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As crypto markets tumble, many NFT collections have seen their values plunge as well.
- The managing partner of an NFT investment firm explains why gaming will onboard more users.
- This article is part of "Master Your Crypto", a series from Insider helping investors improve their skills in and knowledge of cryptocurrency.
NFTs, or non-fungible tokens, felt like all the rage last year, with celebrities from Snoop Dogg to Reese Witherspoon sporting six-figure JPEGs as their profile pictures. Meanwhile, Beeple's "Everydays: The First 5,000 Days" NFT sold for more than $69 million at Sotheby's auction house. Dolce & Gabbana and the NBA jumped on board with collections of their own.
As broader crypto markets tumble, however, so have NFTs. Ethereum, which is commonly used to buy and mint the digital assets, has declined 78.7% since its all-time high in November, according to dashboard Messari,
Top-tier collections have seen their values plunge as well, per a DappRadar industry report, with Bored Ape Yacht Club floor prices falling 38% last month. OpenSea, one of the largest NFT marketplaces, declined 65% in trading volumes and had a 14% decrease in number of users in the same time frame.
Hopeful Web3 VCs and founders, however, told Insider that although prices are declining, the tokenized assets will stick around and eventually hit the mainstream by 2032.
10-year outlook for NFTs
Benjamin Cohen, founder of crypto venture firm Web 3 Equities, says the majority of NFTs won't be featured on social media accounts as a way to flex a collector's wealth. Instead, they will have a wide variety of use cases, which includes music, gaming, ticketing, virtual real estate, deeds for houses, medical records, and even collateral for loans.
Virtual real estate developer Republic Realm announced it had purchased a piece of property in metaverse game The Sandbox for $4.3 million. In March, an anonymous borrower took out an $8 million loan backed by a collection of 101 CryptoPunk NFTs.
"Over time entrepreneurs will find creative ways to use NFTs and smart contracts in ways that we haven't conceived yet, far beyond the scope of status symbols," Cohen said.
Although they founded different firms, CEO of blockchain ticketing platform YellowHeart Josh Katz and Cohen both agree that NFTs will move towards more utility use cases.
People will cut out the "middlemen," Katz said, with ticket NFTs, weeding out third parties like Ticketmaster. YellowHeart, which has worked with musicians like Kings of Leon and Maroon 5, announced a partnership with Tao Group Hospitality, to sell tickets to its venues as NFTs.
"Businesses are going to figure out cool ways to incorporate NFTs into something that we're doing everyday right now," Katz said, adding that most projects will have fiat on-ramps. "For ticketing, you could cut the line, get to the venue early, or get a free beer."
In 2032, NFTs will also be more accessible than they are now so that "most internet users" can afford them, says Stephen Young, the founder and CEO of NFT lending marketplace NFTfi.
"At the moment, many NFTs are expensive because blockchains are expensive and slow, so the use cases that make sense require high value NFTs," he said.
To mint or purchase an NFT on Ethereum, investors and creators have to pay gas fees. These costs occur when performing any sort of function on Ethereum's network. At times, these fees can be more expensive than the NFT itself. Other blockchains and Layer-2s like Solana or Polygon, however, have quicker transaction times with lower costs.
Mainstream adoption and hurdles
Andrew Steinwold, the managing partner of NFT investment firm Sfermion, says gaming will be the use case that onboards the most users. (Sfermion announced a $100 million fund last year and has previously invested in AI enabled NFT platform Alethea AI, Web3 developer platform Mojito, and virtual real estate marketplace Parcel.)
"I think NFTs in gaming have a really simple selling point to the user, 'Hey you spent $20 on this digital good in this video game, but you don't actually own it. Wouldn't you like to own it?'" Steinwold said.
Blockchain gaming, unlike broader crypto markets, has remained stable in recent months. Around 1.15 million daily active wallets interacted with Web3 games in May, per a DappRadar report, declining 5% from the month before. Popular games include Splinterlands and Illuvium.
Video games are also "fun and easy" to understand for people of all ages, Steinwold says, which lowers the barrier of entry to enter its ecosystem. Blockchain-based gaming, or games that integrated tokenized assets on-chain, grew 2,000% last year, per a Q1 2022 DappRadar and Blockchain Gaming Alliance report.
With massive growth in NFTs comes bad actors, which present plenty of obstacles to mainstream adoption.
Critics are wary of the ecosystem due to security concerns, scams, and money laundering allegations. Earlier this month, Yuga Labs, creator of Bored Ape Yacht Club, said its Discord server had been compromised, with a hacker draining $360,000 worth of ether-based NFTs at the time. In January, anonymous founders of an NFT collection called Frosties vanished after siphoning $1.3 million worth of funds from its investors.
"Money laundering, and in particular, transfers from sanctioned cryptocurrency businesses, represents a large risk to building trust in NFTs, and should be monitored more closely by marketplaces, regulators, and law enforcement," blockchain research firm Chainalysis said in a recent report.
Whether you love them or hate them, NFTs don't seem to be going away anytime soon. Investment bank Jeffries forecasts a massive percentage growth in the next five years, along with a market cap of over $80 billion by 2025.
This article is intended to provide generalized information designed to educate a broad segment of the public; it does not give personalized investment, legal, or other business and professional advice. Before taking any action, you should always consult with your own financial, legal, tax, investment, or other professional for advice on matters that affect you and/or your business.