Wenser

Yes, NFTs are already dead.

1. Current State of the NFT Market#

There is no doubt that NFTs, once the best tool for breaking into "Web3," the best carrier of "Web3 culture," and the model for wealth creation in the "Web3 myth of getting rich," have long since died in the frequent explosions of 2022. The social value of PFP (profile picture) NFTs is no longer overly hyped, and many blue-chip projects, including CryptoPunks, BAYC, Moonbird, Doodles, and Clone-X, have gradually fallen from grace.

At the same time, the overall market capitalization and trading volume of the NFT market are also gradually slowing down. The current market size has fallen back to around $7.08 billion, roughly one-third of the peak of $21.9 billion in April 2022.

If we narrow our focus from the macro to the micro, the data is not optimistic: in the 24-hour trading volume, the number of sellers exceeds the number of buyers, indicating that many NFT trading orders cannot be digested on the market, leading to oversupply; the ratio of profit and loss addresses over the past 30 days is 427,000 to 64,781, about 6.6 to 1, meaning that for every person making money, about 7 people are losing money.

From the above basic data, it can be seen that the NFT market is still mainly a battleground for on-chain funds, a "chain PVP" game that runs fast. Moreover, due to the limited liquidity of NFTs and the point-like distribution of attention, a slight misstep can lead to the outcome of "everyone being buried together."

Therefore, we can almost say that the original "PFP paradigm" has gradually become ineffective. After experiencing a phase of capital hype, media promotion, influx of hot money, rampant scams, and a plethora of inexperienced investors, NFTs have entered a stage of gradual decline. The NFT market, which once saw as many as 15,000 to 20,000 new projects added daily, is unlikely to see such numbers in the short term, especially after Blur initiated the "FT sucking NFT" era, where more chips have concentrated in the hands of large whales, leading to near-exhaustion of liquidity in the NFT market.

The once-dreamed wealth has now turned into an inescapable nightmare for countless people.

2. Players Still at the Table#

Currently, the NFT projects still alive on the market mainly include the following categories:

1. Established OG Projects

Represented by CryptoPunks and BAYC, these projects' main advantages lie in their backing by capital and quality project teams, leveraging early original accumulation (online reputation, intangible influence, and offline reach) to successfully become synonymous with the NFT field, thereby leveraging a wider range of resources, funds, capital, and commercial monetization levers. Additionally, MFERS can be considered a spectacle created by meme culture and the CC0 protocol, with relatively limited commercial value but extremely interesting cultural value.

2. Emerging New Money Projects

Represented by Azuki and Pudgy Penguins, not only do the project teams belong to the New Money class, but there are also many new wealthy individuals among the project holders. Whether it’s Azuki's Zaga Bond or whale holder Zheng Zhigang, as well as @LucaNetz, who acquired Pudgy Penguins, these projects are characterized by strong centralization in operations, a strong sense of community among holders, and their unique tone and development path: Azuki follows an Asia-Pacific comic style, while Pudgy Penguins focuses more on a cute parent-child anime style. Of course, Memeland, which has a "unique" art style but aggressively promotes itself, can also be categorized here.

3. DID Projects Dressed as NFTs

This should be familiar to everyone. DID NFTs represented by ENS began another level of crazy speculation after March-April 2022. Most members of the 10K Club and 100K Club are veterans and whales in the crypto industry, remaining active globally in various activities and group chats even during bear markets. Web3 transfer/social domain names that can be traded in NFT form can also be seen as a major representative in the NFT market. This is also one of the reasons why the Web3 DID project .bit experienced a wave of hot money speculation after developing NFT trading (another reason being a $13 million Series A funding).

4. Marketing Projects by Well-Known Brands

Luxury brand groups represented by Tiffany, LV, and GUCCI view NFTs not as a crowdfunding tool, nor as projects purely designed to raise money, nor as a means to create a new brand, IP, or consumer group, but rather as a part of a marketing campaign. Therefore, they are difficult to consider mainstream NFT projects.

