Due to the bear market and general downturn, the NFT market in 2022 has experienced a drastic drop in volume, leading to worries that NFTs are dead.
Related: How to Earn Money with NFTs You Already Own?
NFT market Performance in 2022
Due to the bear market and general collapse in the NFT market in 2022, there was widespread worry that NFTs were no longer viable. The NFT market in 2022 is thriving in many sectors if you disregard the bull market-driven 2021 as an outlier in terms of volume and traction. People are still utilizing NFTs, as evidenced by the larger decline in NFT trading volume compared to the smaller decline in NFT transactions, indicating that the slump is simply a general market trend.
For instance, the quick uptake of layer-2 products like Optimism and Arbitrum resulted in an increase in unique addresses holding NFTs, demonstrating the volume of building activities supporting the L2 sector. Polygon is still luring top Web2 talent and customers to blockchain while also being engaged in NFT market development.
On many platforms, music NFTs are also succeeding, with high sales and rising minting.
Aave’s Lens Protocol, which launched in May 2022 and already has about 100,000 users, is one example of a Web3 social network that uses NFTs in various ways and is growing in popularity. There is a ton of quantitative data to take into account, but there is also a ton of qualitative data that shows the recent NFT frenzy has brought a flood of strong Web2 builders into the Web3 arena to build with NFTs. This demonstrates the NFT market success and the wide-ranging interest it has attracted in a relatively short period.
These new entrants include notable Web2 founders and gaming companies like NetEase, Pixel Gaming, Wildlife, Square Enix, Ubisoft, and Zynga that have created successful and long-lasting products in the Web2 market and are now leveraging Web3 and NFTs to accelerate new applications. Top-tier companies like Gucci, Nike, Adidas, and Prada are all integrating NFTs into their marketing to strengthen their relationships with consumers. With more than 500 million daily active users (DAU), Instagram is now essentially an NFT market-place.
With its rapid adoption of NFTs (although they refuse to use the phrase) as a primary technology in its digital collectible avatar program, Reddit has sprung out of nowhere this year, attracting a sizable number of new users and wallet owners in the process.
Web2 giants are also utilizing NFT drops to improve In-Real-Life (IRL) experiences at major sporting and entertainment events like the World Cup and Super Bowl, as we saw with Coca-NFT Cola’s drop at this year’s World Cup. To receive a free NFT mint at the US’ premier annual sporting event, Limit Break is preparing a Super Bowl free mint for the next year.
The aforementioned uses of NFTs make it possible to transact digital property rights and interoperable assets without any issues. Despite the current market turbulence, the ongoing engagement and innovation of leading builders and brands in the NFT area are establishing the groundwork for significant development in the next years as these initiatives come to life and, ideally, coincide with a market upswing.
There is reason to be optimistic about the adoption of NFT and many web consumer applications, even though there isn’t much reason to be optimistic right now in the crypto market generally. Whether there is a bull or bear market, the fact remains that consumers and gamers will continue to engage in their pastimes. Quantitative data will eventually resume growing if NFTs continue to release these digital property rights to enable owners to transact within these games with interoperable assets. This perspective makes 2022 appear to be quite successful for NFTs.
NFT Key Focus in 2022
In addition to metaverse experiences and Web3 social apps, the main focus for 2022 has been on Web3 gaming and related consumer services, such as loyalty and tickets. Using NFT data analysis to track assets on-chain has also been a consistent trend that has been developed to some extent.
The play-to-earn (P2E) models crumbled in 2022 as a result of the bear market, subpar tokenomics, and a general failure to provide a compelling gaming experience to retain players, and we also noticed a decline in the DAO and Guild building narrative. It’s obvious that the industry is starting to realize that it will take some time for Web3 games and metaverses to become widely used; as a result, the emphasis is turning to creating the ideal experiences and supporting infrastructure.
The following industries will benefit from this shift in focus: Web3 social applications and products that will help unlock Web3 intellectual property; infrastructure on wallets and marketplaces; NFT creations that can service more complex incoming metaverses; and infrastructure on wallets and marketplaces (IP).
Due to PFP NFTs’ phenomenal success in 2021, a sizable amount of new intellectual property was produced, primarily in the form of photographs and other interactive visuals. The objective for 2023 is to develop more sophisticated gaming products and applications that can unlock and improve this intellectual property (IP) through the potential use of AI-based utility or in-game utility.
Why did NFTFi and SocialFi perform worse than expected in 2022?
A few 2022 NFT theses fell short of the enormous expectations they were accompanied by from the previous year.
Let’s start with direct investment in virtual worlds. Although “metaverse” was a big buzzword for 2022, the industry has since realized that the enthusiasm was unwarranted and that it will take time for completely immersive digital experiences to develop. Even now, it’s unclear if metaverses will be PC-based, AR-based, VR-based, or a combination of all three; the market will make that decision in the end. As previously stated, there is now a focus on developing the framework and experiences that will comprise this comprehensive metaverse experience, such as providing support for tiny games.
