The State of the NFT Market: The Past and Future of NFTs
Welcome, great citizens of the metaverse to my NFT State of the Union.
As I write this, many members of the community are at NFT NYC putting names to faces, celebrating NFTs and the Metaverse. From what I’ve seen on Twitter, waiting in a lot of lines in overcrowded spaces. To me, this time signifies a break or interlude for what’s next for the NFT space. So it seemed like a good time to reflect on the past year — or, less, really — and take a look at the future for NFTs.
Where We’ve Been with NFTs in 2021
My story in this space really started in January with NBA Top Shot and I’m sure a lot of people reading this will have similar origins. Prior to that I dabbled in crypto in 2017, bought the highs and just held hoping it would one day recover.
After riding the lows to the highs and back down again in Top Shot, more NFTs began to arise, and people spread out into different directions. Some stayed in Top Shot exclusively, some got into ZED RUN, and then others dove deeper directly into other NFTs on the Ethereum blockchain. I focused mainly on ZED RUN, until I saw the legend dingaling tweet about some generative bonsai trees — Bonsai by ZENFT
Late Spring is where things really began to take off for NFTs. Even though Bored Ape Yacht Club didn’t immediately sell out, word got out about the apes and the community forming around them. People wanted in or wanted to find the next best thing. Prices began to rise, hype began to build, and ETH started to pump, which combined to create an explosion for the NFT scene.
From there it felt like there were so many projects launching every day. Sleep would become -EV (negative expected value) with all the action happening and so many new minting opportunities.
Big money was coming in from venture capitalists and funds. Celebrities and other notable names started getting in the mix and making record buys on CryptoPunks, rare Bored Apes, Art Blocks and more. Even with ETH prices tanking, the momentum in NFTs was infectious.
The party kept going through the summer, with the NFT market peaking in August and slowly cooling off from there as warm weather began to fade. I wonder if we’ll look back on the summer as the golden age of NFTs, or as the start of something much larger relating to crypto and where we’re heading.
Where We Are Now with NTs
Currently, with the price of ETH going up and NFTs price (relative to Ethereum) going down, some are calling the market a bear market. High gas prices are crushing cheaper projects, and most non-bluechip projects are taking a serious hit as well. See the below Dune Analytics charts via @richardchen39 on Twitter for NFT volume.
I personally wouldn’t call this a bear market. Volume and prices are down across the board, but I think a true bear market would be more soul-crushing. There are still opportunities out there, they are just much harder to find. Edges are getting smaller. The projects that are able to maintain a healthy community and pricing are the ones that you should be paying attention to.
I find it interesting that as more people have jumped into the NFT space, market conditions have worsened. Is it a function of the majority of new users just looking for quick flips and fast money or is it a lack of quality projects and other issues? I’d say it’s probably both.
Current Issues with the NFT Market
New User Experience
Someone sees NFT_Master69 on Twitter making $25,000 on a picture of a penguin and wants to get in on the action. They join a few Discords and try to mint Frank’s Fun Flowers, a 4,200 generative profile picture collection, lose a gas war and lose some of the small amount of ETH they put in.
A few days later they decide to give minting another try and the price of what they successfully minted tanks. This person has now had a terrible experience with NFTs and will likely write them off as a scam and remove themself from the ecosystem. This is not the experience that any new user will be able to bear multiple times.
Gone are the days of minting anything and everything and prices on the secondary market running up immediately. Recently, the price action on some new mints really just makes you take a step back and question what people are thinking, often panic dumping below the mint price. I’ve never seen so many people so quick to take a loss.
Hand up, I’ve taken my fair share of L’s and minted plenty of subpar projects, but quite often, especially for quality projects, you’ll see prices rebound once the initial wave of dumping occurs.
Selling Your Soul to Pre-mint
Another issue damaging the ecosystem is the meta of forced Discord engagement and whitelists. Requiring people to excessively interact in your Discord, require a certain amount of invites, or tell people if they name their firstborn child after your project (this is satirical — mostly) just to get a spot on the whitelist is a bit ridiculous.
This allows some to have a much lower cost basis than those publicly minting and opens up the opportunity for them to dump on the open market for profit, while those who didn’t sell their soul to get on the whitelist are left holding the bag. I understand wanting to reward those who were supporters from the beginning, but many projects are engaging in these whitelisting tactics to create fake hype and secure their bag by selling out
The best communities are built organically as seen with Apes, Cool Cats, and CrypToadz. Long-term success needs people who actually care as supporters of the project.
