The Rise and Fall of the Korean NFT Market: From Prosperity to Decline, Where to Go from Here?
Despite the sluggish market, practical application cases such as tickets and product certificates have still emerged in the Korean NFT market.Author: Tiger Research Reports
Compiled by: Deep Tide TechFlow
Key Summary
Since 2021, various projects have emerged in the domestic NFT market, including NFT platforms and communities led by large companies. However, the market has been in an unstable state since 2022.
The decline in the market has even exceeded that of the global market due to overly localized focus, lack of practical utility, and regulatory challenges.
Despite the market downturn, practical application cases such as tickets and product certificates have still emerged in the Korean NFT market. This indicates that NFTs have the potential to develop into a technology with real value, rather than just a speculative tool, making their future development worth watching.
1. Introduction
The Korean NFT market has developed in sync with global trends, experiencing rapid growth since 2021, particularly with the popularity of blue-chip NFTs like Cryptopunk and BAYC. This growth has been driven by the rapid development of multiple projects on Klaytn (a local blockchain network in Korea). Well-known projects like Metakongz and Sunmiya Club have attracted global investors' attention and achieved significant transactions on the leading global NFT marketplace OpenSea. Additionally, the launch of local NFT markets has injected vitality into Korea's NFT industry.
However, with major shocks such as the collapse of Terra Luna in May 2022 and the FTX incident in November of the same year, the market environment began to change, triggering what is referred to as the "crypto winter." Consequently, the NFT market experienced a decline, with many projects facing difficulties and even shutting down operations prematurely. Nevertheless, some companies continue to persevere, either maintaining operations or launching new projects.
In this report, we provide a comprehensive analysis of the current state of the Korean NFT market, focusing on projects that have shut down due to the market downturn and those that continue to operate successfully amidst adversity. By comparing and analyzing the strategies of these projects, we aim to identify the key trends shaping the Korean NFT market and provide insights into its future development direction.
2. Overview of the Korean NFT Market in 2024
The Korean NFT market experienced rapid growth in early 2022. As large enterprises in finance, retail, and telecommunications actively entered the NFT space, the market quickly became dominated by these big players.
2.1. NFT Platforms
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During this period, competition among NFT platforms was intense, with each platform vying for domestic users by offering localized services and providing a one-stop solution from NFT creation to trading. This strategy aimed to quickly attract a stable customer base from established companies by offering a convenient user experience. Additionally, these companies leveraged their rich experience and resources in developing and operating platform-related services such as trading, sales, and settlement to rapidly establish comprehensive markets and various related functions.
Source: Left image is Pala, right image is KT Mincl
In 2023, the market situation underwent significant changes. Many companies began shutting down their NFT platform services for various reasons. Due to an overly domestic focus, their user base was relatively limited, making it difficult to compete with global platforms like OpenSea, Magic Eden, and Blur. Furthermore, the lack of attractive NFT projects capable of maintaining stable trading volumes weakened their market positions. Ultimately, the overall downturn in the NFT market led to a decline in demand, which may have been the decisive factor for these platforms' closures.
2.2. NFT Projects
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NFT projects are continuously emerging from various entities, ranging from large enterprises to community-driven initiatives. Companies are launching NFT projects by leveraging existing intellectual property (IP) or developing new character IPs, aiming to provide customers with a richer brand experience and enhance customer loyalty through unique benefits. Notable examples include the Belly Bear NFT from Lotte TV Shopping and the Puuvilla NFT project from Shinsegae Department Store, which issued 9,500 and 10,000 NFTs, respectively. Both projects combined membership benefits and sold out quickly, becoming early success stories in the Korean NFT market.
Most of these projects rely on a simple membership-based business model, primarily generating revenue through secondary market transactions. However, as the NFT market declined, these projects struggled to maintain sustainable income, leading many to suspend their community channels or shut down entirely. Even NFT projects backed by large company brand value faced challenges in maintaining active communities. Despite initially achieving some success, these projects failed to provide long-term value and practical utility, ultimately hindering their continued development and user engagement.
3. Continued Decline of the NFT Market
Against the backdrop of a prolonged downturn in the global cryptocurrency market, the Korean NFT market is experiencing a more pronounced decline. This steeper downward trend can be attributed to three main reasons: 1) excessive localization of the domestic NFT market, 2) a prevalence of NFT projects lacking practical application value, and 3) increasing regulatory barriers related to cryptocurrencies.
3.1. Over-localization of the Korean NFT Market
Korea's preference for localized social media platforms and communities has led to an over-localization of its NFT market. When trends like NFTs become popular domestically, closed communities often form, limiting global user participation. Additionally, the increase in NFT platforms designed specifically for Korean speakers exacerbates this isolation, as users tend to prefer native language platforms for convenience. This closed environment hinders the integration of the Korean NFT market with the global ecosystem.
This description of the Korean market stands in stark contrast to the global NFT ecosystem. In the global market, NFT projects primarily operate through English community channels and markets. Platforms like Reddit, X (formerly Twitter), OpenSea, and Warpcast serve as major venues for discussing and promoting NFT projects, all conducted in English. This language gap poses a significant barrier for Korean local NFT projects seeking to expand into international markets.
