Wenser

Yes, NFTs are dead.

1. Current State of the NFT Market#

Undoubtedly, as the once best tool for breaking into "Web3," the best carrier of "Web3 culture," and the model for wealth creation in the "Web3 wealth myth," NFTs have long been dead since the frequent explosions in 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.

Meanwhile, 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 macro to micro, the data is also 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 in the past 30 days is 427,000: 64,781, approximately 6.6: 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 currently still mainly a battleground for on-chain funds, a "chain-based PVP" game that runs fast. Moreover, due to the limited liquidity of NFTs and the scattered attention distribution, 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 widespread losses, NFTs have entered a stage of gradual decline. The NFT market, which once saw up to 15,000 to 20,000 new projects added daily, is unlikely to be seen in the short term, especially after Blur opened 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 dream of wealth has now turned into an inescapable nightmare for countless people.

2. Players Still at the Table#

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

1. Established OG Projects

Represented by CryptoPunks and BAYC, these projects' main advantages lie not only in their identity recognition and cultural influence but also in their backing by capital and quality project teams. Leveraging early original accumulation (online reputation, intangible influence, and offline radiation), they have successfully become synonymous with the NFT field, thereby leveraging a broader 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 elites 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 centralized operation by the project parties, strong community cohesion among holders, and their unique tone and development path: Azuki follows an Asia-Pacific comic style; Pudgy Penguins focuses more on a cute parent-child anime style. Of course, besides these, Memeland, which has a "unique" art style but aggressively pumps its value, can also be categorized here.

3. DID Projects Dressed as NFTs

This should be familiar to everyone. DID NFTs represented by ENS started 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 significant representative in the NFT market. This is also one of the reasons why the Web3 DID project .bit saw a wave of hot money speculation after developing NFT trading (another reason being the $13 million Series A funding).

4. Marketing Projects of Well-Known Brands

Luxury brand groups represented by Tiffany, LV, and GUCCI view NFTs not as a crowdfunding tool, nor as projects created solely for profit, nor as a means to create a new brand, IP, or consumer group, but rather as a component of a marketing campaign. Therefore, they are hard to consider mainstream NFT projects.

5. Empowerment NFTs

In this regard, the Chinese NFT project worth highlighting is undoubtedly Weirdo Ghost Gang. Since its official launch in February 2022, the little ghost has been the most eye-catching presence among Chinese NFT projects, maintaining a good floor price (still around 3-4 times the mint price) and steadily exploring empowerment for holders, brand collaborations, offline activities, and rights exploration. This year's exclusive anniversary gift box, custom hardware wallets, CutUp trendy clothing discounts, and benefits from offline music festivals and live houses are all genuinely appealing. The community atmosphere is also very nice. As a deeply involved holder, 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. Many plans in Ghost Map 2.0 are gradually being implemented, and 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 category of NFTs, but as a once-famous classification, 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, the UG community, and many paid communities in China can also be considered another form of Pass Card NFTs. 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.

Finally, I can't help but sigh 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 then selling at high prices, focusing more on speculation and emotions; while others chose to make money from the "result," buying NFTs they believed could become that 1% 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 achieving certain Beta returns.

As for the survival rate of NFT projects, based on my observations over the past year, 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 go away? 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 intuitive engine is, of course, new funds. After all, without significant incremental funds, there won't be a real bull market.