5. Rights-empowering NFTs

In this regard, the standout Chinese NFT project is undoubtedly Weirdo Ghost Gang. Since its official launch in February 2022, the little ghost has been the brightest presence among Chinese NFT projects, maintaining a decent floor price (still around 3-4 times the mint price) and steadily exploring empowerment for holders, brand collaborations, offline events, and rights exploration. This year's anniversary exclusive gift boxes, customized hardware wallets, discounts on CutUp trendy clothing, and benefits from offline music festivals and live houses are all genuinely appealing. The community atmosphere is also very nice. As deeply involved holders, the achievements of the little ghost are evident to all. Moreover, after its parent company ManesLAB secured $1.8 million in seed funding, the ecological development of ManesLAB is also worth looking forward to, with many plans in Ghost Map 2.0 gradually being implemented. It can be anticipated that in the coming years, as a benchmark NFT project in the Chinese-speaking region, the little ghost will remain active and continue to play its "MVP" role. (More background information: https://mirror.xyz/wenser2010.eth/Ub-jeM1OqY_79ZzJQfyDzZq7aJQqrAUbF6lpeS5JoMQ)

6. Pass Card NFTs

To be honest, I hesitated about whether to include this type of NFT, but as a once-popular NFT category, I ultimately felt it deserved some space. Moreover, this is indeed a type of role that is still active in the current market, such as the leading community Lasercat in the Chinese-speaking region; overseas communities like UG; many paid communities in China can also be considered another form of Pass Card NFT communities. The main hype point lies in four words: "money-making effect." Community founders have genuinely made money and can help others make money, and they can keep making money (to varying degrees). These three conditions are quite stringent, so the communities that survive all have their unique characteristics or soul figures.

Of course, the NFT market is neither too big nor too small. If there are other types of NFTs still alive, feel free to leave comments for discussion.

Lastly, I can't help but reminisce that when I first encountered Web3 in 2021, there was a non-consensus "consensus" in the NFT track: 99% of NFT projects would go to zero and disappear into the dust of history, with only 1% of NFT projects surviving. In this process, some people made money from the "process," constantly flipping NFTs, minting or buying at low prices, and selling at high prices, focusing more on speculation and emotions; while others chose to make money from the "results," buying into what they believed could become that 1% of NFT projects and continuously holding or even increasing their positions, focusing more on cycles and project quality.

Now, two years after the NFT Summer of 2021, we can see that the former has become the winner of the entire market, harvesting the alpha returns of the entire track and continuously converting or cashing out; while the latter, only a few have truly grasped a handful of quality projects, ultimately obtaining certain beta returns.

As for the survival rate of NFT projects, based on my observations over the past year or so, it is far less than 1%, approximately 1 in 500, or even 1 in 1000.

3. Retrospective: Where Did the Last NFT Bull Market Come From?#

At this point, we can't help but ask: What caused the last NFT bull market, and why did it leave? Looking back at history, perhaps the following thoughts can serve as a reference direction.

In my view, three important reasons drove the last NFT bull market—"new funds, new trends, new cases" (which I call the "three new engines"). Here are more detailed explanations:

Primary Reason: New Funds#

The first and most direct engine is, of course, new funds. After all, without significant incremental funds, there can be no real bull market.

From a global market perspective, the physical distance brought by the COVID-19 pandemic starting in 2020 accelerated the influx of hot money into online virtual industries. People frantically chased entertainment idols, art collections, mental and physical healing, and social circles, driving the prosperity of virtual industries such as short videos, live streaming, live commerce, and knowledge payment, while also laying a certain foundation for the broader dissemination of virtual games, digital art, and crypto assets, leading to the wave of the metaverse. Starting from March 2021, when Roblox went public and briefly surpassed a market value of $45 billion, to October 2021, when Facebook rebranded as Meta, people poured all kinds of funds into the stock market and cryptocurrency market, with massive attention bringing in massive new funds (hot money).

Secondary Reason:#

From a more specific perspective, the sources of new funds mainly come from two major avenues:

One is the traffic and attention brought by various upgrades and iterations from Web2 to Web3. This includes attention from various traditional Web2 organizations, as well as the incremental attention generated by traditional or Web2 brands attempting new marketing strategies in Web3, and the migration and upgrading of many Web2 practitioners to the Web3 track. Many "amateur crypto traders" have undergone a "role upgrade"—either becoming part of the diverse workforce in the Web3 industry or transforming into project parties, operators, KOLs, etc., becoming part of the Web3 ecosystem, contributing significantly to the transition of Web3 from a marginal industry to mainstream visibility.

