[Feature] Discussions on Blur Part I: The Challenges and Opportunities That Blur Faces

Compiled By: Coinlive
Author: Mint Ventures Jessica Shen

This article first discusses the current opportunities and challenges of Blur, and then talks about the points we see as worth learning from the perspective of entrepreneurship and investment in Web 3.0, delving into project details. Finally, it briefly explores potential investment opportunities surrounding Blur.

Challenges and Opportunities Facing Blur
From the trend of $BLUR coin price, the market was very optimistic in the early stages, and there was great anticipation for Blur to outperform OpenSea from multiple dimensions. However, when we objectively and calmly consider the challenges that Blur faces, we will find that there are still many common industry problems that plague it. Therefore, opportunities and challenges coexist.

Challenges
1.Lack of innovative underlying technology to improve liquidity issues
Blur has to some extent incentivized liquidity with its token model, but the lack of revolutionary innovation in underlying technology means there is a long-term possibility of being copied or even surpassed by competitors. Currently, Blur's advantage lies in its product's insight into users' real needs, as it has introduced a convenient, user-friendly, and intuitive product that uses UI innovation and token economics models (incentivizing orders and offers rather than transactions themselves) to capture users. However, the long-term liquidity issue of NFTs has not been fundamentally resolved. If a competitor launches a model with higher token incentives based on Blur but at a faster pace, with a more intuitive UI and more professional products, we may see a competition similar to that between SushiSwap and Uniswap in the past.

Recently, Gem V2 has also entered the internal testing phase, and after experiencing the product, the author feels that it has optimized product details based on Blur. Although it is uncertain whether Gem will launch a coin in the future, from a product perspective, Gem V2's updates can already match Blur in terms of information refresh speed, display intuitiveness, and equipped offer function. In addition, it also has features that allow for time-limited offers and targeted feature-based offers. The demand for feature-based offers is very clear, as many users who want to purchase Otherdeed containing Koda have repeatedly requested similar features from Blur, which Gem V2 has already launched in advance.

The moat of Web3.0 products has been a constant concern for many investors and projects, and Blur's current moat cannot be attributed to the product itself or the token model. User stickiness in the Web3.0 environment is a major challenge for many products, and in an open-source environment, vampire attacks can be a potential pitfall. On the other hand, some Web3.0 protocols that have stood the test of time, such as Curve, Uniswap, Aave, and Compound, have relied on not only products that meet market demand but also a robust token model, a constantly innovative team, a continuously expanding ecosystem, and user trust in protocol security. Whether Blur can have all of these successful factors remains to be seen over time. With only UI and token model improvements and the difficulty of breaking away from the inflationary model, Blur needs to explore more technological or protocol-level innovations to establish a fundamental moat and maintain a lasting competitive advantage.

2.There is a risk of losing users and trading volume due to future parameter adjustments.
Currently, the transaction fee is 0% and the minimum royalty is 0.5%, only enforced for some NFTs. This rule is a short-term Go-To-Market strategy, and in the long term, the protocol cannot maintain a 0% transaction fee indefinitely. In the future, if Blur wants to support more NFT creators and communities, flexible royalty policies may also be adjusted. These adjustments fundamentally increase the cost for traders and add friction to the NFT market. After the cost is raised and Blur's token incentives disappear, users may still vote with their feet and choose a lower-cost trading market, and the existence of Blur's cost advantage at that time will be particularly critical for its competitive position.

3.Changes in competitive landscape after token subsidy ends
Many Web3.0 projects have to face the day when token issuance is limited and subsidies are eventually exhausted. If the printing press mode continues, it will bring a large amount of selling pressure to the token. Blur will also have a time when airdrops are no longer available. If the protocol design and token model remain the same, it can be expected that liquidity will decrease significantly, and the market will question whether Blur can compete with OpenSea, which will have a negative impact on expectations and valuation. The sustainability of the token subsidy model will also be one of the potential risks for Blur.

4.Over-expectation for the second season airdrop
The first season of token airdrops provided high rewards to many NFT players, and the highly excited market sentiment is beneficial to the market's confidence in the project, which is directly reflected in the token price. However, we found that the second season of token airdrops has only 10% of the total allocation, which is less than the 12% of the first season, and it is expected that more users will participate in the "airdrop farming" activity, including professional gold farming studios. According to the official token economics document, it is inferred that the unlocking of the second season airdrop tokens (total amount 10%) will be completed in the fourth quarter of 2023 (specific unlocking and airdrop information is subject to official announcements). In the clearly insufficient supply situation, users may feel a gap between reality and expectations during the second season airdrop distribution. At the same time, if the token price shows a downward trend due to the expectation of a large amount of selling pressure from the airdrop, it may bring greater market FUD sentiment, increase the sense of gap, and cause confidence shaken among users and token holders.

