Trading volumes in nonfungible tokens have tumbled 97% from a record high in January this year.
According to Dune Analytics, trades slid to $466 million in September from $17 billion at the start of 2022. The drop in NFT trading is a part of a wider, $2 trillion wipeout in the crypto sector.
This must mean that NFTs are going to zero, to be buried and forgotten.
To come to any conclusion, it is important to understand what are NFTs as well as their evolution.
Fungibility is the property of a good or a commodity whose individual unit is replaceable by another identical unit. Consider a $100 bill. It can be replaced by another $100 bill which has no impact on the value of the replaced bill. Same for coins or cryptocurrencies.
Non-fungibility is the property of a good or a commodity when it cannot be replaced by another ‘identical’ item. Consider a painting by Picasso or the Mona Lisa or a plot of land. These are all unique, and thus irreplaceable or non-fungible.
NFTs as digital tokens on the blockchain, provide two benefits:
Prove authenticity and
Prove ownership
Does this have real-life use cases? Imagine you were buying a luxury handbag. Which two things will be most important? First, that the product is authentic, and second that the seller is the actual owner of the handbag. NFTs make this possible. This is a huge utility.
Let us look at how NFTs have evolved in the recent past.
NFT1.0
CryptoPunks, which were 24x24 pixel jpegs, was released in 2017 and got a lot of attention. Since then they have been featured in The New York Times, Christie’s of London, Art Basel Miami, and more.
The highest sales for these have been in millions of dollars.
Bored Ape Yacht Club (BAYC) which was a fun project of 10,000 bored-looking apes has since become one of the most sought-after projects with ape #3749 selling for $2.9million. It is no surprise that with such high valuations, top celebrities like Madonna, Justin Bieber, Jimmy Falon, Snoop Dogg, Paris Hilton, and others aped into the project.
Such valuations fired up the imagination of the people and there was a deluge of senseless projects. Hype hit the ceiling and greed took over. This attracted bad actors who indulged in pump-and-dump schemes and rug pulls. Inexperienced buyers with a get-rich-quick mindset lost money. This was NFT1.0. It is these projects that are dropping off the edge at a fast pace. A shakedown was imminent.
The positive side of the success of some of the projects from NFT1.0 was that it
Created interest and attracted wide scale attention as trades hit billions of dollars
Demonstrated capability and attracted developers and builders to the ecosystem
Brands, Creators, and Influencers took notice and started experimenting in the space
NFT2.0
What we are seeing now is the early days of NFT2.0 which is beginning to take shape.
Web2 brands and business models are now evolving to integrate NFTs in their community-building initiatives. Some brands like Nike have taken the acquisition route to jump-start their entry into the web3 world. Post-acquisition of the top digital sneaker company RTKFT, Nike has topped the leaderboard in NFT sales by hitting $185million. Adidas decided to ape into BAYC and partnered with Comic Punk to launch its NFTs that delivered revenue of $23Mil in 24 hours to Adidas. Brands across industries have made an entry into web3. These include Time magazine, Disney, Gucci, Nickelodeon, Lamborghini, Tommy Hilfiger, Starbucks, and a host of others. Time magazine created a 25K strong community of creators and artists via their NFTs. This is real value.
NFTs are providing a legitimate way for brands to build communities and engage with them on a 1-1 basis. Due to NFT’s verifiable on-chain authenticity and ownership, it becomes possible to build utilities and deliver them to rightful owners. Brands and creators are using NFTs to deliver benefits in the real and virtual worlds (metaverse). These include limited edition merchandise, phygital, gated access to events, shows, festivals, wellness programs, and much more.
NFTs have real value-creating use cases in digital identity, healthcare, medical records, credentialing, and much more.
Digital ownership that is immutable is extremely powerful and we are going to have NFTs everywhere.
In trillions literally, from coupons to high-value real estate.
NFTs are dead. Long Live the NFTs.