From a global market perspective, the physical distance brought about by the COVID-19 pandemic starting in 2020 accelerated the influx of hot money into the online virtual industry. People frantically pursued 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 renamed itself Meta as a phase endpoint, people poured various funds into the stock market and cryptocurrency market, resulting in 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 about by various upgrades and iterations from Web2 to Web3. This includes attention from various traditional Web2 organizations, as well as the incremental attention brought by traditional or Web2 brands attempting new market marketing 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 the global political landscape, the capital allocation of old and new money, and various black swan events leading to risk aversion), which indirectly drives people to find ways to preserve or increase the value of their assets. NFTs, with their high risk and high reward, along with 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 "the father of the web" Tim Berners-Lee's Web3.0 in 2014_ (for more details on Gavin Wood's views on Web3, see: https://mp.weixin.qq.com/s/8YIstLVdIcLydExmRwM81Q)_, venture capital firms 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 ultimately 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 fail to recognize 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, driven by considerations of investment returns, increasing the diversity of investment portfolios, and efficiently (though possibly wastefully) filtering out quality talents and projects through a horse-racing mechanism, will naturally promote and advocate various "stories," claiming "Web3 is the next generation of the internet," "Web3 is the future of the internet," "Web3 is a direction greater than blockchain," and so on.

On the other hand, after capital promotion, these narratives are ultimately transmitted to a broader market sentiment through various PR articles, news media, internet hot marketing, celebrity effects, and examples of wealth creation.

Unfortunately, among these two aspects, only the latter is a game that most people can participate in, and they may even only be passive recipients of the final situation and results. Just like in the world, most people are merely slightly valuable pawns rather than players who can maneuver on the chessboard. The earlier one realizes this, the clearer they 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 still seems insufficient. Ultimately, what lies before people are only mature, successful, and growing new cases that are most persuasive.

The best engine of the last NFT bull market was the role of new cases—one being a quick, convenient, rich, and ecologically mature NFT trading platform, and the other being 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 case undoubtedly comes from the "collusion of platforms and projects," namely Opensea, which has always claimed to be "the world's largest NFT trading market," and BAYC (Bored Ape Yacht Club), the best representative in NFT history 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 naturally inseparable from the significant driving force of BAYC and its parent company Yugalabs, which also garnered $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 is essential for attracting more people into 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 soar; 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 and various star-directed NFT projects (such as the Innocent Cat named by Wilber Pan, C2044 personally promoted by Edison Chen, and Zombie Club involving Yu Wenle) also include many well-known artists both domestically and internationally, such as Fang Lijun and Cai Guoqiang, as well as many NFT projects from Web2 companies, whether officially or through agency operations, like Wanglaoji, Inke, and Aotu World.

As for the final exit point of the NFT market, besides the conventional centralized exchanges facilitating the transfer of funds from sales, the unique tornado mixer in the blockchain world has also facilitated 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 the general project cycle lasting about 1-2 months (or even shorter);

Hot speculation refers to generally raising expectations and hype 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 RUGs;

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 for NFT Projects#

Last year, I summarized my views on NFT projects into a simple NPC model: Narrative-Product-Community (narrative-product-community). After further reflection, I feel this model also applies to most Web3 projects, meaning 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 withstand 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 many 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?

Therefore, 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 a small community but rather to the most superficial function of NFTs: social business cards. In a sense, an NFT project serves as a business card, specifically including:

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

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

Selector#

This refers to the role of NFTs as filters. From the inception of an NFT project, it should clarify who the most likely target audience for purchasing or minting NFTs is. NFTs serve as a two-way filtering tool: before the sale, the NFT project party or initiator needs to filter potential holders; after the sale, NFTs become tools for holders to filter project parties and other holders.

Additionally, a good NFT project can serve as a standard for determining "quality Web3 users," thus bringing dual value to the project and 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 regarded as a quality holder within the MFERS ecosystem, thus having more qualifications and opportunities for Free Mint.

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 a "key" to obtain certain rights or hint at the greatest value sold within an NFT project—"expectation," which is the anticipation and emotion before unlocking certain new "gifts" or "roadmaps."

As the NFT track has developed to a certain stage, simply painting a pie in the sky or releasing imitations has become increasingly difficult 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 gain more favor and even pursuit from people.

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 function, value, and scope of a Key that an NFT can play determine whether a project can possess long-term vitality and stronger anti-fragility. Each key can unlock different things, allowing for stronger positive external interactions with ecosystems or scenarios outside of 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," many times, an NFT can survive more than one cycle with just 1000 highly loyal community members, of course, the premise is to keep the community size within a certain range. PS: Azuki's recent ELEMENTAL series release is a counterexample, exposing the project's arrogance, greed, and inaction, and delivering a significant blow to NFT market liquidity and industry reputation.

