Those still in the space say a future for NFTs will require a movement past JPEGs
NFT trading volume in 2023 was less than half of what it was in 2022. It slid from $26.3 billion down to $11.8 billion, according to a CoinGecko report.
Barely two years after pixelated collectibles were fetching millions and Jimmy Fallon showed off his Bored Ape on The Tonight Show, digital art trading has fallen off the radar for many crypto investors.
But the downturn has been a slow burn so far. Back in 2022, CoinGecko’s crypto industry report showed that digital art volumes dropped each successive quarter, falling over $10 billion from Q1 to Q4.
The space’s prolonged decline was caused by uninspiring macroeconomic conditions and high-profile collapses. These issues eroded public and investor confidence in volatile sectors of crypto, according to Mysten Labs’ NFT lead Rohan Handa.
The overall downturn in the NFT market is reflected in the ill fortunes of OpenSea, a trading platform that was once valued at $13.3 billion. Its trading volume was roughly $170 million in December 2023 after seeing nine consecutive months above $2 billion between 2021 and 2022, according to a Dune Analytics dashboard.
OpenSea laid off 50% of its staff in early November. Days later, Coatue Management, one of OpenSea’s investment backers, reportedly marked down its shares in the company by 90%.
OpenSea CEO Devin Finzer has teased forthcoming product upgrades to “OpenSea 2.0.” Earlier this month, the platform debuted a wallet creation onramp that only requires an email. This method, facilitated by Privy, leverages Shamir’s Secret Sharing (SSS) to make onboarding to the platform easier.
“OpenSea is already laying the groundwork for a large influx of new users by streamlining the buying / selling experience of NFTs by allowing users to get started with just an email,” Finzer told Blockworks in a written statement.
NFT trading saw seeds of a turnaround in late 2023 and into 2024, partly driven by the proliferation of Bitcoin Ordinal inscriptions and excitement around the Solana ecosystem.
Blockworks spoke with several participants in the NFT space who agreed that the future of the technology lies beyond what is often dismissively described as merely trading collectible JPEGs.
The 2021 rise of NFTs amounted to “step 1 in onboarding non-crypto native users — I see, I like, I use…We are now in the second phase of market maturity for NFTs, where the assets will be used in real-life applications,” Handa said.
“Rudimentary” use cases like PFPs and digital collectibles were helpful for mass adoption but led to market oversaturation, Dirk Lueth, co-founder of the metaverse gaming platform Upland, said.
The future of the space involves “coupling NFTs with utility, gamification and financial incentivization,” Lueth said.
Several sources Blockworks spoke to suggested that a resurgence in NFTs depends on the technology showing its actual utility. Lueth gave verifying identity for governance, reward systems, or access as examples. Handa spoke of tokenizing illiquid real-world assets as NFTs to bring a representative version on-chain.
Each showed optimism around NFT applications for gaming. A crop of blockchain-native games let users trade in-game characters and assets as NFTs, hoping to make gaming more monetizable. An S&P report predicts the market for this particular NFT application to grow by several billion dollars in coming years.
“2024 is the year of [g]aming NFTs,” Handa said.
Updated Jan. 19, 2024 at 10:35 am ET: Added details about OpenSea’s email-enabled wallet signup and corrected the spelling of Dirk Lueth’s name.
