Non-fungible tokens (NFTs); Looking Into the Future of the Most Popular Crypto Niche in 2021 https://ift.tt/30SQJmZ

Non-fungible tokens (NFTs) have emerged as the most popular crypto asset niche in 2021, marking the debut of virtual worlds or otherwise known as the metaverse. This fast-rising digital asset class has not only attracted crypto natives but stakeholders from other industries, including art, entertainment and sports. The Collins dictionary also recently declared NFT as the ‘word of the year’ in 2021. 

So, what has been the primary driver of the NFT hype? For starters, their affiliation to the burgeoning crypto ecosystem has positioned NFTs as speculative digital collectibles with an indistinguishable value. Ideally, each NFT token is unique, allowing the representation of different pieces of art or digital collectibles on the blockchain network. 

With NFTs in the picture, artists can now sell their creative work through various decentralized NFT markets and traditional art galleries such as the Sotheby that have evolved to accommodate digital collectibles. On this front, we have artists such as 24-year old Lana Denina, who grossed over $300,000 in 2021 by selling her art as NFTs. 

Denina, a career painter, told CNBC in a recent interview that she was intrigued by the value proposition of NFTs in enabling verifiable proof of ownership. She went on to add that NFTs would, particularly, benefit the creative community, which has long struggled to maintain the authenticity of their work. Furthermore, NFTs present wider market access in comparison to traditional art galleries. 

The Fastest Growing Crypto Niche in 2021 

As mentioned in the introduction, NFTs took the centre stage of the crypto market this year. According to the Dapp Radar 2021 industry report, this niche generated $23 billion in trading volumes with notable digital collectibles and play-to-earn games setting record highs for consecutive months. The latest trend which is the metaverse has further added to the growing NFT market liquidity. 

While many digital collectibles popped up, some have performed much better than their counterparts. The leading pack includes prominent mentions such as NBA Top Shot, Crypto Punks and Bored Ape Yacht Club (BAYC) monkeys. NBA Top Shot hit $226 million in sales back in February, roughly 46% of the total NFT market volume at the time. However, the glory was short-lived. 

The debut of Crypto Punks by Larva Labs marked a new era of digital collectibles, spiking more interest in NFTs. So far, CryptoPunks is the second most traded collection ever, with over 2,28 billion in sales as of press time. Likewise, the price of a single CryptoPunk has shot up by 4,580% to average at $365,000. As for the BAYC collection, the average price of one bored ape is currently at 50 ETH ($2 million as per the prevailing ETH price). 

Despite digital collectibles setting the pace, play-to-earn games such as Axie Infinity have contributed significantly to the growth of the NFT ecosystem. At the core, these blockchain-based games give players an opportunity to generate some revenue while playing. Additionally, players can trade in-game items through several NFT marketplaces, some of which run on multiple chains. 

The Axie Infinity Dapp which is a product of Vietnamese studio Sky Mavis has been one of the most played NFT games in 2021. This NFT-oriented game rewards gamers in AXS and SLP tokens that can be used within its ecosystem or traded for other crypto assets. As it stands, the number of daily User Active Wallets (UAW) on Axie Infinity is over 2.5 million, a figure that was barely 20,000 at the end of Q1, 2021. 

Moving on to the trending Metaverse, virtual worlds are the current talk of the NFT space. Essentially, the metaverse is an iteration of the internet that leverages modern technology such as Virtual Reality (VR) and blockchain, enabling users to exist in a virtual world. Some of the popular metaverse worlds include Decentraland and The Sandbox. Both ecosystems offer virtual lands that can be bought and developed in a similar fashion to the real-world. 

Per the Dapp Radar industry report, virtual land prices on The Sandbox have surged by over 500% since October. Similar price valuations were also observed on Decentraland, with the platform marking one of the highest NFT land sales ($2.42 million for the Fashion Street Estate in Decentraland). Notably, this increase in valuation was significantly fueled by Facebook’s announcement to rebrand to Meta in a move to capture the potential of the metaverse. 

Looking Into the Future 

As the year comes to a close, most crypto analysts are trying to predict the NFT trends of 2022. While it is not certain which narrative will dominate the market, it is evident that the NFT ecosystem needs to scale to meet the growing liquidity demands – most digital collectible owners are currently stuck with illiquid NFTs that would have otherwise generated some revenue. 

How can NFT innovators make passive income a reality? Well, there are several ways to introduce more capital and revenue-generating models to the ecosystem. One of them is by introducing NFT lending and borrowing markets, a concept that has already been pioneered by the Drops NFT lending ecosystem. This NFT platform enables NFT and DeFi asset owners to access and provide loans by placing their digital collectibles as collateral. 

Instead of holding idle NFTs, stakeholders can leverage Drops to earn a passive income. The process is pretty seamless, given that Drops uses permissionless lending pools where anyone can collateralize their NFTs. In return, the NFT owners earn a passive income from the interest charged on the loans. Furthermore, Drops features staking and yield farming incentives through the platform’s governance token DOP. 

Simply put, NFT lending markets such as Drops are on track to solve the liquidity crunch while opening up new opportunities to participate in governance. Going by the value proposition, it is likely that lending and borrowing NFT markets will be among the popular trends in 2022. Of course, there’s always a chance of deviation especially with the rate at which NFT innovations are coming up. 

Summary 

The year 2021 has been quite interesting for the larger crypto market, with Bitcoin hitting an all-time high of $69,000 while the total market cap surpassed the $3 trillion mark. That said, NFTs witnessed the largest growth, not only in terms of capital inflow but the number of new and prominent entrants into the industry. 

Some of the popular celebrities that joined the NFT hype include rapper Soulja Boy, NBA star Steph Curry and Dallas Mavericks owner Mark Cuban. Corporate entities also made their hallmark debut, with the likes of Visa purchasing a CryptoPunk at $150,000. Going by these developments, 2022 will likely attract more heavyweights into the NFT market. 

However, the growth will largely depend on new innovations within the NFT market. Lending and borrowing platforms are an example of potential game-changers and ought to be given priority as we move into the next era of adoption. 

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