NFTs, or nonfungible tokens, have gained significant attention during the rise of Web3. However, the recent bear market has shown that they are not immune to market downturns. Studies indicate that NFT sales are driven by luck, scarcity, and optimism, suggesting that there is room for improvement to make them more resilient to market conditions.
Unlike other blockchain-based assets, NFTs face unique challenges in addition to the common issues that affect the broader Web3 ecosystem. Despite their popularity and wide range of uses, including art, gaming, and digital identities, NFTs struggle with significant hurdles that impact user experience and adoption.
One of the primary challenges in the NFT market is liquidity. During the crypto winter, it was much harder to cash out NFTs compared to cryptocurrencies. Each NFT offers unique features or utilities, making it difficult to find buyers or sellers during market downturns. This leads to increased price volatility, longer durations for assets to remain unsold, and liquidity issues that lock users’ capital and deter potential investors.
Another challenge is the lack of fractionalization in NFTs. While any crypto user can buy a fraction of a Bitcoin, it is not possible to do the same with a high-value NFT like a Bored Ape Yacht Club NFT. This creates a barrier for smaller investors who want to participate in the market.
Transaction costs are also a concern for NFTs. The more advanced features an NFT offers, the more complex its transactions become. While emerging standards can address some of the inherent issues of NFTs, they still suffer from high gas fees on Ethereum Virtual Machine-based networks.
Integration and composability are additional challenges for NFTs. Most platforms and protocols are not equipped to handle the transactions and storage of NFTs, limiting their use in decentralized finance (DeFi) applications such as lending, borrowing, and yield farming.
Furthermore, NFT holders often lack control over their assets. Current standards do not provide enough control for users, especially when it comes to fractionalized NFTs. For example, if a tokenholder has fractional ownership of multiple unique NFT artworks, they cannot choose which artwork to sell on a decentralized exchange.
To address these challenges, a hybrid approach that combines the strengths of the ERC-20 and ERC-721 token standards could be effective. HybridX is a project that has introduced a gas-efficient hybrid token, HX, which combines these two standards. This unique blend aims to offer efficiency and flexibility in the trading and management of digital assets in the Web3 ecosystem.
The hybrid HX token model allows for the fractionalization of NFTs, increasing market liquidity and making NFTs more accessible to a wider demographic. Additionally, HybridX has selected the Internet Computer Protocol (ICP) as its infrastructure, leveraging its capabilities to enhance features such as on-chain Verifiable Random Function (VRF) for the random generation of NFT artworks and on-chain storage of all NFT metadata.
The hybrid token model integrates with DeFi and NFT platforms, enabling NFT holders to leverage their assets in various applications. It also offers flexible management of NFT collections, allowing users to selectively sell or burn assets without being constrained by current standards’ restrictions.
The innovative approach of HybridX has already demonstrated its flexibility and efficiency in use cases such as the Dragon Eyes dice-rolling game. Users can switch their fungible EYES tokens to mint an XDragon NFT, providing fundamental value and utility.
HybridX is set to expand with a range of Web3 milestones, including exclusive NFTs for members, the CrossPollinate program for ecosystem projects, a launchpad powered by NFTs, and a DEX for both fungible and nonfungible tokens.
As the blockchain-based internet evolves, HybridX envisions a future where digital assets are seamlessly discovered and exchanged, fostering innovation and accessibility in the Web3 economy.