Value proposition

The need to reinvent the value proposition of digital art

With cryptocurrency prices fluctuating this year, non-fungible tokens (NFTs) and other sub-ecosystem investors have also found themselves battling a bear market.

However, beyond the commercial value of Ether (ETH), NFTs were primarily created to represent assets and property in the real and virtual world. As a result, the bear market has reignited discussions about how NFTs can step back and focus on 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 ecosystem’s expected trajectory.

Cointelegraph: The growing popularity of NFTs is often attributed to the diverse real-world use cases they can and have solved. What do you think of the fall in the NFT market? Do you think the market is about to recover?

Tony Lin: To answer this question, we must first explain the value basis of NFTs. Currently, the NFT market is mainly driven by four categories: art, PFP (profile pictures), terrain, and membership. Currently, the PFP is the most dominant. The value base of PFP NFTs mainly consists of three parts: financial products, collectibles/luxury items and memberships, among which financial products are currently dominant, while the NFT-derived model is still at a very early stage. . Therefore, with the global debubbling of the crypto market, NFTs, as low-liquidity derivatives of fungible tokens (FTs), are bound to fall accordingly. This is to be expected.

However, I believe that as the crypto market recovers in 2023-2024, the value of NFTs may increase many times over that of the broader crypto market. Its growth in value will come from at least two aspects:

First, with the development of NFTs and meta-universe related technology, the usage scenarios of NFTs will be more abundant, and the consumption property of NFTs will increase, and this consumption property is not only to solve problems of the real world but also to create new scenarios that do not exist in the real world.

For example, all assets in the Otherdeed metaverse are NFTs, and these NFTs themselves will generate various scenarios of economic interaction, thus realizing new consumption to help people better meet their needs and even grow in new productivity tools and business forms.

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

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

TL: The driving force behind any trend is both the “speculator-created story” 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 mostly builders like us who accept the uncertainty that drives the trend. Of course, in addition to builders, big funds, including funds in the crypto space, mega funds, and even funds that previously focused on traditional areas are also very important drivers. Indeed, some of them want to make quick money, but from the point of view of capital efficiency, I don’t think this is the right time to make quick money in the market of cryptography.

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

TL: First of all, more and more people are paying attention to NFTs and there are bound to be additional orders of magnitude in the future. Data from NFTGo shows that there are currently over 2.96 million wallets on Ethereum holding an NFT, up from just over 200,000 in August 2020. Although current market sentiment is cold, there is another 20-30,000 addresses trading NFTs every day. Of course, this figure still has a huge room for improvement. Second, builders keep building. You can see that many NFT-related companies have recently acquired funding. Also, although the market has recently been bearish, successful new projects like goblintown and Memeland are still emerging in the market.

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Although the various PFP projects of the NFT last summer had their own characteristics, many still followed the paradigm set by the Bored Ape Yacht Club (BAYC). With the further development of the NFT industry, a new mega-trend is bound to emerge. This new trend, I suspect, will be the trigger for 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 enhanced consumer attributes of NFTs will help the industry recover, and the consumer attributes mean that NFTs will generate non-investment cash income for their holders. One important way to do this is to create “content” in the metaverse and let the creators own the content and generate revenue. People who like content receive intrinsic rewards and are apparently happy to pay for them.

CT: What do you think of the current investor sentiment? How do you think this affects the overall NFT market? What can NFT projects and companies do to improve engagement?

TL: NFT market sentiment is cold for two main reasons: first, the price of Ether is in a volatile period and a large number of investors are in a wait-and-see phase; second, the PFP story and growth model are coming to an end, and the recent emergence of projects has not yet brought a new model, which makes it difficult to create new expectations in the market.

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

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

TL: In this regard, I want to highlight three main subsets of use cases where NFTs are well positioned to cause disruption to the general public.

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

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PFP, self-expression and new forms of organization: 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 associated ecologies create a good way to fulfill this need. The PFP NFT projects and their extended community have not only given users a means of personal expression, but have also facilitated the creation of communities with others sharing similar expressions. Likewise, as the community evolves, these like-minded people may create new forms of organizations, such as Decentralized Autonomous Organizations (DAOs), to influence society outside of their niche community.

New ‘public-blockchain-like’ carrier: Current terrestrial projects, such as Otherdeed, 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 terrestrial projects.