BLUR: An Update Following The Blast Off

The primary element of Blur’s go-to-market strategy has been token incentives given to traders, creators, and native token depositors, which has helped Blur become the leading NFT marketplace. Incentives are distributed in Seasons, with Season 2 ending and Season 3 beginning on November 21, 2023. Until the end of Season 2, the only functionality provided by BLUR was governance rights. A 1% base fee on the marketplace, used to buyback and burn BLUR, and fee discounts to native token holders have been proposed to give BLUR tangible utility. These proposals haven’t materialized as many community members have been fearful of volume migrating to other platforms since NFT traders seem to be extremely fee-sensitive during bear markets.

With the end of Season 2, 300M BLUR were distributed as incentives. Many expected most of the tokens to be immediately sold on the open market, but the team behind Blur implemented a clever incentive mechanism to give market participants a reason to continue holding BLUR. Season 3 will end in May 2024, with 50% of rewards distributed to NFT traders and the rest to BLUR depositors. Rewards will be distributed through Blast, the new Ethereum rollup with built-in yield, likely in the form of the L2’s native token, instead of another BLUR airdrop.

As BLUR depositors are eligible for Season 3 incentives, this likely impeded most of the sell pressure that would have otherwise derived from Season 2. Currently, ~444M BLUR is deposited, accounting for ~35% of the circulating supply, and the number has continuously grown since deposits were opened at the end of November. Due to the float being compressed, the effect of catalysts will be amplified. It’s also unlikely that deposited tokens will hit the market before the end of Season 3, but once May comes around, a new incentive mechanism will have to be implemented, or “real” utility has to be introduced to BLUR. Based on some back-of-the-envelope calculations and 30D volume (wash trading excluded), if a 1% base fee was implemented for the NFT marketplace, Blur would have made ~$64M in run-rate revenue. This translates to a somewhat impressive ~29x FDV/run-rate revenue multiple.

However, BLUR does face notable dilution in the short term. From the beginning of February until the end of May, the number of liquid tokens for advisors, investors, and core contributors will increase by ~153M, or ~$95M at BLUR’s current price of $0.62. The circulating supply is ~1.27B as of January 29th.

Nevertheless, the float should remain low until at least May 2024 since the longer a user holds BLUR deposits, the larger their closing multiplier gets, while withdrawing BLUR results in a proportional decrease in the multiplier. The low float could continue even longer if new staking mechanisms/incentives are implemented as Season 3 comes to an end.

If ETH were to perform well in the coming months, BLUR should also benefit as a beta play, in addition to increased platform volume since NFT activity would likely further pick up. Other hypothetical drivers include Blur’s rumored migration to Blast and the possible activation of a fee mechanism. Having said that, the main factors to continue monitoring are platform volume and how BLUR deposits will be incentivized going forward.