(Financial Times)
The non-fungible token (NFT) market burst into mainstream culture in 2021, as people snapped up animal collections, celebrity endorsements and social media hype encouraged people to spend billions of dollars to acquire digital items from marketplaces such as OpenSea. According to Chainalysis, between January and March 2022, more than $19bn was spent on NFTs, representing the majority of this year’s $36bn worth of sales.
However, the market has since plummeted, with monthly spending down more than 87% to just over $442mn in November and the number of active buyers and sellers now down to just over a third of its peak in January 2022. The number of new NFTs on the ethereum blockchain has also decreased by nearly 60%, according to research group Nansen.
This has left creators of popular NFT collections looking for new ways to generate revenue, such as selling products that are not linked to blockchain technology and expanding their brands into real-world investments.
For example, Doodles, a leading NFT project, has hired musician and producer Pharrell Williams as its chief brand officer and is working on a video series and an album. Meanwhile, Pudgy Penguins is making deals to produce cuddly toys and children’s books based on its NFTs, and Knights of Degen has invested in a minor league American football team, celebrity meet-and-greets, IPA beer and an upcoming line of vodka-based sauces.
Yuga Labs, the parent company of some of the most popular NFT collections such as Bored Ape Yacht Club, CryptoPunks and Meebits, has also been giving away IP rights with its tokens, which has led to a flood of businesses developing associated Yuga products. Yuga raised $450mn in a funding round led by Andreessen Horowitz, which valued it at $4bn at the beginning of this year.
However, some analysts are sceptical that NFT makers will create successful businesses beyond selling digital art. “The fundamental model of NFTs didn’t work,” said Claire Enders of Enders Analysis. “It was a bubble that has burst and is not going to happen again.”
The non-fungible token (NFT) market was a phenomenon that took the world by storm in 2021. Initially, it was driven by the enthusiasm of collectors, eager to snap up digital items such as animal collections, celebrity endorsements and social media hype. This enthusiasm drove people to spend billions of dollars to acquire digital items from marketplaces such as OpenSea, and between January and March 2022, more than $19bn was spent on NFTs, representing the majority of this year’s $36bn worth of sales.
However, the market has since plummeted, with monthly spending down more than 87% to just over $442mn in November and the number of active buyers and sellers now down to just over a third of its peak in January 2022. The number of new NFTs on the ethereum blockchain has also decreased by nearly 60%, according to research group Nansen.
This has led creators of popular NFT collections to seek new ways to generate revenue. One such approach is to expand their brands into real-world investments, such as selling products that are not linked to blockchain technology. For example, Doodles, a leading NFT project, has hired musician and producer Pharrell Williams as its chief brand officer and is working on a video series and an album. Meanwhile, Pudgy Penguins is making deals to produce cuddly toys and children’s books based on its NFTs, and Knights of Degen has invested in a minor league American football team, celebrity meet-and-greets, IPA beer and an upcoming line of vodka-based sauces.
Yuga Labs, the parent company of some of the most popular NFT collections such as Bored Ape Yacht Club, CryptoPunks and Meebits, has been giving away IP rights with its tokens, which has led to a flood of businesses developing associated Yuga products. Yuga raised $450mn in a funding round led by Andreessen Horowitz, which valued it at $4bn at the beginning of this year.
However, some analysts are sceptical that NFT makers will create successful businesses beyond selling digital art. “The fundamental model of NFTs didn’t work,” said Claire Enders of Enders Analysis. “It was a bubble that has burst and is not going to happen again.”
Despite the scepticism of some, the NFT market has continued to evolve and adapt in the face of the crash in the value of crypto and digital assets. Creators of best-selling internet collectibles are exploring ways to diversify their revenue streams and expand their brands, utilizing cartoons to sell real-world products and create entertainment franchises.
The NFT market has been rocked by a series of high-profile scandals such as the collapse of crypto exchange FTX and the TerraUSD stablecoin in May, as well as Russia’s invasion of Ukraine in February, which triggered a flood of crypto donations aimed at supporting Kyiv’s war efforts. However, some of the more positive moments that shook the NFT world in 2022 include the record-making $300mn release of tokenised “deeds” for land in the yet-to-be-released virtual world of Yuga Labs, as well as the shift from proof-of-work to proof-of-stake on the ethereum blockchain, leading to a brief uptick in the price of ethereum.
The success of the NFT market going forward will depend on how well creators of best-selling internet collectibles are able to diversify their revenue streams and expand their brands. Doodles, for example, is using its contacts in the music industry to partner with high-profile talent, working to diversify the Doodles intellectual property into live events, music streaming and physical merchandise. Pudgy Penguins, on the other hand, is making deals to produce cuddly toys and children’s books based on its NFTs, returning some of the profits to holders of the tokens.
Yuga Labs is also taking advantage of the decentralisation of IP, with the community being empowered and encouraged to commercialise their Ape IP, leading to Apes showing up on hot sauces, food trucks, in music videos and more. Meanwhile, Knights of Degen has taken a more scattershot approach to its investments, which include a minor league American football team, celebrity meet-and-greets, IPA beer and an upcoming line of vodka-based sauces, all inspired by Disney’s business model.
Ultimately, the success of NFT makers in creating successful businesses beyond selling digital art will depend on whether they can build stories that connect with people, put smiles on people’s faces and create a product that is both entertaining and valuable. If they can do this, then the NFT market may still have a chance of surviving and thriving in the future.
