Solving NFT Liquidity Problems: Understanding Floor DAO in One Article

Liquidity is a term in the securities market. Liquidity refers to the efficiency with which an asset can be converted into ready cash without affecting its market price. The most liquid asset is cash itself.

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Now let's try to understand NFTs from a liquidity perspective:

NFTs are blockchain assets in the form of non-fungible tokens, NFTs typically represent products, artwork, music, or any other digital identity the creator has decided to put on the blockchain. Their unit of exchange is the token.

Therefore, as a buyer or investor, a person buying an NFT differs from a traditional retail investor in the following sense. Instead of buying shares that represent a percentage of ownership in an off-chain company, they buy tokens that represent a percentage of ownership of an on-chain product, artwork, game, or music.

But NFTs are not just tokens. They have elements of community and culture intertwined. It is the community that creates value or scarcity for NFTs (or any asset). At the same time, the concept of ownership is a cultural statement and a driver of wealth accumulation.

Past transaction data is an important factor in measuring the value of an NFT, but a well-rounded buyer will consider many other factors, such as liquidity compared to other similar products, known as relative liquidity. the reason is simple. A higher number of transactions represents higher liquidity to a certain extent.

Lack of liquidity is probably the biggest concern for most investors, so much so that some see NFTs as a riskier investment than most altcoins. Also, as the history of NFTs shows, very few collectibles and works can stand the test of time, and unfortunately, most works lose their value within a few months.

Have you ever wanted to buy NFTs, but gave up because they lack the high yield or liquidity in DeFi?

So far, the NFT market has relied heavily on matching buyers and sellers on centralized marketplaces like OpenSea, with sellers heavily pressing floor prices for instant sales and buyers paying a premium on the spread, making Neither side is overly profitable.

The fees for this trading activity flow back to the controllers behind the exchange, rather than to the users who provide the highly valuable liquidity and trading volume.