How to fix the lack of confidence in the NFT market
Opinions expressed by Contractor the contributors are their own.
In 2021, Non Fungible Tokens exploded in popularity with trading volume close to $17 billion. In the last year, however, NFT gains have fallen sharply. According to some estimates, trading volumes are now down more than 90 percent from the peak in January 2022.
A number of indicators suggest that the industry is currently seen as a low-trust environment. OpenSea, the largest NFT marketplace, reported that over 80% of tokens minted for free on their platform were fake, plagiarized or spam. A survey by GetWizer found that only 28% of respondents viewed NFTs as a good investment, while 44% viewed them as a bad investment. This number has been increasing in recent years as awareness of NFTs has grown. Worryingly, this suggests that as more people become involved, trust decreases. If adoption is to pick up, concerns about users’ concerns about trust must be addressed.
Some of the lack of trust and transparency can be traced to the fact that it is still a new technology with limited data and no established norms. Most teams do not have established practices for updating current owners and potential members on the progress they have made. NFT marketplaces such as OpenSea display very limited information about the NFT projects, making it difficult for potential buyers to thoroughly evaluate a project. Various actors ranging from projects and marketplaces can play a constructive role in increasing trust and transparency in the market to further promote growth.
Motivate based on performance
Currently, there is little cost or consequence to founding NFT teams that do not deliver on their initial game plans. Roadmaps are a project’s ambitions, usually broken down into milestones, and they greatly influence whether or not it is approved. They exist for accountability and to manage expectations, but these “milestones” are not always met, with minimal effects on the team. This inadvertently sends a signal to members that it is okay to break expectations and promises while also sending a message to investors that roadmaps are not a valuable means of evaluating a project.
Key team members should adopt incentives that align with the team’s success rather than frontloading them. This shows that the founders are committed to the project’s success and builds trust among NFT investors.
Various projects have experimented with new incentive mechanisms. For example Substantive, an avatar project in the chain compensates its members with the proceeds from every 10th Substantive auction. Curious Addys’ Trading Club, an educational NFT project, implemented a return policy that allows coins to be refunded within the first 100 days.
Related: 3 Smart Ways to Use NFTs to Grow Your Business
Consolidate important updates
There is no need for teams to stick to just one platform. They should make important announcements and updates on an RSS feed to ensure timely dissemination of important information. An RSS feed is a web feed that provides access to automatic website and content updates. This is achieved by extracting data from XML files and feeding compressed content into an RSS reader, which turns text files into digital updates.
With an RSS feed, users registered to the feed can receive accurate updates as the information from the teams is automatically compiled from the many sources and delivered directly to the users.
In line with web3’s goals of decentralization and user choice, users also have the freedom and flexibility to choose their own RSS feed client. Teams should include this RSS feed link in the metadata of the NFT project when it is created to ensure better discovery.
Related: Is It Time To Leave Crypto?
Self-regulate
NFTs are not currently regulated as securities and are not subject to insider trading rules by the Securities Exchange Commission (SEC).
Beyond legality, when team members trade material information before an announcement, it violates the fundamental value of fair play and undermines trust. Without a defined policy to prevent them, allegations of price manipulation can tarnish the reputation of projects and thus the entire sector. For example, in response to the indictment against one of their former employees, OpenSea has introduced an insider trading policy.
To increase trust with potential investors, teams should have a policy against insider trading. This policy should also be made available to the general public to ensure accountability. The open source policy by Tim Ferriss, a popular industry podcaster, can serve as a good starting point.
Provide better data to evaluate projects
Currently, NFT marketplaces provide limited data about their projects. Data presented now usually includes floor price, sales volume and transaction volume. This is insufficient for veterinary projects. Marketplaces should go a step further to flag projects suspected of laundering. They should highlight any identified team members and reviews about the project from verified owners. These additional data points will allow potential investors to make more informed decisions.
Several players must make a joint effort
While the current space is dominated by millennials, (a recent survey of 2,000 25 to 34-year-olds, conducted by StarkNet, found that 42% of respondents claimed they would invest in NFTs if they knew more about them) sustained growth happens just if the market can move beyond the niche groups that dominate the area today. Without further confidence, further growth in the space is unlikely.
Related: Is NFT Marketplace a boom?
