NFT Market Too Frothy? Now You Can Short It

Decentralized derivatives exchange SynFutures is launching NFTures, a product that lets users bet on the future prices of non-fungible tokens (NFT).

Targeted toward retail investors, NFTures uses a user interface similar to what’s used by the Tinder dating app to streamline the trading process, while bringing game-like elements and leverage to NFT markets. The decentralized protocol is based on SynFutures’ existing synthetic automatic market maker (sAMM) model to match counterparties.

“Every healthy financial market needs a way for participants to take both sides of the market, and NFTs are no exception,” said Rachel Lin, CEO and co-founder of SynFutures. “By providing a way for users to take long or short positions in NFTs, we’re enabling more robust trading strategies that allow users to maximize profit opportunities while hedging risk and exposure.”

NFTs have seen rapid growth in recent months, generating $10.7 billion in trading volume during Q3, an increase of 704% from the previous quarter, according to data from DappRadar.

Projects such as CryptoPunks or Bored Ape Yacht Club have notched sales in the millions of dollars, with NFTs even drawing in sophisticated investors such as NFT-focused hedge funds.

Prior to NFTures, collectors could only “buy and hold” NFTs in hopes they would increase in value, according to SynFutures.

“Those who wanted to speculate on downward trends had to bet against entire markets, shorting the native tokens of NFT-centric products like Axie Infinity ($AXS) and SupeRare ($RARE),” the company explained in a statement. “With NFTures, SynFutures has created an intuitive platform for traders to long or short specific NFTs at any time and take advantage of better price discovery.”

NFTures bases its contracts on spot price oracles from decentralized exchanges such as Uniswap and SushiSwap, as well as NFT fractionalization protocols such as Unic.ly and Fractional. Similar to traditional futures markets, the spot and futures prices eventually converge on a set periodic schedule.

However, risks of oracle price manipulation remain as the nascent NFT market grows in size and liquidity.

The project also highlights the current renaissance in NFT-related decentralized finance (DeFi) projects, including NFT-backed collateralized lending or the tokenization of physical assets.

“NFT-specific derivatives products will add more depth to the nascent NFT market, just as options and futures contracts play an important role in established financial markets,” said Lauren Stephanian of Pantera Capital, an investor in SynFutures.

“It’s still early, so we want to help create the financial framework for what will inevitably become a major asset class at the intersection of crypto and art,” added SynFutures’ Lin.

In June, SynFutures raised a $14 million Series A round led by venture capital firm Polychain Capital.