The second is the variables brought about by drastic changes in the macro environment (e.g., financial policies of major economies, changes in global political situations, capital allocation of old and new wealthy individuals, and the risk-averse sentiment generated by various black swan events), which indirectly leads people to find ways to preserve or increase the value of their assets through various means. NFTs, with their high risk and high reward, as well as certain cultural, community, and social attributes, are just a small part of these capital allocations.

Primary Reason: New Trends (Hotspots, Narratives)#

The second slightly deeper engine is new trends. International investment institutions represented by A16Z and Paradigm are the main driving force behind this engine.

Since Ethereum co-founder Gavin Wood proposed the concept of Web3, which differs from Tim Berners-Lee's "father of the web" Web3.0 in 2014_ (For details on Gavin Wood's views on Web3, see: https://mp.weixin.qq.com/s/8YIstLVdIcLydExmRwM81Q)_, venture capital institutions and their partners discovered that this was another new territory opened up by Satoshi Nakamoto and blockchain technology, thus igniting a frenzy for this new hotspot, narrative, and trend of Web3.

Secondary Reason:#

Similarly, countless people shout the slogan "ALL IN Web3," but only a few can truly achieve this or genuinely integrate into the Web3 ecosystem and establish a foothold. The root cause is that many people have not realized that the sources of new trends mainly come from two aspects:

On one hand, there is naturally the push from upstream capital. Investors and investment institutions, considering investment returns, increasing the diversity of investment portfolios, and more efficiently (though possibly wastefully) filtering out quality talent and projects through a racehorse mechanism, will naturally support and promote various "stories," claiming that "Web3 is the next generation of the internet," "Web3 is the future of the internet," and "Web3 is a direction greater than blockchain."

On the other hand, after capital promotion, various public relations articles, news media, internet hot marketing, celebrity effects, and examples of wealth creation are transmitted in waves to a broader market sentiment.

Unfortunately, among these two aspects, only the latter is a game that most people can participate in, and they can only be passive recipients of the final situation and results. Just like in the whole world, most people are merely slightly useful pawns rather than players who can maneuver on the chessboard. The earlier one realizes this, the better one can understand their role and find their position.

Primary Reason: New Cases#

If there are only funds and trends, the power to form a wave would still be somewhat insufficient. Ultimately, what lies before people are mature, successful, and growing new cases that are the most persuasive.

The best engine for the last NFT bull market was the role of new cases—one is a fast, convenient, rich, and ecologically mature NFT trading platform, and the other is one or several NFT projects that can serve as "synonyms for NFTs," effectively, directly, intuitively, and powerfully conveying the role and value of NFTs (even if it is the bubble value or speculative value that everyone is clamoring for).

Secondary Reason:#

At the entry point of the NFT industry, the best cases undoubtedly come from the "collusion of platforms and projects," namely Opensea, which has always claimed to be "the largest NFT trading market in the world," and BAYC (Bored Ape Yacht Club), the best historical representative of NFTs that brought a new paradigm. With the backing of well-known investment institutions like YC, 1confirmation, A16Z, and Paradigm, Opensea's market value surpassed $13 billion in just four years (although with the market's coolness, Tiger Global adjusted its valuation to around $3 billion). Behind this, it is also inseparable from the significant driving force of BAYC and its parent company Yugalabs, which also harvested $450 million in seed funding from A16Z at a $4 billion valuation during the last NFT bull market.

