Non-fungible tokens (NFTs) exploded into popular consciousness in the first half of 2021. In particular, the art world really began to take notice of this asset class, which allows for clear ownership of a unique virtual item.
Whether it was the digital artist Beeple selling his NFT piece for more than $60 million, Covid Alien Punk reaching $11.8m at auction, or the first ever Tweet selling for over $2m, the interest in the NFT space has been incredible across both the crypto-space, and the general public alike.
This fueled some pretty incredible growth leading up to May 3, when over $102m NFTs were sold in a single day. Since then however, sales have dropped off significantly – with a mere $8.7m in NFT trading on June 15. These are the sort of volumes we were used to seeing at the beginning of 2021.
What is driving this downturn in the NFT marketplace?
Realistically, there was only ever going to be so much interest in unique collectibles which lacked any other utility. Many NFTs were purchased with resale value in mind. As the NFT market has cooled off, secondary sales make an interesting precursor to this drop off. Since a high in March 2021 with over 83,000 secondary sales volume, late June saw an average of just 30,000 secondary sales. That’s a 64% drop in just three months.
Over the past few weeks, NFTs connecting into the “metaverse” — such as digital real estate and other virtual artifacts — are now outselling those linked to crypto-art. This makes sense when viewed against the broader context of a wider crypto-market losing more than 50% in total value since ATH in May 2021. As investors miss the gains they have become accustomed to over the past year, they are shying away from pure collectibles and shifting into something that has a real use-case.
Moving from collectibles towards a meaningful asset class
It’s clear that the explosive performance of collectibles was not sustainable in the long term. In order to stay relevant, NFTs are having to work harder to prove utility in the real world and add present tangible value rather than simply expectant future resale value.
There are some interesting projects within the NFT space which are bringing this fabled utility to the wider ecosystem. Delivering on the unique value of NFTs, but overlaying functionality to create something more meaningful. And potentially more sustainable.
Gaming has always held great potential for crossover with the NFT market simply through the sheer volume of power-ups, collectibles and unique items inherent within most gaming experiences. The world of sports is really leading the pack here, with brands such as NBA Top Shot harnessing the global appeal of basketball to create a wildly popular sports trading game featuring some of the most iconic players, shots, and games in a NFT format. Continuing the sports theme is Tradestars, where the world of fantasy sports, trading and real-world athlete performances merge through innovative fractional NFTs, allowing players to buy, trade and earn real value through sports knowledge.
Platforms such as Decentraland and The Sandbox are reimagining what is possible in terms of shared experiences through their mostly user-generated virtual worlds. These “metaverses” are predominantly user-owned, Ethereum-based spaces where users can play, explore, and interact – with NFTs at the center of everything. Where it gets really interesting is the ability to purchase spaces of land where you can build your own environments, marketplaces, and applications.
In June 2021, a plot of virtual land sold for over $900,000. While that was more likely an outlier, the fact is that the value of virtual land has been increasing. In just the last week of June, over $500,000 worth of land was purchased on Decentraland – bucking the downward trend seen across the wider NFT ecosystem.
Terra Virtua is an immersive entertainment-focused collectibles platform that facilitates consumer NFT purchases through its digital marketplace, allowing collectors to display and interact with their virtual goods in augmented reality. They will use the Casper Network’s scalable and environmentally-friendly L1 to enable verified authentication of physical assets collectors own or purchase.
DeFi (Decentralized Finance)
Ultimately, an NFT is a neat, utterly unique container for anything you might choose. This is why the DeFi world has started looking to this asset class as a solution to some of the financial problems being faced today. Platforms such as Splyt are creating universal, standardized protocols for how data and funds are shared securely between all parties in e-commerce transactions – effectively decentralizing a $4.2 trillion ecommerce industry.
What does the future look like for NFTs?
With a wide range of utility, NFTs can begin adding value to myriad on and off-chain ecosystems over the coming few years. Whether that’s tokenizing real-world objects such as real estate or athletes, creating opportunities to invest in high ticket assets through fractional NFTs, or even creating proof of ownership certificates; there’s an interesting future to watch out for. A future beyond cat gifs and collectibles.