(⬆️ Screenshot from a market on Foundation)
I was speaking with Kayvon, the co-founder of the culture stock exchange Foundation. We were discussing the pros and cons of purchasing and selling NFTs with ETH or stablecoins, like DAI. Kayvon strongly feels that using DAI is the way to onboard the masses, but I was arguing for ETH. It wasn’t long before I realized that I didn’t have a strong enough argument as to why I preferred ETH, I just did. This inspired me to examine the advantages and disadvantages of using DAI versus ETH in NFT markets.
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Why Do We Price NFTs In ETH?
When I purchase NFTs, there is a 95% chance that I use ETH. Pretty much all assets are priced in ETH terms, and I believe this is because it was the only option available when NFTs took off near the end of 2017.
In December 2017, CryptoKitties were in full swing, but there were hardly any stablecoin options to price them in. DAI had just launched in December 2017, and since ETH was working well and DAI was so new, not many people were interested in switching. I believe for this reason, people have been pricing NFTs in ETH terms ever since.
Pros Of Using ETH
I personally like using ETH to buy certain assets because I use it as a method to acquire more ETH, i.e., buy an NFT for 1 ETH and then sell it for 1.5 ETH a few months later. This is great for me personally because I am long-term bullish on ETH appreciating in value, so I want more of it. Unfortunately, I am not a typical user because I have been involved with crypto for a long time. If we want NFTs to become widely adopted, we must recognize that not everyone will be bullish on cryptocurrencies, or especially bullish on ETH.
Cons Of Using ETH
The clear issue with using ETH to buy and sell NFTs is its price fluctuation. Here is an ETH price chart from the past 90 days.
In just the past three months, ETH went from ~$200 to ~$400, and is now around ~$350. This price fluctuation is clearly a massive issue for mainstream adoption. It's tough to explain to someone new to crypto that the price of an NFT is around $100 right now, but could be totally different by tomorrow.
Pros Of Using DAI
The clearest benefit of using DAI for trading NFTs is its price stability. If I have an NFT for sale in DAI, everyone knows exactly how many dollars the NFT will cost today, tomorrow, and even next month. This price stability is essential for markets to form. As consumers, we already must make decisions on which product to buy, so adding in crazy price fluctuations does not make those decisions any easier. DAI is also totally decentralized like ETH, so users do not have to worry about their transactions getting halted for whatever reason.
Cons Of Using DAI
The cons of using DAI really boil down to awareness and accessibility. More people know about ETH than DAI. It's very easy to obtain ETH from most exchanges, while DAI is not as accessible. I will caveat this by saying that DAI has gotten much easier to access with the recent explosion of DeFi, so maybe this con will eventually no longer be relevant.
With all that being said, I personally still prefer using ETH for NFT investing in my pursuit to acquire more ETH. But I do completely understand that in order to bring on the masses, we might need to use DAI or other fiat-denominated stablecoins. There is no way we can onboard millions of people into the NFT space if the money they use to purchase goods is moving up and down on a daily basis. Going back to the original genesis of this blog, Kayvon from Foundation feels so strongly about DAI’s superiority that he wrote a great blog detailing why, which I suggest to anyone who wants to learn more about why Foundation is built on DAI.
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Great piece Andrew, thanks for sharing. I hope that the question of using ETH, DAI, BTC, ZEC or any other cryptocurrency for payments will soon be solved. I'd envision a future where liquidity is pooled cross chain (think AMMs e.g. Balancer, Uniswap) and sender as well as receiver can set their default preferences. The swaps happen magically in the backgrounds.