How to measure the success of the NFT market in 2022?
The 2022 NFT market is facing a decline in volume due to the bear market, and the general downturn has raised concerns that NFTs are dead. However, if you exclude the volume anomaly and traction driven by the bull market in 2021, the 2022 NFT market is actually booming in many areas. The decline in NFT trading volume compared to the smaller decline in NFT trading volume shows that people are still using NFTs and the downturn is just a general market trend.
Example: The rapid adoption of Layer 2 solutions such as Arbitrum and Optimism means the growth of unique addresses containing NFTs, representing the number of construction operations supporting the L2 space. At the same time, Polygon is also actively developing its NFT business, continuing to attract outstanding Web2 customers and talent to the blockchain.
Music NFTs are also seeing success on various platforms, with high sales and increased NFT minting.
Web3 social platforms that use NFTs in various ways are also gaining traction, such as Aave's Lens Protocol, which has nearly 100,000 users since its launch in May 2022. In addition to the large amount of quantitative data to consider, there is also a lot of qualitative data available that suggests that the recent NFT craze has led to a large number of strong Web2 builders entering the Web3 space to build with NFTs. This highlights the success of the NFT market and the global attention it has gained in a very short period of time.
These new entrants include leading Web2 founders and game studios who have built mature and enduring products in the Web2 space and are now using Web3 and NFTs to enhance their applications. New applications such as NetEase, Pixel Games, Wildlife, Square Enix, Ubisoft, and Singa. Top brands such as Gucci, Nike, Adidas, and Prada are using NFTs in marketing to better connect with their customers. With over 5 billion daily active users (DAU), Instagram is now an efficient NFT market.
Reddit made a splash this year when it suddenly implemented NFTs (although they refuse to use the term) as the core technology for its digital collectible avatar initiative, bringing in a ton of new users and wallet holders in the process.
Web2 giants are also leveraging the world’s biggest sporting and entertainment events, like the World Cup and Super Bowl, to enhance real-life experiences (IRL) by leveraging NFT drops, as we saw with Coca-Cola’s NFT drop during this year’s World Cup. Limit Break is planning a Super Bowl free coin giveaway next year, where you can scan a QR code and receive a free NFT mint during the most important annual sporting event in the United States.
The above applications of NFTs enable seamless transactions of digital ownership and interoperable assets. Despite the current market volatility, as the project continues to grow, the continued participation and innovation of leading builders and brands in the NFT space are laying the foundation for strong future growth. This project has become vibrant and ideally coincides with market growth.
While there isn’t a lot to have fun with in crypto right now, there is reason to be optimistic about the adoption of NFTs and many of the web’s consumer applications. Bear or bull, the fact is that gamers will play games and consumers will spend. If NFTs continue to unlock these digital assets and allow owners to trade in these games with interoperable assets, it’s only a matter of time before quantitative data recovers. So from that perspective, 2022 can be considered quite successful for NFTs.
Which NFT industries and use cases will be the main focus in 2022-2023?
The main focus in 2022-2023 remains Web3 games and related consumer services, while Web3 metaverse experiences and social applications are also gaining traction. NFT data analysis for on-chain asset tracking is also a well-constructed continuum.
The decline of the DAO and Guild Engine narratives, with the in-game currency (P2E) model collapsing in 2022 due to the bear market, poor tokenization systems, and a general failure to deliver engaging gaming experiences to retain players. It’s clear that the industry is beginning to realize that Web3 gaming and meta will take time to become mainstream; therefore, the focus is shifting to building the right experiences and infrastructure around this.
This shift in focus will drive areas such as: Gaming infrastructure, wallets, and marketplace infrastructure for building better gaming applications, and NFT innovation that can serve more sophisticated upcoming Metaverse and Web3 social products and applications that will help unlock Web3 intellectual property (IP).
The incredible popularity of PFP NFTs has led to the creation of a large amount of new IP in 2021, mostly consisting of photos and images for interaction. The goal for 2023 is to create more advanced gaming products and applications that help unlock and enhance this IP through potential applications of AI-based utilities or in-game utilities.
Why did NFT themes like NFTFi and SocialFi fail to live up to expectations in 2022?
Some 2022 NFT themes have not become possible due to the hype from last year.
Let’s start by investing directly in virtual worlds. While “Metaverse” is a major buzzword for 2022, the industry now understands that the hype is premature and fully immersive digital experiences will take time to develop. It’s not yet clear whether the metaverse will be PC-based, AR-based, VR-based, or a combination of these – the market will ultimately decide. As mentioned earlier, the focus now is therefore on creating the infrastructure and experiences that make up this overall metaverse experience, such as providing services for mini-games.
DAO engines (a set of software, applications, and smart contracts that decentralized autonomous organizations use to run) were also hyped in late 2021 and early 2022, but lost traction this year when the market realized they were building products to meet needs that weren't working there yet. DAOs are still in their infancy, but are expanding rapidly, and we are definitely seeing clear use cases for them. As they continue to form and function, especially during this bear market, it's best to understand now what tools can support DAOs and meet their needs.
Guild Engine will meet the same fate in 2022, when investors and users realize they have jumped into this gaming-driven niche too early. In hindsight, it is clearly wrong to assume that the first generation of games (such as the V1 Axie Infinity model) provided a blueprint for all future games. As more games enter the market and utilize clans in different ways, it is important to remain flexible and adaptable.
