Hype, hope and a promising future for NFTs? | nfts, non-fungible tokens, digital art, tokenization, digitization, digitization

With $37 billion in transaction volume in 2022, collectors managed to approach the $40 billion they sent to non-fungible token (NFT) marketplaces in 2021, according to proprietary Chainalysis data shared with FinanceAsia. So far this year, NFT sales have generated over $2 billion.

In the digital art space, the past two years have seen the rise of profile picture, or PFP, collections, including Bored Ape Yacht Club (BAYC) and Puggy Penguins, according to Amy Zhao, CEO and head of the Ocular Fund of Openspace.

This year, she looks forward to “broader use cases for NFTs that are still in early stages,” such as NFTs used in financialization, Soulbound Tokens (which use blockchain to represent personal attributes), and supply chain-related tokenization.

Openspace manages $650 million in committed capital and has a portfolio that boasts exposure to Indonesia’s GoTo, Singapore-based clothing brand, Love Bonito and Indonesian fintech, FinAccel, among others. Their team launched the Ocular Fund in late 2021, focusing on investments in the Web3 space, and so far the fund has invested about a quarter of the $25 million raised. Current investments include StepN, a move-to-earn game where users buy NFT sneakers to earn crypto tokens when they exercise, as well as Sonarverse, a Web3 data analytics platform.

Last year saw a series of ups and downs for the crypto sector, from the fall of the TerraUSD stablecoin (virtual currency backed by fiat), to the collapse of the world’s second largest crypto exchange, FTX. The ensuing contagion flooded all facets of the digital asset universe, affecting both price and appetite for assets active in the virtual arena.

“NFTs are unlikely to emerge as a top sub-sector this year, but decentralized finance (DeFi) is likely to remain of interest,” said Darren Yong, head of technology, media and telecommunications for APAC at KPMG, FEW.

The consultancy teamed up with HSBC to publish a report on Asia Pacific’s Emerging Giants in the summer of 2022, which examined the emerging economy companies with the potential to impact the global business landscape.

The survey of a community of 6,472 technology-focused startups with valuations of up to $500 million across 12 key markets from Mainland China to Australia found that over 25 percent or 1,130 companies identified with the NFT vertical, with DeFi in second place. .

Yong explained that during typical bear market conditions, private equity and venture capital investors are stricter when it comes to investment decisions, meaning they cut back on speculative investments such as NFTs. Add to the scenario the recent crypto crash, and the outlook doesn’t look particularly optimistic.

“The climate today is very different compared to the heady days of 2021. If you walked into an investor pitch and you had Web3, crypto or blockchain anywhere in your deck, you would walk out with money. Today, investors who are considering a similar pitch doesn’t touch a Web3 company with a 10-foot pole,” said Joel Shen, head of crypto and digital assets in Asia for Withersworldwide.

Gaming: The Next NFT Frontier?

But so often, in the midst of a crisis, comes opportunity – a view shared by Bozena Rezab, CEO and co-founder of GAMEE, who remains optimistic in the wake of the FTX collapse.

“This market helped filter the good teams and the good projects. It puts even more emphasis for companies like us to focus on the long-term value and quality of our products,” said Rezab. FEW.

Michael Wong, partner in the investment funds and financial services practice at Dechert, echoes this sentiment. He recently explained to FEW that, against the backdrop of crypto controversy, the challenge for regulators will be to put in place virtual asset regulation that simultaneously protects investors but does not stifle the industry.

GAMEE started in 2014 as a mobile game developer and quickly amassed a following of 40 million registered players. Today, it connects play with the metaverse and educates users through the process of having a wallet, a token, and acquiring various NFTs, which can be transferred from one game to another.

“We see our products as a way to integrate the masses into Web 3.0. By using games, we show users what the future can be,” explained Rezab.

In 2020, GAMEE became one of 380-and-counting investments by Animoca Brands, a Hong Kong-based technology firm that the KPMG-HSBC report described as “the most prolific investor in NFT-centric Web 3.0 companies”.

In a letter to shareholders and employees at the end of 2022, a statement from Animoca Brands described its exposure to FTX as “limited to a non-material trade balance”, and confirmed plans to continue investing and supporting the ecosystem.

