up, purchasing power goes up, and that kind of kickstarts this liquidity flywheel.”
The market is still tiny.
The first version of nftperp saw crypto deposits briefly crest $1 million earlier this year, according to DefiLlama data.
It shut down in July in anticipation of the second, forthcoming version, which will combine a decentralised limit order book and automated market maker mechanisms popular in decentralised exchanges.
Nftperp’s competitors include NFTX and Tribe3.
Crypto deposited in the former has hovered around $20 million for much of the year. Crypto deposited in the latter never topped $500,000 before it shut down in August, also to focus on a forthcoming second version.
Tribe3 processed more than $71 million in trade volume during the four months it was in operation earlier this year, according to data it compiled.
Correction: This article has been corrected with updated information from nftperp. The company’s raise was a Series A, not a pre-seed round.