NFTFi also fell, mainly due to the market downturn and reduced liquidity, which will take time to flush. However, it has clearly demonstrated the huge potential of NFTs in providing powerful financial applications, such as issuing tokens and representing bonds, as we have seen in projects such as Solv Protocol.
Direct NFT financial services such as lending will improve in price over time and remain in the spotlight due to better liquidity and more users than before. Although many users are hesitant about the risks associated with NFT-based lending applications, it is important to note that the long-term story for NFTs in the financial services sector remains strong and is expected to take several years to fully take effect.
What is the expected development trend of NFT in 2023?
Sfermion will continue to invest in Web3 gaming in 2023, but we are currently looking for more advanced use cases in gaming. Companies are building entirely new standards for NFTs to work in their games, using new economic models like free ownership and breaking into new verticals like fully on-chain experiences. These companies are innovating quickly and include strong Web2 founders and studios making long-lasting Web2 games, and even migrating Web2 IP to Web3. These companies are bringing what works in the Web2 world, like casual PC and mobile console games, and using NFTs as technology to enhance these experiences.
The way Web2 brands and intellectual property (IP) are entering the space is using NFTs, and the emergence of new Web3 native IP will remain a core focus in the NFT space.
The intersection of NFTs and AI, such as creating gaming and art assets, designing games, using AI-based NPCs, and creating multimedia content masters, remains another interesting focus. The evolution of wallets and marketplaces to better serve specific users is also exciting. We are focused on building a wallet that is more Web2-friendly and adding elements such as social elements and DeFi functionality for the DeFi audience. Independent markets for specific collectibles, such as those focused on gaming, are also emerging. Overall, the focus is on focusing on NFT verticals and areas that can be enhanced and improved in the future.
Additionally, there is a lot of buzz around general progress in the Layer 2 space, especially in the area of zero-knowledge rollups (ZK), and 2023 is expected to be a big year. ZK reels are expected to make access and use of NFTs 10x to 100x easier, which will translate into an increase in the number of builders building on these rails and assembling social media experiences using NFTs, leading to more users.
Web2 social media platforms are also doing some unique things with NFTs. Reddit allows you to integrate your avatar, and Twitter allows you to display your avatar. However, avatars are really just version 0. Instagram goes a step further by allowing you to post content as NFTs and create them. It will be interesting to see NFTs used to enhance social media experiences over time.
In 2022, we will also see the birth of a new generation of NFT markets such as LookRare, X2Y2, Blur and Magic Eden, which are challenging OpenSea’s dominance and reshaping the NFT landscape.
There are some strong players and reputable markets that are innovating with ideas such as token-based airdrops, enhanced social features, shared liquidity, focusing on certain traders in multiple markets (e.g. hardcore traders), having optional royalties, using multiple chains, or focusing on specific genres such as games, music, or video. These products and applications are just beginning to fully understand their user base and target them accordingly.
For example: Magic Eden and Fractal understood that they were getting a lot of attention from Launchpad, so effectively doubled down on that attention in addition to focusing on the games they added. Meanwhile, OpenSea continues to protect and enforce NFT royalties, while others like X2Y2 have joined in who have chosen to respect creator fees. With strong support on both sides over time, it will be interesting to see how the royalty debate plays out.
We focus on how these marketplaces can serve users and enhance their experience through features such as multi-chain, multi-wallet support, fraud detection and recommendation engines, and better discovery. For example, as more NFT collectibles become available, it becomes increasingly important to help users find what they want more efficiently and create a personalized marketplace experience.
Where will hedge funds deploy capital in 2023?
In the current NFT vertical, despite the poor performance this year, hedge funds are still most excited about Web3 games, as there is a widespread belief that games will eventually crowd out Web3 cryptocurrencies. This applies not only to NFTs, but also to areas of crypto such as using hardware wallets, software wallets, interacting with decentralized exchanges (DEX), and using on-chain lending resources. As users are introduced through Web3 games, this adoption will eventually spread to other areas of crypto. Therefore, venture capitalists are still looking for strong studios and builders in the Web2 gaming space, as well as strong infrastructure.
In addition, venture capitalists are paying close attention to NFT IP. Every year, new IPs may emerge in the NFT field, as well as the unlocking of existing IPs to enhance the community experience, which is lacking in the Web2 field.
Web3 social media is another interesting frontier that is benefiting from the unrest in Web2 social platforms due to user anger over perceived censorship and monetization of personal data. A kernel is not required. However, it is still in its early stages with only a few platforms actively building and gaining traction.
There are many games that are designed to cater to both Web2 and Web3 audiences. Perhaps there is a game that is considered "Web2.5" where Web2 players (who may not be interested in using NFTs or tokens) can still experience the game when it launches. This player-first approach makes more sense in the long run, rather than trying to force players to use NFTs and tokens from the beginning.
It’s the crypto resolution for the new year to actually be able to play all of the games we are actively reviewing and really understand what works and what doesn’t, as games take a lot of time to build. With Web3 social media also expected to grow, there will definitely be some value for anyone starting to create their own online credentials and social presence early on. The same applies to L2 ecosystems and understanding which (or which) ecosystems are best for the end user based on their interests and goals. As the user experience of crypto improves year on year, we expect more and more users to use NFTs and crypto-based applications every day.