Written by: Hannah Miller
Compiled by: Luffy, Foresight News
NFTs, which once fell from the vanguard of the digital wave to a joke during the cryptocurrency bubble burst, are suddenly making a comeback in an unexpected way.
When the cryptocurrency bubble burst in 2022 after a series of scandals, no corner of the market experienced more pain than NFTs. CryptoSlam data shows that global NFT sales plummeted 63% to $8.7 billion last year, with many assets becoming almost worthless.
Those who splash out big bucks to buy the hottest NFTs are derided as fools, and some investors are even suing celebrity NFT promoters, claiming they were defrauded. Now, with Bitcoin surging with the launch of spot ETFs, the NFT industry is looking for ways to turn over a new leaf and reignite enthusiasm in its corner of the digital universe.
Startups are creating a renaissance in NFT applications in gaming, finance and art, claiming they have learned hard lessons from the past that will make their latest endeavors more durable. They want these NFTs to be seen as more than just expensive profile pictures that belong only to the rich and famous.
According to CryptoSlam, NFT sales nearly tripled from the previous month to $918 million in November before surpassing $1.7 billion in December. However, trading volume fell 33% to $1.2 billion in January this year, suggesting that NFT recovery may be complicated. Skepticism about blockchain gaming, the uncharted territory surrounding financialized NFTs, and doubts about whether NFT art can return to sky-high sales all pose challenges for a troubled market.
“I think this desire for exclusivity is a huge mistake,” said Luca Netz, CEO of NFT startup Pudgy Penguins. “What people really want is fans, they want collectability.”
Global sales of NFTs in 2023, source: CryptoSlam
game
According to Netz, industry volatility is part of the reason why Pudgy Penguins developed a toy line inspired by the chubby cartoon birds from its popular NFT line. Pudgy Toys sold 750,000 units in 7 months, generating sales of $10 million.
"We need to create real revenue streams that are not affected by variables outside of our control," Netz said.
Pudgy Penguins for sale on OpenSea
Each toy has a QR code that will take the owner to the Pudgy World online game, which is still being launched. Netz said he hopes to release a full version of the game within the next 12 to 18 months. The toys will include NFT features, such as clothing for the player's penguin avatar that can be sold within Pudgy World.
Like Pudgy Penguins, Bored Ape Yacht Club creator Yuga Labs hopes to leverage the success of its still-popular PFP NFT in the gaming space. During the cryptocurrency bull market, Yuga raised significant funding at a $4 billion valuation and embarked on a controversial token project, a partnership with Adidas AG, and a currently-suspended short film trilogy. Former Yuga CEO Daniel Alegre said in an interview with Bloomberg before his resignation that the company had too much to do.
Yuga is focused on developing the BAYC-inspired Otherside game, which failed to sell NFTs related to its digital metaverse and virtual land of the same name, and received mixed reviews from viewers for its trailer. Alegre declined to reveal an official release date for Otherside, which was originally slated to launch last year. "We're kind of pressed for time," he said.
Yuga co-founder Greg Solano posted on X when he returned as CEO: "Otherside is a huge transformation." "We still have a lot of work to do."
Physical artwork of "Bored Ape #2967" by Bored Ape Yacht Club (left) and "Mutant Ape #1933" by Mutant Ape Yacht Club
As Yuga and Pudgy Penguins work harder to push NFTs into the gaming space, the gaming space has seen varying degrees of success. One of the most well-known blockchain games, Axie Infinity, has been criticized for a hack that cost $600 million in 2022 and poor gameplay.
Zollpa CEO Aaron Jacobson said the mistake many NFT projects make is focusing on making money rather than creating fun games.
"It's not a sustainable model where you do an Initial Coin Offering or NFT minting and require all players to spend a lot of money up front before the game is released," he said.
Zollpa launched a public beta of a shooter called RoboSquad Revolution in November.
Finance and Art
Some startups are looking to use NFTs in the financial sector. Stephen Young, CEO of P2P lending platform NFTfi, said the popularity of collectibles such as BAYC and Pudgy Penguins makes them good collateral for loans. "The top blue-chip PFPs are still seeing huge volumes," he said.
Since its launch in 2020, NFTfi has closed more than 56,000 loans worth approximately $500 million. Lenders decide how much they want to loan and set the interest rate, Young said.
Framework Ventures co-founder Michael Anderson said he sees other financial uses for NFTs, noting that more companies are introducing tokens that represent real-world assets such as bonds, commodities or real estate.
"Even if we're talking about something like a Treasury bond, it has different maturities, different yields, different prices, so customized information needs to be stored on something that is inherently irreplaceable," he said.
But NFTs, including those related to finance, may be subject to regulatory scrutiny.
Beeple's Everydays: The First 5000 Days was cast on February 16, 2021. Source: Christie's
Sales of art NFTs in 2021, such as artist Beeple's $69 million worth of digital works, are currently the best-performing category on a set of NFT indices created by Nansen. These indices track the market performance of different types of NFTs, with the social category including PFP NFTs.
NFT index performance by category, based on NFTs on the Ethereum blockchain. Source: Nansen
Michael Bouhanna, head of digital art at Sotheby's, said the auction house has been selling NFTs since 2021 and continues to see interest in the tokens.
“Some artists have more technical backgrounds, and for them it’s very natural to use blockchain technology or some generative art programs in their creative process,” he said.
Sotheby's sales of NFT and digital art last year exceeded $30 million, a 50% increase from 2022, but still less than half of Beeple NFT sales in 2021. In January, Sotheby's auction house had $1.6 million in sales of Ordinals, an NFT-like thing on the Bitcoin blockchain. Sales of digital art collected by bankrupt crypto hedge fund Three Arrows Capital also exceeded $1 million.
The optimism surrounding NFTs has been undermined by concerns that the cryptocurrency's links to scandal and crime could hinder its further growth.
“They hear the word Web3 or NFT and immediately avoid the game and think it’s a scam,” said Zollpa’s Jacobson.