5.The weak ability to capture token value
Currently, the value of Blur's token lies only in protocol governance and proposal rights, and the protocol has no income mechanism to share with token holders. This weak ability to capture token value puts pressure on the token price. In the roadmap, Blur implies the "F-Switch", which means "fee switch". If the protocol income is opened in the future and a mechanism is designed to share income with token holders, it will organically promote protocol business growth and ecosystem expansion, as well as stabilize token price. This will lead to a more promising long-term development prospect for Blur.

Opportunity
1.Improvement in Macro Markets and NFT Trends
The NFT market value and trading volume are currently concentrated on Ethereum, which is highly correlated with the Ethereum market situation and the overall trend of the cryptocurrency market. As the cryptocurrency market situation continues to improve, the NFT market is expected to rebound. Although the market will continue to be volatile and build a bottom before the next bull market arrives, the vitality of blue-chip NFT projects has become even stronger after various crises in 2022, and Yuga Labs and other blue-chip project parties are expected to continue to bring new activities and expectations to the community, which will bring new narratives to the industry.

NFTGo mentioned in the "NFT Annual Report 2023" that the total number of NFT traders on Ethereum in 2022 was 1.87 million, while Dune@sixdegree data shows that the number of active addresses on Ethereum in 2022 reached 48.16 million, which is more than 25 times the number of NFT traders. During the bear market, the airdrops and issuance of Blur have made many users outside the NFT circle more willing to participate in NFT trading and speculation. Blur has also received a lot of attention in the early stages of the project. If Blur maintains its leading position in the industry, the boost in valuation brought by the top spot in the NFT trading market may bring further upward potential to the $BLUR price as the bull market arrives.

2.Track competition advantages help business expand horizontally
Since its launch at the end of October, Blur's cumulative trading volume has been ahead of major trading platforms such as OpenSea, X2Y2, and LooksRare. The continuous anticipation of airdrops after the token launch is expected to continue to stimulate the concentration of NFT trading volume on the Blur platform. When users' trading habits and NFT usage habits tend to prefer Blur, Blur is expected to retain a large number of NFT professional traders and whale users after the token incentives end.

In Blur's roadmap, the author reads Blur's ideas for expanding in the direction of ERC1155 field transactions, opening the fee switch (F-Switch), and liquidity projects. The "vague" roadmap seems to imply that Blur will further expand its business horizontally in the NFT ecology, providing a glimpse into Blur's ambition to become a one-stop NFT infrastructure (only the author's interpretation of Blur's roadmap, not representative of the project's official ideas). The official website also has a form for NFT API applications, and many NFT protocols and products are waiting for Blur to open its API port to make NFT quotes more accurate and liquidity for trading and settlement better.

OpenSea recently lowered transaction fees and changed the rules for flexible royalties, which made the market more confident about Blur's threat to OpenSea. In a horizontal comparison, OpenSea is more like a "multi-chain NFT supermarket", focusing on the first-level issuance of NFT and the display of different types of NFTs, suitable as the first stop for NFT novices. Blur is positioned as an "NFT professional trading tool", focusing on professional-level trading and suitable for NFT veterans, whales, market makers, and other professional players. The different focus of the two has led to OpenSea still having the most traders, but the overall proportion of second-level NFT trading volume is higher. After the end of the second quarter airdrop, the trading volume and number of traders of the two platforms still need to be closely monitored, which will be an important indicator of the competitive situation.

3.Token economics models offer various possibilities for business growth and token appreciation.
Fundamentally, the biggest difference between Blur and OpenSea is that Blur is an NFT marketplace embedded with a token economy system. In a 2017 interview, Chirs Dixon (a16z partner) and Fred Ehrsam (Paradigm founder) mentioned that tokens are a general solution for the expansion problem faced by internet platform companies. When a new network platform does not yet have enough network value, financial incentives can attract early seed users, but the value of the tokens will gradually decrease as network value increases. This is why Blur can surpass OpenSea in such a short period of time. The NFT marketplace embedded with a token model allows each participant (founder team, NFT community, users, liquidity providers, etc.) to receive incentives directly on this platform, sharing the network effect dividend generated after co-building the product. Future token airdrop incentives and community incentives will continue for some time. The user data and network effect gradually accumulated by Blur will reinforce the community's trust in the product and user usage habits, thus producing a positive cycle.

From a micro perspective, the simple token economics document released by $BLUR leaves many open choices for decentralized governance of the NFT community. In the governance mechanism, Blur has set up three committees to coordinate the governance process. The Incentive Committee is responsible for managing incentives to the community, including providing liquidity for market makers and community token incentives. They also proposed that if the current incentive budget is used up (12% token airdrop in the first quarter, 10% token airdrop in the second quarter), more incentive allocation can be applied for through governance (the remaining 39% community tokens).

Founder @PacmanBlur mentioned thoughts on capturing token value in an interview. Discussions in the market about how the Blur protocol can capture more value using the Voting Escrow model have emerged. We also know that Blur intends to develop towards the veToken model (although the specific progress is unknown). In the future, if the protocol's income from token value capture, while maintaining a leading position in the trading market, the token valuation will have more growth space and motivation.