Lessons from the market reset highlight the importance of understanding the differences between blockchain, cryptocurrency and NFTs

When the value of cryptocurrencies cratered last year, it also put a strain on many companies that rely on the blockchain and non-fungible tokens. Dapper Labs, which runs NFT marketplaces NBA Top Shot and NFL All Day, laid off 22% of its workforce in November, just over a year after a $250 million funding round valued the company at $7.6 billion. In January, Candy Digital sold majority shareholder Fanatics its 60% stake in the digital collectibles platform.

But while the downturn in the market has led to soaring valuations, those still operating and investing in the space are generally positive about the long-term outlook, but not without taking away some important lessons from the past year. One of the biggest lessons is the importance of NFT companies offering value beyond mere hype or a hope that a digital collectible will one day rise in price.

“The challenging market in recent months has shown that IP alone is not enough for the consumer. The successful projects are those that create a unique experience in one way or another,” says Michael Meltzer, head of business development for NFT fantasy sports platform Sorare . He added that future success in the space “is going to be based on the ability to leverage blockchain and its benefits, which are scarcity, affordability and authenticity, and then layer on top of that a meaningful experience or value proposition that is beyond just price speculation.”

Even Fanatics CEO Michael Rubin suggested as much, at least when it comes to sports memorabilia, in an internal memo following the company’s Candy Digital sale: “NFTs are unlikely to be sustainable or profitable as a standalone business. … We believe digital products will have more value and utility when connected to physical collectibles to create the best experience for collectors.”

Another important discovery was the need to better separate NFT businesses from the volatility and risk of cryptocurrencies.

“Because so many of the people who were active in the NFT space were also active in the crypto space, there’s a clear alignment there in terms of sentiment,” said CAA CEO Adam Friedman, who leads the agency’s Web3 strategy. “But if you actually look at the underlying technology here and if you look at what an NFT is versus Bitcoin, ETH or any other form of crypto, they’re clearly different.”

Friedman, who is also an investor at CAA and NEA’s Connect Ventures, highlighted Ticketmaster piloting NFT-gated concert ticket sales and Warner Bros. Discovery Sports which debuted a “watch to earn” game for viewers of its “Inside the NBA” programming as NFT innovations with no ties to cryptocurrencies. “Blockchain is the technology, and cryptocurrency leverages that blockchain technology,” Friedman said. “But that technology can be used in many, many ways that have nothing to do with currency or finance.” Connect Ventures has stakes in Web3 companies such as Candy Digital, NFT marketplace OpenSea, trading platform Mojito and royalty platform Royal, among others.

The sports industry’s interest in NFTs certainly doesn’t seem to have waned along with the crypto crash. Sorare was given a four-year deal with the Premier League in January that followed other recent partnerships with MLB, the NBA and both leagues’ players’ unions. “In my conversations with leagues, they all remain encouraged by the long-term potential of blockchain to connect with fans,” said Meltzer, who noted that Sorare now has about 3.5 million users in more than 150 countries. Candy Digital CEO Scott Lawin told Sports Business Journal in January that his company has also seen increasing interest from IP owners. Candy has made deals with MLB, WWE and NASCAR’s Race Team Alliance.

If anything, for those bullish on the future of NFTs in sports, the market downturn has only lowered the price of entry and provided breathing room to prepare for an expected next wave of interest.

“We were flying the plane while we were building it when we really jumped into this space in early 2021,” Friedman said. “[The market slowdown] not only allows time for entrepreneurs, founders and their teams in this Web3 space to build; selfishly, it really allows us to be in a position where, when the market comes back, we’re ready and we don’t want to play catch-up. And our thinking hasn’t changed. This is the technology industry right now where there are long-term implications for our entire business.”