2. (As diverse as possible) A rich and stable asset base.

Increasing evidence shows that if an NFT project has a more diverse asset allocation or stronger self-sustaining ability, it can try more things, 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 development of commercial society to date, truly profitable IPs remain scarce, and a relatively clear business model can bring greater imaginative space.

Additionally, financing can also be one source 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 be a symbolic event of an NFT's fleeting glory.

3. (Strive to ensure) To do something and not do something.

In a bear market, choosing what to do and what not to do requires a clear mind and unyielding actions. Sometimes, blind expansion can be the last straw that breaks the camel's back for an NFT project, making it difficult to continue. Ensuring that core strategies and tactical details do not deform and being able to achieve some planned goals within a certain time frame, even if just barely passing, is acceptable. Just like investing, sometimes moderately reducing operations 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 Carrier#

Some say that NFTs are completely dead, so the future of Web3 does not belong to NFTs. However, I personally hold an optimistic (perhaps blindly optimistic) attitude towards the development of the NFT industry because NFTs, as a "container," can indeed play many roles and assume various functions. Moreover, in the rapidly developing future of AI, NFTs may become the best information display carrier, 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 people, 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, serving as a person's "social reputation proof" in aspects such as community identity, belief viewpoints, risk preferences, asset proof, and even self-realization, thus addressing more issues regarding costs 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 during the last bull market, for many people, if considering from the ROI perspective, doing anonymous short-term projects > diligently working on long-term projects, then naturally, RUG PULLs run rampant, and the NFT market is chaotic; but if the ROI of doing anonymous short-term projects < that of diligently working on long-term projects, for example, 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 very likely to occur, and the quantity of an NFT project no longer needs to be limited to 10K, 20K, or 30K, and quality need not be solely considered from floor prices, trading volumes, and market values, but rather possesses more possibilities and greater development space.

It is worth mentioning that I recently saw a very interesting Web3 project Poop. Perhaps this is also a direction in the future NFT market, which can be combined with the RWA concept, bundling some real-world assets and debts for sale.

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 to realize the remaining value of these assets.

Although it essentially remains a "subprime Ponzi" play that recombines junk assets, if it can establish connections with more ecosystems, it can also become a value capture link within the Web3 ecosystem, where NFTs can play a certain 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, often with financing amounts 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 an issue. Instead, it is an advantage compared to (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, as NFTs still have not integrated with broader application scenarios. This, in addition to 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 worthy of NFT projects to learn from, such as in the dining sector, BlackBird, which aims to create a "Web3 version of Yelp" and issue the $FLY token; BlockBar, which supports trading by carrying rights for beverage exchanges through NFTs; Ticketmaster, exploring token-gated priority ticket purchasing rights for its NFT fan community in collaboration with the well-known band A7X (with over 8 million album sales); and @nft_tix, which is exploring NFT ticketing, etc.

The crux of the issue is that Web3 mass adoption is not an overnight process. Just as one cannot become fat overnight or slim down instantly, the initial goal should actually be to create a "niche product or community," penetrating a point or a specific group first, which then increases the likelihood of broader possibilities.

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

7. NFT Players: Every Transaction is a Bet on One's Viewpoint#

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

If you like adventure, you may choose those NFT projects that dare to try and constantly experiment; if you prefer stability, you may find those NFT projects that act cautiously and steadily more suitable for you; if you enjoy associating with notorious scammers, then naturally, you must bear the corresponding risks of RUGs or SOFT RUGs; if you prefer to accompany entrepreneurs who focus on doing things, then you should have enough patience and risk tolerance to give them more time to develop.

Of course, it may also be that for a considerable period, NFTs and even Web3 will still be "a game for a small group of people," so what we can do is choose among limited projects to either take profits or grow up together.

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 interim results; at the same time, interim results 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