Also heavily promoted in late 2021 and early 2022, DAO tooling (a collection of software, apps, and smart contracts used by a decentralized autonomous organization to function) lost its luster this year as the market realized it was creating a product to meet needs that weren’t adequately met yet.
We are seeing a clear use case for DAOs, even though they are still in their infancy and scaling extremely quickly. It is now more clear what tools can enable DAOs and meet their demands as they continue to develop and function, especially in this weak market.
The market slump and the subsequent loss in liquidity, which will take some time to recover, were major contributors to NFTFi’s failure. Yet, as we can see with initiatives like Solv Protocol, it has amply illustrated the enormous potential of NFTs to provide powerful financial applications, such as issuing tokens and representing bonds.
Due to higher liquidity and increased user numbers, direct NFT financial services like lending will continue to be a focus and will eventually improve in line with pricing. It is important to remember that the long-term narrative for NFTs in financial services remains strong and is anticipated to take a few years to play out in full, even though there is a lot of user reluctance regarding the dangers associated with NFT-based lending applications.
NFT development trends to expect in 2023?
The creation of transmedia content overall and the convergence of NFT and AI, such as the design of gameplay, the use of AI-based NPCs, and the creation of art and gaming assets, remain exciting focal points. It’s also intriguing to see how marketplaces and wallets develop to better suit particular consumers. Building more Web2-friendly wallets and including components like social factors and DeFi functionality for DeFi consumers are current areas of focus.
Separate markets for particular collections, like those devoted to gaming, are also starting to appear. In general, attention is being paid to how and where NFT verticals can progress and improve the moving future.
Web2 social media platforms are utilizing NFTs in novel ways as well. You can use Twitter to display your avatar and Reddit to integrate your avatar. Avatars, though, are just version zero. Additionally, Instagram lets you publish material as NFTs and mint them.
These version-1 applications only scratch the surface, so we’re eager to see where NFT innovation is headed with V2 and subsequent revisions. It will be interesting to watch how NFTs are eventually employed to enhance the social media experience.
A new wave of NFT markets, including LooksRare, X2Y2, Blur, and Magic Eden, entered the market in 2022 and are threatening OpenSea’s dominance and changing the NFT environment.
With concepts like token-based airdrops, sophisticated social features, shared liquidity, focusing on particular markets like hardcore traders, having optional royalties, going multi-chain, or focusing on a particular genre, like gaming, music, or video, there are many powerful players and well-established marketplaces that are constantly innovating. These services and applications are just starting to fully comprehend their user bases and target them accordingly.
We’re interested in how these marketplaces serve their customers and improve their experiences by supporting many chains and wallets, detecting fraud, and providing improved search and recommendation tools. Because there are so many NFT collections available, it is crucial to make it easier for users to identify the material they want and to offer a more specialized marketplace experience.
Where will VCs be investing in 2023 for funding?
Despite its poor performance this year, Web3 gaming is still the current NFT vertical that has VC firms the most thrilled because of the widespread belief that gaming would eventually attract a large population to Web3 cryptocurrency. This encompasses not only NFTs but additional aspects of cryptocurrency, including the use of hardware and software wallets, communication with decentralized exchanges (DEXes), and reliance on on-chain loan sources.
Web3 games are helping to onboard people, and eventually, this adoption will spread to other aspects of cryptocurrency. Therefore, in the Web2 game industry, VCs are still seeking great studios and builders as well as robust infrastructure.
VCs are also attentively examining NFT IP. Every year, there will probably be new intellectual property (IP) emerging from the NFT sector as well as IP being unlocked to enhance the community experience, which has been lacking in the Web2 space.
The instability on Web2 social platforms brought on by user resentment over perceived restriction and the uninvited monetization of personal data is expected to help Web3 social media, another intriguing frontier. With only a few platforms actively creating and gaining popularity, it is still in its early stages.
Numerous games attempt to simultaneously appeal to Web2 and Web3 audiences. It is feasible to create a “Web2.5” game that allows Web2 players (who might not be interested in using NFTs or tokens) to play the game while gradually transitioning to Web3 at the same time. In the long run, this gamer-first strategy makes more sense than trying to impose NFTs and tokens on gamers right away.
Since games take so long to develop, it’s sort of a New Year’s Crypto resolve to be able to play all the ones we’re actively considering and determine what works and what doesn’t. There is undoubtedly some value for anyone to start developing their on-chain credentials and social presence in advance, especially with Web3 social media predicted to eventually take off.
The same holds for figuring out which L2 ecosystem(s) best supports an end user depending on their interests and ambitions. We expect an increase in everyday users of crypto and NFT-based applications as the user experience of cryptocurrencies improves with each passing year.
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Disclaimer: This blog is for educational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
