Bloomberg: NFTs are making a comeback

Written by: Hannah Miller

Compiled by: Luffy, Foresight News

NFTs once fell from being the vanguard of the digital wave to a joke during the cryptocurrency bubble burst, but now they are making a surprising comeback in an unexpected way.

In 2022, when the cryptocurrency bubble burst following a series of scandals, no corner of the market experienced more pain than NFTs. According to CryptoSlam data, global NFT sales plummeted 63% to $8.7 billion last year, with many assets becoming nearly worthless.

Those who splurged on the hottest NFTs were mocked as fools, and some investors even sued celebrity NFT promoters, claiming they were defrauded. Now, with the launch of spot ETFs, Bitcoin has seen a fierce rebound, and the NFT industry is looking for ways to turn a new page and reignite the passion in the corners of the digital universe.

Startups are reviving NFT applications in gaming, finance, and art, claiming to have learned painful lessons from the past that will make their latest attempts more enduring. They hope these NFTs will not just be seen as expensive profile pictures exclusive to the wealthy and famous.

According to CryptoSlam data, NFT sales in November last year nearly doubled from the previous month to $918 million, and then exceeded $1.7 billion in December. However, trading volume dropped 33% to $1.2 billion in January this year, indicating that the NFT recovery may be complex. Skepticism around blockchain gaming, the unknowns surrounding financialized NFTs, and doubts about whether NFT art can return to sky-high sales all pose challenges to the struggling market.

Luca Netz, CEO of NFT startup Pudgy Penguins, stated, "I think this desire for exclusivity is a huge mistake." "What people really want is fandom; they want collectibility."

Global NFT sales in 2023, source: CryptoSlam

Gaming

According to Netz, the industry's volatility is part of the reason Pudgy Penguins developed a toy line inspired by the chubby cartoon birds from its popular NFT series. Pudgy Toys sold 750,000 units in seven months, generating $10 million in sales.

"We need to create real revenue streams that are not affected by variables we cannot control," Netz said.

Pudgy Penguins for sale on OpenSea

Each toy comes with a QR code that takes owners into the Pudgy World online game, which is still being rolled out. Netz expressed his hope to release the full version of the game within the next 12 to 18 months. These toys will feature NFT characteristics, such as clothing for player penguin avatars that can be sold within Pudgy World.

Like Pudgy Penguins, Yuga Labs, the creator of Bored Ape Yacht Club, hopes to leverage its still-popular PFP NFTs to achieve success in the gaming realm. During the cryptocurrency bull market, Yuga raised substantial funds at a $4 billion valuation and launched a controversial token project, a collaboration with Adidas AG, and a currently paused trilogy of short films. Daniel Alegre, Yuga's former CEO, stated in an interview with Bloomberg before resigning that the company had too much on its plate.

Yuga is focused on developing the Otherside game, inspired by BAYC, which faced setbacks in NFT sales related to virtual land in its namesake digital metaverse, with mixed reviews on its trailer. Alegre declined to disclose the official release date for Otherside, which was originally slated for last year. "We are a bit pressed for time," he said.

When Yuga co-founder Greg Solano resumed the role of CEO, he posted on X, "Otherside is a massive shift." "We have a lot of work to do."

Physical artwork "Bored Ape #2967" created by Bored Ape Yacht Club (left) and physical artwork "Mutant Ape #1933" created by Mutant Ape Yacht Club

As Yuga and Pudgy Penguins work harder to push NFTs into the gaming space, the gaming sector has seen varying degrees of success. One of the most well-known blockchain games, Axie Infinity, faced criticism for losing $600 million due to a hacker attack in 2022 and poor gameplay.

Aaron Jacobson, CEO of Zollpa, stated that many NFT projects fail by focusing on making money rather than creating engaging games.

"This is not a sustainable model; you do an initial token offering or NFT minting and expect all players to spend a lot of money upfront before the game launches," he said.

Zollpa launched a public beta of a shooting game called RoboSquad Revolution in November.

Finance and Art

Some startups are seeking to use NFTs in the financial sector. Stephen Young, CEO of the P2P lending platform NFTfi, stated that the popularity of collectibles like BAYC and Pudgy Penguins makes them good collateral for loans. "The trading volume of top blue-chip PFPs is still significant," he said.

Since its launch in 2020, NFTfi has facilitated over 56,000 loans worth approximately $500 million. Young noted that lenders decide how much they want to borrow and set the interest rates.

Michael Anderson, co-founder of Framework Ventures, mentioned that he sees other financial uses for NFTs, pointing out that more companies are introducing tokens representing real-world assets, such as bonds, commodities, or real estate.

"Even when we talk about things like government bonds, they have different maturities, different yields, different prices, so the customized information needs to be stored on something that is essentially non-fungible," he said.

However, NFTs, including those related to finance, may face regulatory scrutiny.

Beeple's "Everydays: The First 5000 Days" was minted on February 16, 2021. Source: Christie's

Art NFTs, such as the $69 million digital work by artist Beeple in 2021, currently represent the best-performing category in a set of NFT indices created by Nansen. These indices track the market performance of different types of NFTs, with the social category including PFP NFTs.

Performance of NFT indices by category, based on NFTs on the Ethereum blockchain. Source: Nansen

Michael Bouhanna, head of digital art at Sotheby's, stated that the auction house has been selling NFTs since 2021 and continues to see interest in these tokens.

"Some artists have more technical backgrounds, and for them, using blockchain technology or some generative art programs in the creation process is very natural," he said.

Sotheby's NFT and digital art sales exceeded $30 million last year, a 50% increase from 2022, but still less than half of the sales from Beeple's NFTs in 2021. In January, Sotheby's sales of Ordinals, a Bitcoin blockchain equivalent of NFTs, reached $1.6 million. Additionally, sales of digital artworks from the bankrupt crypto hedge fund Three Arrows Capital also exceeded $1 million.

Concerns about the association of cryptocurrencies with scandals and crime may hinder further growth, breaking the optimism surrounding NFTs.

Jacobson from Zollpa stated, "When they hear the term Web3 or NFT, they immediately shy away from the game and think it's a scam."