At the channel point guiding more people into the NFT market, it benefited from blockchain games, chain-reformed games, and variations of the ICO model (such as IGO, INO, etc.). After all, having mature cases that can be replicated or scaled will lead to more people entering the NFT market, whether as upstream project parties or downstream purchasers (investors). For example, Axie Infinity and STEPN, as representative projects in the GameFi track, have caused many game-related NFTs to rise; the XRabbit Club series NFT launched by the Web2 IP Cold Rabbit at the end of 2021, Phanta Bear (commonly known as Jay Chou Bear) operated by Liu Genghong at the beginning of 2022, and the subsequent entry of RUG projects like Ali, along with various celebrity-directed NFT projects (such as the Innocent Cat associated with Pan Weibo, C2044 personally promoted by Edison Chen, and Zombie Club involving Yu Wenle), even including well-known artists both domestically and internationally, such as Fang Lijun and Cai Guoqiang, as well as many NFT projects operated by Web2 companies or their agents, such as Wanglaoji, Yingke, and Aotu World.

As for the final exit point of the NFT market, in addition to the conventional centralized exchanges facilitating the transfer of funds from sales, the unique tornado mixer in the blockchain world also facilitates hackers and "entrepreneurs" skilled in "RUG PULL tricks" to cash out in a timely manner, converting the ETH, SOL, and other cryptocurrencies earned from NFTs into stablecoins like USDT, USDC, and DAI for asset transfer and fiat currency exchange.

The market environment and NFT projects at that time can be described with the following four words: short cycles, hot speculation, soft packaging, hard harvesting.

Short cycles refer to project cycles generally lasting about 1-2 months (or even shorter);

Hot speculation refers to generally raising expectations and heat through KOL promotions, community collaborations, fan lotteries, and off-market white lists;

Soft packaging refers to generally soft packaging through well-known organizations, celebrities, Web2 brands, and pie-in-the-sky routes, ultimately leading to soft RUG;

Hard harvesting refers to generally completing hard harvesting of NFT players through reasons such as team splits, capital exits, market coolness, and sales falling short of expectations.

4. Rethinking: The SSK Model of NFT Projects#

Last year, I summarized my views on NFT projects into a simple NPC model: Narrative-Product-Community. After further reflection, I found that this model also applies to most Web3 projects. A project should choose at least one main direction and have at least one supporting advantage to perform better and possess a certain competitive edge to endure the test of cycles.

However, in 2023, at least for NFT projects, this model can be said to have been eliminated, as most NFT projects have gradually disappeared into the dust of history.

Moreover, after the baptism of numerous projects, the social value of NFTs (simply put, the symbol of showing off, boasting, and community status) is clearly no longer a core value support. After all, even if I own the same series of NFTs as Curry, we may never have any intersection in our lives, right?

Thus, I have re-summarized a personal biased value model for NFT projects—the SSK model, which stands for: Social Cards-Selector-Key to open something.

Social Cards#

This refers not to social passes within small communities but rather to the most superficial function of NFTs: social business cards. An NFT project serves, to some extent, as a business card, specifically including:

1. A social card as a symbol of wealth;
2. A social card as a display of personality;
3. A social card as a demonstration of aesthetic taste;
4. A social card as a representation of on-chain reputation.

The role of social cards lies not only in social interaction but also in display, though this is merely the most superficial function.

Selector#

This refers to the role of NFTs as selectors. From the inception of an NFT project, it should clearly identify the target audience most likely to purchase or mint NFTs. NFTs serve as a two-way filtering tool: before release, the NFT project party or initiator needs to filter potential holders; after release, NFTs become tools for holders to filter project parties and other holders.

Additionally, a good NFT project can serve as a criterion for determining "quality Web3 users," thus bringing mutual value to both the project and its holders. This is why many so-called "blue-chip NFTs" in the past could receive various airdrops or whitelist opportunities. Nowadays, a quality NFT project can almost be seen as a manifestation of the on-chain reputation value of quality wallet addresses— for example, owning EOS (End Of Sartoshi) can be viewed as being a quality holder within the MFERS ecosystem, thereby gaining more qualifications and opportunities for free mints.

In this regard, NFTs actually play the role of SBT (Soul Bound Token), which can also serve as proof of certain vocational education or work experience in the future.

Key#

The meaning of Key is broad; it can refer to the "key" to obtain certain rights or hint at the greatest value sold within NFT projects— "expectation," that is, the anticipation and emotions before unlocking certain new "gifts" or "roadmaps."

