The need to reimagine digital art’s value proposition

With cryptocurrency prices reeling this year, non-fungible tokens (NFTs) and other sub-ecosystem investors have also found themselves in the grip of a bear market.

But looking beyond the trading value of Ether (ETH), NFTs were primarily created to represent assets and ownership in the real and virtual world. As a result, the bear market has rekindled discussions around how NFTs can step back and focus on serving use cases while the market recovers.

In a conversation with Cointelegraph, Tony Ling, the co-founder of analytics platform NFTGo, shared insights into the NFT ecosystem, revealing the expected trajectory of the ecosystem.

Cointelegraph: NFT’s growing popularity is often attributed to the various real-world use cases they can and have solved. What is your view on the falling NFT market? Do you think the market is about to pick up again?

Tony Ling: To answer this question, you must first explain the value basis of NFTs. Currently, the NFT market is mainly driven by four categories: art, PFP (profile pictures), country and membership. Currently, PFP is the most dominant. The value base of PFP NFTs mainly includes three parts: financial products, collectibles/luxury goods and memberships, of which the financial products are currently dominant, while the derivative model of NFTs is still at a very early stage. Therefore, with the general de-bubble of the crypto market, NFTs, as a low-liquidity derivative of fungible tokens (FT), are bound to fall accordingly. This is to be expected.

However, I believe that as the crypto market picks up in 2023-2024, the value of NFTs has room to grow multiple times relative to the larger crypto market. The increase in value will come from at least two aspects:

One, with the development of NFTs and meta-universe related technology, NFT usage scenarios will be more numerous, and the consumption property of NFTs will grow, and this consumption property is not only for solving real-world problems, but also to create new scenarios that do not exist in the real world.

For example, all assets in Otherdeed’s metaverse are NFTs, and these NFTs will themselves generate various economic interaction scenarios, thereby realizing new consumption to help people better fulfill their needs and even evolve into new productivity tools and business forms.

Two, the development of various NFT derivatives, including NFT fragmentation, NFTFI, NFT mortgages and NFT fixed income products. These new financial products will enable investors to participate in NFT-related investments in a more flexible format, thereby attracting more capital, both institutional and individual investors, to this market.

CT: Despite losses and reduced hype, many projects are still considered viable investments. What do you think is driving this trend? How important is it for NFTs to serve use cases, or are they just investors looking to make money?

TL: The driving force of any trend is both the “story created by the speculator” and the “real value.” Especially in the early days of an industry, a bubble is more of a reaction to uncertainty, and I think it’s primarily developers like us who embrace the uncertainty that drive the trend. Of course, in addition to developers, large funds, including funds in the crypto space, mega funds and even funds that used to focus on traditional areas, are also very important drivers. Some of them actually want to make money, but from a capital efficiency perspective, I don’t think right now is a good time to make money in the crypto market.

CT: What trends are still relevant from the early NFT days, regardless of price fluctuations? And what are new trends that you think will become popular in the future?

TL: First, more and more people are paying attention to NFTs, and there are bound to be orders of magnitude more in the future. Data from NFTGo shows that there are currently over 2.96 million wallets on Ethereum that hold an NFT, compared to just over 200,000 in August 2020. Despite current market sentiment being cold, there are still 20-30,000 addresses that trades NFTs every day. Of course, this figure still has enormous room for growth. Second, builders keep building. You can see that many NFT related companies have recently raised funding. Furthermore, although the market has been bearish recently, there are still successful new projects such as Goblintown and Memeland emerging in the market.

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Although the various PFP projects this past NFT summer had their own unique characteristics, many still followed the paradigm set forth by the Bored Ape Yacht Club (BAYC). With the further development of the NFT industry, a new megatrend will certainly emerge. This new trend, I guess, will be the eruption of the content ecology of the metaverse. The definition of “content” here is broad, and games in the Metaverse can also be defined as “content.” As mentioned earlier, the improved consumer attributes of NFTs will help the industry recover, and the consumer attributes mean that NFTs will generate non-investment income cash flow for their holders. An important way to do this is to build “content” in the Metaverse and let the builders own the content and generate revenue. Those who enjoy the content receive intrinsic rewards and are apparently happy to pay for them.

CT: What is your take on current investor sentiment? How do you think it affects the overall NFT market? What can NFT projects and companies do to improve engagement?

TL: The NFT market sentiment is cold for two main reasons: One, the price of Ether is in a volatile period and a large number of investors are in a wait-and-see phase; two, the PFP narrative and growth pattern is coming to an end, and the recent emergence of projects has yet to bring a new pattern, making it difficult to bring new expectations to the market.

The crypto industry is cyclical in nature. I personally recommend that you continue to explore new directions in the industry while keeping enough capital to wait for the next cycle in the crypto industry and seize the opportunity.

CT: As you have mentioned, the scope of the NFT market is only limited by the imagination of entrepreneurs. What are some of the use cases that NFTs can and should serve as it moves further into the mainstream?

TL: In this regard, I would point to three major subsets of use cases where NFTs are well positioned to cause mainstream disruption.

New art form: Digitization opens up richer forms of artistic expression, and the emergence of NFT and related eco-products solves the problem of digital art ownership and helps art creators better make money. As the digital world merges with the real world, the penetration of digital art into human society will become more and more widespread, thus becoming a huge new market for collectibles as well as luxury consumer goods.

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PFP, self-expression and new organizational forms: I think one of the main reasons for the popularity of PFP projects is that they better meet the human need for self-expression. The ability to tell others “who I am” is an important human spiritual need, and the PFP NFT projects and related ecologies create a good way to meet this need. The PFP NFT projects and their extended community have not only provided users with a medium for self-expression, but also made it easier for people to form communities with others who share similar expressions. Likewise, as society evolves, these similar people may create new forms of organizations, such as Decentralized Autonomous Organizations (DAOs), to influence society beyond their niche community.

New “public-blockchain-like” carrier: Current land-based projects, such as Otherdeed, The Sandbox, and Decentraland, may evolve into something similar to public blockchains in the future. New NFT projects, games and applications can all operate within the ecosystems of these land-based projects.