Drops and Gas Wars
Gas wars are also not bearable for new users at this point. Earlier in the year, when high gas was considered 400 gwei, it was more reasonable. But as we saw with 0N1 Force, the Sevens, Doodles, and other hyped generative drops, paying 1 ETH or more in gas fees is absolutely ridiculous.
Right now, I believe dutch auctions are the best method for minting — a method popularized in the NFT space by Art Blocks. A Dutch Auction is when the price starts high and gets lower over time. There still can be a gas war once the mint really starts moving, but it’s not as severe as it would normally be. Finding the optimal release mechanic is important for the success of drops moving forward, and will mean less gas lost on failed transactions.
I know this section seems negative, but finding solutions to these issues will positively impact NFTs as a whole moving forward. It’s on all of us, especially those launching new projects, to consider these and how they affect the greater NFT ecosystem
Where We’re Going: The Future of NFTs
Looking forward, I believe the future is incredibly bright for crypto as a whole, and that includes NFTs and digital ownership. Unironically, anyone reading this is early as there will continue to be no shortage of opportunities in this space.
Gaming and the Metaverse
Many think gaming is the next frontier in the NFT space. Numerous projects have promised playable games, but I think few will achieve this and the ones who can deliver a quality product will make a killing. Axie Infinity is the best example of this currently.
There has been a run on gaming cryptos in the last few weeks in response to headlines like Facebook changing its name to Meta and The Sandbox (a metaverse game) raising $93 million from huge powerhouses like Softbank.
As more mainstream companies rush in to build their metaverse — or at least try to participate in it — I believe this will lead to more mainstream adoption of crypto as a whole. If you don’t think discussions are being had at giant corps around the world about NFTs and crypto, you are lying to yourself.
The big hitters are coming. Many have already arrived. They won’t ignore the opportunities and money to be made.
One of the popular shows of Fox, Alter Ego, already blends the real world and the metaverse, as a digital avatar represents the singer, who remains backgstage. I would bet most people watching it don’t know what crypto is or write it off as a scam. This will change, as the bounds of what “crypto” continues to expand in the eyes of the general public.
A Decentralized Autonomous Organization (DAO) is “an entity with no central leadership. Decisions get made from the bottom-up, governed by a community organized around a specific set of rules enforced on a blockchain.” Members of the DAO vote on matters like what the structure of the DAO should be or what should the DAO invest in.
Seeing what some of the sharpest minds in the space come together to do is always really exciting to me. For example, PleasrDAO just acquired a one-of-a-kind Wu-Tang Clan Album out of the wrong hands and try to find a way to have the whole world enjoy it. Other DAOs stash away rare NFTs, often at record prices, creating hype and headlines as well as raising floor prices.
Actual DAOs will be important moving forward and it will be interesting to see what happens to them when more legislature comes out to govern them. In 2021, Wyoming began paving the way for DAOs to become companies with legal status in their state.
Fractionalization and Broader Adoption
As rarer NFTs continue to increase in value, regular people will be priced out of owning one on their own. This is where fractionalization comes in.
If someone wanted exposure to a CryptoPunk, but can’t afford the 100 ETH price tag, they could buy fractional tokens of said Punk. As the price of the Punk goes up, the value of tokens would increase as well. Fractional.art is an amazing site at the forefront of this movement, which I think will continue to grow and become more popular, as they are set to use ERC-1155 tokens (fungible) to fractionalize blue-chip non-fungible assets.
Fractional has already done over $1 billion in transaction volume since its launch earlier this year and raised $7.9 million in seed funding in August.
Moving to broader adoption, the Coinbase NFT platform launching later this year will help onboard a lot more people into the NFT space. Their user base greatly outnumbers active users on OpenSea and will enable all those with crypto already on the platform to use it easily on the marketplace.
Coinbase just recently announced their standalone crypto wallet extension, similar to MetaMask. Just as Coinbase made crypto easy to understand and buy for the first time, it’s likely they’ll do the same for NFTs.
Closing Thoughts: NFTs in the Future
NFTs are a vehicle for crypto — combining technology, culture, and true ownership. You hop onto NFTs, and it will take you on a ride to all crypto has to offer — DeFi, Web3, shitcoins, etc. — if you are so inclined.
It is very hard to have a long-term view when things happen so fast in this space, but keep staying the course and it will pay off.
Agree with what I said or disagree and want to call me an idiot? Follow me on Twitter: @Strobe4521
Disclosure: None of this should be considered financial advice. I am just a person clicking buttons and writing about it.