As the NFT track has developed to a certain stage, merely painting a rosy picture or releasing imitations has become insufficient to attract NFT players who have experienced wave after wave of harvesting. Only tangible rights or NFTs that can prove their profitability or business model can garner more attention and even enthusiasm.

The success of BAYC relies not only on celebrity effects and capital speculation but also on the wealth creation effect of airdrops and the opening of various rights. However, due to increasingly high thresholds and expanding expectations for investment returns, this is a path destined for no return, which is also why Yugalabs is striving to transition towards GameFi.

Thus, the functions, values, and scope of a Key that an NFT can play determine whether a project can possess long-term vitality and stronger anti-fragility, as each key can unlock different things, allowing for stronger positive external interactions with ecosystems or scenarios beyond Web3.

It is worth mentioning that I personally believe that the common important characteristics of existing NFT projects mainly include the following three points:

1. (As much as possible) Stand with the community.

Just like Kevin Kelly's "1000 True Fans Theory," often, an NFT with 1000 highly loyal community members can survive more than one cycle, provided that the community size is kept within a certain range. PS: Azuki's recently released ELEMENTAL series is a counterexample, exposing the project's arrogance, greed, and inaction, and delivering a significant blow to the liquidity of the NFT market and the industry's reputation.

2. (As diverse as possible) A rich array of stable assets.

Increasing evidence shows that an NFT project with a more diverse asset allocation or stronger revenue-generating ability can undertake more experiments, effectively reduce trial-and-error costs, and improve the project's survival and success rates.

From a business model perspective, common business models include subscription-based, advertising-based, value-added services, e-commerce sales, and game monetization, etc. The NFT project competition for IP licensing is actually a field where success heavily relies on luck. After all, in the current stage of business society, truly profitable IPs remain scarce, and a relatively clear business model can bring greater imaginative space.

Moreover, financing can also be considered one of the sources of diversified assets for NFT projects, but relying solely on financing cannot sustain a project's continuous operation. On the contrary, many times, if the team or community is not solid, financing can instead signify a reflective moment for an NFT.

3. (Ensure) To have some actions and some inactions.

In a bear market, choosing what to do and what not to do requires a clear mind and consistent actions. Sometimes, blind expansion can be the last straw that makes an NFT project unsustainable. Ensuring that the core strategy and detailed tactics do not deform and can achieve some planned goals within a certain timeframe, even if just barely passing, is acceptable. Just like investing, sometimes reducing operations moderately can yield higher returns, as wrong choices can lead to greater losses.

Of course, whatever is done should also be appropriately communicated and promoted. One cannot "just do things without promoting" or "only bury oneself in work without considering market sentiment." After all, good wine fears deep alleys; it doesn't need to be overly verbose, but at least it should be mentioned.

5. Envisioning the Future: NFTs as the Best Trust Display Medium#

Some say that NFTs are completely dead, so the future of Web3 does not belong to NFTs. However, I personally hold an optimistic view of the development of the NFT industry (possibly blindly optimistic) because NFTs, as a "container," can indeed play many roles and assume various functions. In the rapidly developing future of AI, NFTs may become the best medium for information display, which is a direction I personally favor.

From the perspective of objects, NFTs can solve various issues such as traceability, transparency, and value-bearing, helping to better map and exchange real and virtual items;

From the perspective of individuals, NFTs can permeate various aspects of a person's life, learning, work, and entertainment, thereby establishing a trust relationship endorsement system unique to each individual, which can subsequently influence and interact with each other. This can serve as a person's "social reputation proof" in aspects such as community identity, belief viewpoints, risk preferences, asset proof, and even self-actualization, thus addressing more issues related to cost and efficiency, safety and privacy, identity and permissions.

Before achieving this stage goal, many NFT projects' evaluation criteria still primarily revolve around the simple and crude three letters: ROI.

Just like in the last bull market, for many people, if considering from the ROI perspective, doing anonymous short-term projects > steadily working on long-term projects, then naturally, RUG PULLs run rampant, and the NFT market becomes chaotic. However, if the ROI of doing anonymous short-term projects < the ROI of steadily working on long-term projects, for instance, the experiences of RUG PULLs and Soft RUGs will serve as a social reputation influencing factor, affecting a person's real life and digital life, then we can naturally see more quality NFT projects that solve real problems or serve specific groups.