“Recent developments suggest more resilience in the market compared to five months ago and we are looking at them [these events] simply as moments in history,” Animoca Brands co-founder and executive chairman Yat Siu said in the release.

In September 2022, the firm raised $110 million in a funding round led by Temasek, Boyu Capital and GGV Capital and channeled the new funds to Cool Cats Group and Wanderers, which have their own iconic NFT collections. In addition, the firm has entered into a strategic partnership with Tokyo-based NFT marketplace, Coincheck, and has partnered with 3D printing company Arevo to produce a series of carbon fiber bicycles. In November, its subsidiary, TinyTap, reported that its first Publisher NFTs sold out in an Ethereum (ETH) auction worth approximately $228,000.

Siu told FEW“NFT sales volume has increased rapidly as innovation in the space heats up and greater utility is added to NFTs in ever-broader applications of this technology”.

NFTs are perhaps where many in the industry see the future of gaming. In 2022, trade volume ended at around $1.45 billion, 236 percent higher than the previous year, while unique active wallets connected to games increased by 60 percent, according to a DappRadar-Blockchain Game Alliance report.

“Gaming has the potential to bring Web 3.0 to mass markets, because players 100% understand game currencies, character skins, digital assets and digital inventory,” said Rezab.

Her team developed the gaming platform Arc8, which uses the Ethereum-based GMEE token. The platform currently offers 15 live games, and every two months a new season of new games is introduced. This year, GAMEE plans to scale its solutions so that any NFT collection will be able to run its own Arc8 gaming competition for its holders.

Regulation of the future

From Manila to Tokyo, regulation is one area the industry is watching closely, and one that KMPG’s Yong says will need to step in to facilitate further growth.

“In a decentralized world, if there is no governance, no matter how good the technology is, there still needs to be public trust, and when there is no trust, systems fail,” Yong said.

Peter Burnett, managing director of Standard Chartered Bank’s Hong Kong branch, said recently FEW that it is not so much the technology itself that needs to be regulated, but how the technology is used.

To date, no specific regulation has been issued regarding NFTs, but the action of authorities in some jurisdictions – such as the US Treasury Department’s decision to issue sanctions against Tornado Cash; and the ongoing SEC case against XRP’s creator, Ripple Labs—promotes a degree of hostility toward the assets.

However, a Singapore case in May 2022 saw the city-state’s court hand down a ruling that would have implications for the entire blockchain industry.

Withersworldwide’s lead counsel, Shaun Leong, represented a Singapore-based NFT investor against a Metaverse personality, in an attempt to freeze the sale and transfer of ownership of a rare Bored Ape Yacht Club NFT on the Ethereum blockchain.

Crucially, the injunction recognized NFTs as assets, and the case marked the first time a court – and a Supreme Court at that – had extended jurisdiction over assets on the blockchain.

Shen explained that further implications included proof that smart contracts cannot exist outside of real contract principles; and that formal court papers can be served via social media, such as Twitter or Discord.

“NFTs have not been specifically regulated by any statutory or quasi-statutory framework. But in this judgment we saw some crystallization of how regulators approach such assets. This case will inform regulators around the world and it has been very influential to put the Singapore courts on the map, he said. FEW.

Tighter regulation is on the cards, and while Openspace’s Zhao said she’s keeping a close eye on regulators’ actions in the DeFi space — “We want to see how things play out, as a lot of businesses may not exist when the regulations come in” — she’s eyeing Asia like a bright place.

Hong Kong is taking the lead in the region with plans to introduce a new statutory licensing regime for virtual asset service providers from 1 April. Meanwhile, in January, the financial regulator of the Special Administrative Region (SAR), the Hong Kong Monetary Authority (HKMA), will arrive. ) published the conclusion of the discussion paper on cryptoassets. The paper highlighted stablecoins as a priority for regulators, given their greater potential for use as alternatives to fiat in payments. The market plans to introduce licensing requirements for firms operating in stablecoins by 2024.

Zhao emphasized that the work of regulators in both Hong Kong and Singapore seeks to cultivate a “sweet spot that balances consumer safety and innovation,” and it is this approach that she feels will work to spread positive momentum across the crypto and Web3 spaces in the months to come.

“Once the rules are clear, we will see much more investment from major global companies and major global brands that will further help accelerate the growth of the industry,” concluded Rezab.

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