Some NFT Projects Have Weathered the Storm but the Majority Failedby@nimsiriwardana
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Some NFT Projects Have Weathered the Storm but the Majority Failed

by Nimantha SiriwardanaMarch 21st, 2023
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The NFT bubble was caused by folks speculating on the concept versus there being any real tangible value driving the growth.
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Yes, the NFT bubble has burst, and for good reason. This particular bubble was caused by folks looking for the next project that could be a punk or ape, and speculating on the concept versus there being any real tangible value that drove the growth.

As such, it has come as no surprise that there has been somewhat of a collapse in those projects, not to mention the numerous rug-pulls which have stolen funds from speculators.

The Inflation of the NFT Bubble

With NFTs, the sudden growth in 2021 was unanticipated, but if you look at the history of NFTs, they have been around for a while. Crypto archaeologists are still arguing over what project first brought about the idea of non-fungibility to the blockchain.

There were clearly some trigger events that kicked off the sudden growth in 2021, for example, NBA Top Shots launching and artists who had been experimenting with the space suddenly found huge followings, such as XCOPY and Trevor Jones.

On the fringes, there was HEN kicking off a revolution in the way artists and collectors interacted, and Metakovan stepping in to buy Beeple’s ‘First 1000 days.’

These events contributed to a frenzy and general positivity in the crypto markets to the rapid expansion of NFT projects.

But there was also talk that 99% of the projects that were springing up would collapse, as they were mere copycats with slight derivatives of successful projects such as the Crypto Punks or Bored Ape Yacht Club (BAYC).

In essence, this is not a one-off. Any new concept will have excitement and rapid growth, for example, the sudden excitement around ChatGPT.

And there will be a collapse as speculators realize that there is nothing tangible backing a lot of the ‘me toos,’ which then results in a retrace. This is normal market dynamics.

The Plunge in Popularity

There are several types of NFTs that have weathered the storm pretty well. Take physical tokens or the gold standard projects, such as Crypto Punks and BAYC, and the ‘real’ digital art space. If you look at the floor prices for Crypto Punks and BAYC, in ETH terms, the floors have not collapsed.

With art, again, marketplaces on Tezos, SuperRare, and NiftyGateway are doing reasonably well with creators continuing to produce work and collectors participating.

Physical asset-backed tokens are also generally shielded from this noise as they have tangible value and are not driven by speculation.

What has not fared well are all the copycat projects which have added little to no value, driven by the concept of effectively fleecing the communities they claim to be building. A lot of the creators of these projects have realized how hard it is to build and simply walk away.

So there has been a bursting of the bubble, but it’s a bursting of the bubble around valuable creators and projects – and this sets up the space well for the future.

NFTs That Didn’t Survive the Hype

A number of factors caused the downfall. For instance, the wider macroeconomic climate made people realize that speculating on the next cartoon animal isn’t the wisest decision in these markets.

Another factor was the crypto winter, with prices of all tokens falling and folks sitting on major book losses. Why amplify the losses by participating in these speculative games? It’s too risky for everyone except the crypto diehards.

Who remembers Kevin? There were some poor outputs from much-hyped projects, which has added to the general dismay around where the NFT market was heading.

Without new buyers to offload useless Profile Picture NFTS (PFPs) to, it’s no surprise that prices have collapsed, and the last round of folks are left holding useless bags.

The best signal is the rate of release of PFP projects. Towards the peak of any bubble, there is a rapid increase in copycats doing the same thing with little innovation, simply riding the bandwagon of free crypto money.

All it takes is a trigger event – such as investors fleeing crypto into safe-haven assets – and suddenly, all that promised utility wasn’t worth the bytes used to store those NFTs. For the segments of the NFT market that have not collapsed, it’s clear that there is real value there.

The NFT Comeback

The technology behind NFTs can be used for solid use cases. Art – not generative projects – created by real artists will continue to thrive. A lot of the artists are expanding into other platforms to offer their work or doing it directly using the work of the Manifold team.

Gold standard projects will continue to grow because there are sizable funds protecting them from failure at this stage.

There’s excitement around blockchain gaming, despite the initial backlash to NFTs being associated with games, which is mainly due to a misunderstanding of how the technology can be used.

NFT technology has the potential to improve many industries. We’ll see more innovative applications over the next couple of years, and there may even be a separation between crypto and NFTs.

For example, users no longer need crypto to pay for NFTs. In terms of PFP projects, hopefully, folks do more due diligence on the competence of the teams behind such projects and the potential graphics that are produced to ensure those teams can really deliver.

Now that we’ve exhausted every cartoon animal out there, hopefully, the next wave of projects look at more interesting solutions for collectibles that have intrinsic value.