Written by: Aleksandr Iurev, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
NFTs had a meteoric rise in 2020 and 2021 but crashed and burned in 2022. But don’t think it’s the end of NFTs. They are poised to come back stronger than ever and to become an integral part of our lives, for example, in such activities as organized sports, races and competitions.
The NFT market grew from 2020 to 2021 rising to over $17 billion, up a whopping 21,000% over the 2020 total of $82 million. This massive growth led to much attention and criticism of NFTs, especially because they were being used in digital art market scams across the globe. Then just as suddenly as NFTs soared to cosmic heights, the market came crashing down. In 2022, the NFT market suffered a major collapse; prices fell sharply. In May 2022 it was estimated that the number of sales was down 90% compared to the peak in 2021. Despite the current doldrums, I’m optimistic for the future of NFTs. The challenge is to find ways to use NFTs productively and sustainably. The digital revolution of the past 25 years has been one of the most momentous and exciting periods in all human history. But often the main question is how do we best utilize and capitalize on these digital innovations. Quite often we encounter something new, such as NFTs, but don’t really know what to do with them. There’s the danger that something is merely a novelty or fad that quickly loses its luster and falls into disfavor. Some think NFTs are an example of a digital fad. But I don’t. I think the NFT world will soon bounce back and find utilization in places that we never thought possible. One example of this is using NFTs in the sports industry, whereby runners and any competing athlete can now obtain an NFT to keep in their digital wallet or display it on their social media profile to mark their achievement instead of a trophy or medal (though the athlete can have both if they choose).
First, what is an NFT?
A non-fungible token (NFT) is a unique digital identifier that can’t be copied and is recorded on a blockchain, thereby certify ownership and authenticity. The main advantage of the NFT is that it can be transferred by the owner, thereby creating a market where these tokens are traded. NFTs can be created by anybody, and often containdigital files such as photos, videos, and audio. Since NFTs are uniquely identifiable assets, they differ from cryptocurrencies that are “fungible.” The first known was created in May 2014 by Kevin McCoy and Anil Dash, and it consists of a video made by McCoy's wife that was registered on the blockchain.
Here are five main reasons why I’m optimistic about the future of the NFT market:
1. Increase market liquidity
More than 89% of NFT deals are fixed-price deals.NFT tokens with collateral and minimal price guarantee may reduce the “last buyer risk” and therefore this fosters an increase in market liquidity. Since collateral increases with every transaction, it will depend on the number of transactions and the growing price.
2. More transactions > more collateral.
And the higher the last sale price > the faster collateral growth. So, in order for the collateralized NFT model to be successful, it has to be applied to a developed secondary market where participants make a profit. The platforms OpenSea and LooksRare are responsible for more than 95% of NFT volume traded.
OpenSea | $14,216,786,490 |
LooksRare | $10,366,679,461 |
X2Y2 | $796,178,464 |
3. More users are making a profit
On average, every NFT token was sold 2.35 times. About 50% of buyers made only one transaction; about 92% made less than 10. You can also see that there are more collections with users making profit than there are collections with users taking losses. While some collections lost 90% of their value, there are also collections that made 5X and even 10X for traders. By tracing the full cycle of each token we can see that the secondary market volume is almost three times bigger than the primary one, with some tokens sold hundreds and even thousands of times.
4. More easy to detect artificial activity
This is important in terms of cleaning up the data and preventing market manipulation and fraud; which in turn impacts both liquidity and profitability and can lead to false conclusions about the state of the NFT market. Here’s an example of volume-boosting; imagine that each deal is 800ETH, which significantly affects the statistics contributing to about a $50M fake volume for just one NFT. It turns out, however, that if a specific collection has a dramatic difference in primary and secondary markets, then it’s clear that up to 80% of the collection volume is fake.
5. Highly active secondary market
The good news is that there are NFT collections that have a highly active secondary market with real volume. For example, the Pudgy Penguins collection is a good example of a natural secondary market. According to the data we reviewed, the secondary market artificial volume could be $8.5 billion. Up to 80% of two top performing collection's volume is artificial, so this would make the secondary market worth $9.7 billion and only 1.5 times bigger than the primary market. Yes, the NFT market declining by USD value in daily, monthly and yearly terms. However, this is happening with high correlation with the ETH/USD rate decline. By the number of transactions we still see about 40K transactions per day on average, a slight decline from the peak.
In conclusion about the NFT market:
Yes, the secondary market for NFTs is 1.5 bigger than the primary market, worth almost$10B Yes, more than 30K NFT buyers are active users, with total number of users of 400K.
Yes, on average there is 2X more profit than losses.
The market has low liquidity, however, with every token being sold around two times
While the market is in the decline by its USD value following the ETH rate decline, by number of transactions the NFT market is growing annually. This upward growth trend will continue as more uses are found for NFTs, for example in multi-billion dollar industries such as organized sports, where NFTs can now be used in awards for marathon races and other sporting events.
Aleksandr Iurev, Executive Contributor Brainz Magazine
Aleksandr Iurev is a serial entrepreneur, with many years of experience in launching startups. His most recent is Pocketfied, which will radically disrupt the mobile app development industry with its highly innovative technology and service. Overall, Mr. Iurev has 20 years of experience in the IT sector, as well as in DevOps, and Information Security. He cut his teeth in Tech working in IT security for the largest banks in Russia, as well as for top IT companies. That experience protecting clients from hacker attacks is one reason why he attaches top priority to building secure systems so that users can be certain they're protected.