I believe this is highly likely to occur, and the quantity of an NFT project no longer needs to be limited to 10K, 20K, or 30K. Quality also does not need to be solely considered from the floor price, trading volume, and market capitalization, but rather possesses more possibilities and greater development space.

It is worth mentioning that I recently came across an interesting Web3 project called Poop. Perhaps this is also a direction in the future NFT market, which can be combined with the RWA concept to bundle and sell certain real-world assets and debts.

What Poop aims to do is provide an on-chain recycling place for zero liquidity assets, serving DeFi token conversions, allowing all "Shitcoins" to achieve "recycling" through its recycling system and receive $POOP tokens in return, thereby monetizing the remaining value of these assets.

Although it essentially remains a "subprime Ponzi" play of recombining junk assets, if it can establish connections with more ecosystems, it could become a value capture link within the Web3 ecosystem, where NFTs can also play a role or serve as proof of rights.

6. Controversial Topic: Is There a Real Liquidity Crisis in NFTs?#

In the current NFT industry, aside from many believing that the NFT trading market still holds unknown possibilities, NFTFi is also an important track, with many well-known investment institutions placing bets, with financing amounts often reaching millions or even tens of millions of dollars.

However, in my view (which may be a controversial statement), at this stage, the liquidity of NFTs has never been a problem. Instead, it is an advantage distinguishing them from (relatively) high liquidity FT, meaning that solving NFT liquidity does not enable more people to understand, use, and become long-term holders or users of NFTs. This is because NFTs have still not managed to integrate with broader application scenarios, which, aside from the development and improvement of basic infrastructure like wallets, requires the emergence of more application-based cases.

In this regard, many Web3 projects are quite interesting and worth NFT projects learning from. For example, in the dining sector, BlackBird aims to create a "Web3 version of Yelp" and issue the $FLY token; BlockBar allows rights associated with beverages to be exchanged and supports trading through NFTs; Ticketmaster, in collaboration with the well-known band A7X (with over 8 million record sales), explores providing token-gated priority ticket purchasing rights for its NFT fan community, and @nft_tix explores NFT ticketing, etc.

The crux of the issue is that Web3 mass adoption is not something that can be achieved overnight. Just as one cannot become fat or thin in an instant, the initial goal should be to create a "niche product or community," penetrating a specific point or demographic before having greater possibilities.

Additionally, I am personally very interested in the homogenization circulation solution of the Solv Protocol behind ERC-3525. If it can achieve the ideal state of anchoring exchanges between NFTs and FTs, as well as between NFTs themselves, then the application scenarios of NFTs in gaming, social, work, finance, and other areas will be further expanded.

7. NFT Players: Every Transaction is a Bet on a Perspective#

Finally, I want to share a recent realization or perspective: every transaction made by an NFT player, whether buying or selling, whether selling high or cutting losses, whether increasing or liquidating positions, is, in a sense, a bet on their perspective—not just investment perspectives, but also value perspectives, monetary perspectives, and life perspectives.

If you enjoy taking risks, you might choose those NFT projects that dare to try and constantly experiment; if you prefer to play it safe, you might find those NFT projects that act cautiously and steadily more suitable for you; if you like to associate with notorious scammers, then naturally, you must bear the corresponding risks of RUG or SOFT RUG; if you prefer to accompany entrepreneurs who focus on doing their work, then you should have enough patience and risk tolerance to give them more time to develop.

Of course, it is also possible that for a considerable period, NFTs and even Web3 will remain "a game for a small group of people." Thus, what we can do is choose between taking profits or growing up together within the limited projects.

However, one thing is certain: in the NFT industry, the process is the result, and the result is the process—every choice you make in this process determines your phased outcome; at the same time, the phased outcome will serve as your process in the NFT industry, ultimately influencing your subsequent choices.

In this rapidly declining and decaying industry, each of us has two roles—we are both the witnesses of the story and the writers of the story.

Author: Wenser
Twitter: https://twitter.com/wenser2010