3.2. NFTs Yet to Prove Their Value
Source: Left) SeoulArtistNFT, Right) BlueberryNFT
Similar to global trends, the Korean NFT market initially attracted attention through collectible NFTs. Many NFTs associated with well-known Korean artists and sports stars were launched, some achieving high trading volumes due to the creators' fame. However, these NFTs, primarily viewed as collectibles or speculative assets, struggled to maintain long-term interest and gradually became marginalized in the market.
Following this initial phase, the market welcomed a second wave, marked by the emergence of membership-based NFTs, primarily supported by large companies. Although the issuance prices of these NFTs initially surged, trading volumes and prices subsequently plummeted, showing little sign of recovery.
MetaKongz NFT sales trend, Source: Opensea
This phenomenon arises from ongoing skepticism regarding the intrinsic value of NFTs. While advancements in digital technology have popularized the concept of "digital collectibles" and sparked a wave of speculation, this hype has gradually faded. Simply owning a digital image has failed to sustain public interest and recognition. Similarly, while membership-based NFTs initially offered holders discounts and exclusive events, they struggled to create lasting value. This is primarily because these NFTs failed to meet people's expectations and lacked practical utility, preventing them from achieving sustainable development in the market.
3.3. High Barriers Due to Regulations
Another significant challenge facing the domestic NFT market is the increasing regulatory barriers. The "Virtual Asset User Protection Act," which took effect in July, along with subsequent NFT guidelines, has made the operation of NFT-related businesses more complex. According to the guidelines, NFTs may be classified as virtual assets if they meet any of the following conditions:
When a large number or series of the same or similar types of NFTs are issued
When NFTs can be divided
When NFTs can be used as a method of direct or indirect payment for certain goods or services
When NFTs can be exchanged between unspecified individuals as a means of exchanging virtual assets or as a payment method for goods or services related to other virtual assets.
Sunmiya Club will terminate NFT staking reward services after the "Virtual Asset User Protection Act" takes effect, Source: sunmiya.club
Classifying NFTs as virtual assets presents a huge challenge for businesses. In Korea, operating virtual asset-related businesses requires obtaining a Virtual Asset Service Provider (VASP) license. After obtaining this license, companies must also pass an Information Security Management System (ISMS) certification, a process that is both costly and time-consuming. This poses a significant barrier for companies or project teams with limited financial and human resources, making it difficult for them to enter the NFT space. Additionally, it raises the entry threshold for startups in NFT innovation applications.
In the lead-up to the implementation of the "Virtual Asset User Protection Act," several existing service options have been reduced or shut down to avoid stringent regulatory requirements. Many NFT-related businesses may shift their focus or completely exit the market.
4. How Will the Future of the Korean NFT Market Develop?
Source: Hyundai Card
Despite the downturn in the domestic NFT market, there are still many successful cases of NFT applications. One typical example is the NFT-based concert tickets launched by Hyundai Card, aimed at preventing counterfeiting and black market transactions. This demonstrates how NFT technology can create real value in existing industries. Hyundai Card's initiative is not merely about adopting new technology but addresses real societal issues, reflecting the practical benefits of NFTs. As NFT technology continues to evolve, it may resolve inconveniences in daily life and enhance public service experiences.
Source: Vircle
NFT technology is also being applied in areas such as product verification and customer relationship management (CRM). A typical example is Vircle, which offers NFT-based product warranty services. The company is expanding its business through collaborations with fashion and electronics brands, as verification and after-sales service are crucial in these fields.
NFT digital warranties have several advantages, including addressing the issue of lost paper warranties and allowing customers to conveniently activate and access after-sales services via mobile devices. For businesses, this data can be used for more efficient customer relationship management. Additionally, digital warranties can serve as a membership system, integrating customer information from various channels into a unified system. These examples showcase the potential of NFT technology to bring tangible benefits to businesses and customers.
5. Conclusion
The Korean NFT market continues to face numerous challenges in its recovery process. In addition to the previously mentioned factors, several negative events related to NFTs have exacerbated public negative perceptions. In particular, scandals involving Korean influencers and various projects' "money-grabbing" schemes have severely damaged public trust. Furthermore, many people generally perceive NFTs as primarily speculative tools, which remains a significant barrier to market development.
To improve this situation, it is essential to accumulate successful cases that demonstrate the actual value created by NFT technology. A positive shift in public perception is crucial to achieving this goal. This challenge is not limited to the NFT industry; most Web3 projects face similar issues in seeking broader acceptance and understanding.
Korea has advantages in areas where NFTs can be effectively applied, such as gaming, webtoons, and K-pop. Although the market currently faces challenges due to the localized environment and unclear regulations, new attempts at NFTs within the existing framework are gradually unfolding, bringing promising developments. With the increase in successful cases, continuous improvement in NFT-related technologies and expertise, along with increased investment from the government and enterprises, Korea is expected to launch innovations that lead the global NFT market.
