The NFT market still faces long-term obstacles to growth
The NFT market looks set to move on from the turbulence of 2022. But the industry still faces significant long-term growth barriers this year, involving security, UX and declining interest from brands.
According to a report published earlier this month, the NFT market is back to the highest levels since May 2022. This indicates that the market is back on track after the many crypto crashes last year. The May 2022 Terra-LUNA crash was the first dramatic moment of that year and marked the end of the crypto bull market. NFT’s trading volume and sales plunged shortly afterwards.
So far, chatter around the NFT market this year has largely focused on the emergence of the new marketplace Blur. The rise has not been without controversy, with observers speculating that the marketplace is home to an unusual amount of laundering.
A new CoinGecko report shows that February 2023 saw a 126% increase in laundry trade from the previous month’s volume of $250 million. Laundry trade apparently accounted for a combined 23.4% of “unadjusted trade volume” across the industry’s six largest marketplaces. With the rewards offered by some marketplaces, users were encouraged to increase their trading volume. In the month following the launch of the $BLUR airdrop, Blur saw laundry sales triple.
Brands have shifted focus from the NFT market
According to DappRadar, the recent collapse of Silicon Valley Bank contributed to a temporary drop in the NFT market. But “the recovery was swift, which shows the resilience of these top-tier NFTs,” the source said.
According to Alex Salnikov, co-founder and Chief Strategy Officer of Rarible, several obstacles could make 2023 a difficult year for the industry. “These turbulent times have also not helped the stigma surrounding NFTs which continues to be a barrier to growth. The general population remains skeptical of NFTs and as we have seen, some mainstream brands are choosing to refrain from using the term ‘NFT’ and instead use terms like ‘digital collectible’ to appeal to the masses,” Salnikov told BeInCrypto.
Some of these brands include Reddit’s “Collective Avatars,” Dapper Labs’ NBA Top Shots, and Candy Digital’s Major League Baseball and Strange Things partnership.
“During the bull run, we also saw an influx of big brands wanting to experiment with NFTs,” he said. “This year we’ve seen brands like Meta put a hold on Web3 initiatives. I have confidence that these brands will be back. Now is exactly the time when everyone has to make tough decisions about where to allocate resources, and Web3 strategies are a big task that many companies do not have the time or resources to take on in this market.”
(It’s worth noting that Amazon recently announced plans to enter the NFT space. But this is largely a blip, as big brands pivot to AI and other revenue streams.)
“On top of this, the ongoing war between centralized marketplaces is affecting the overall NFT market. Traders are trading NFTs as if they were tokens, and marketplaces are forgetting what really matters. What matters most are artists, creators and their communities,” added Salnikov to.
It comes down to ease of use
JD Lasica, CEO and co-founder of Amberfi, a Web3 startup set to launch a new creator-centric marketplace in April called Expressions, believes this is a time for market maturation. Despite the minor setbacks, there is good reason to be confident. “We live in a sector that sets its internal clock by minutes and seconds instead of months,” he said.
“Over the next year, we should see a slow, albeit volatile, upward trajectory in the NFT space for two reasons: Broader use cases for NFTs in fashion, retail, finance, real estate and other major verticals as NFTs is moving beyond monkey-jpegs. More and more digital-forward collectors will want to trick out their lifestyles online with cool digital swag—and brands and creators are eager to please.”
An elephant in the room, however, is the usability issue. NFTs are notoriously insecure, easy to steal and difficult to retrieve once stolen. It will be difficult to show NFTs to a mass market audience before these features become faulty. “More projects are tearing down the barriers to widespread adoption,” Lasica continued. “Everyone is looking for the latest hot new collection instead of trying to solve the two main problems plaguing the space: security and usability.”
Keyword: “community”
“Even veterans of the space won’t open an airdrop or buy an NFT for fear that a bad actor will empty their wallet. We need to instill confidence in our space. Once it’s restored and usability improves, we’re off to the races.”
Lasica refers to a technique known as “airdrop-phishing”. When a wallet owner joins an airdrop and signs a transaction, this can leave the wallet open to exploits. A survey last year revealed that only one in ten NFT holders had avoided fraud. Half of the users have lost access to NFTs at some point in the past.
Straith Schreder, Executive Creative Director of Palm NFT Studio, believes communities are key to the future of the NFT market. “This will continue to drive market growth as these brands begin to integrate their core fans into NFT experiences. New users will continue to redefine the way we use this technology.”
“The history of NFTs so far has really been about marketplaces. But the way we connect brands is more than transactional. The NFT platforms and features that will drive this next growth cycle will center the experience of core fan communities: give them access, reward their support and give them a stake in what they love.”
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