The NFT bubble, defined by rampant speculation and crypto money laundering, has popped. Macro markets are retrenching, trading volumes are tanking precipitously, and various NFT marketplaces have ceased operations. Monthly trading volumes have collapsed by more than 90%. They dropped 99% from a high of $5 billion in January 2022 to only $36 million, indicating a significant market correction. This downturn has forced platforms like X2Y2, Bybit, and Kraken to shut down their NFT marketplaces, highlighting the challenges faced by projects relying on fleeting hype and unsustainable revenue models. As the market recalibrates, successful NFT projects are adapting by prioritizing utility, cultivating strong communities, and leveraging established design credibility to create lasting value.
The NFT Market's Sharp Decline
That bust of the NFT market is perhaps most evident by the fact that trading volume is down 90% from its height. Unfortunately, the contraction made it impossible for X2Y2 to continue to operate its NFT marketplace. This decision underscores the difficulty in continuing to support these platforms as interest further fades. The NFT space was once the breeding ground for all the hype and million-dollar projects, but that hype has mostly died down. Today, there are likely many more NFTs on offer than active buyers.
Bybit, Kraken, and X2Y2 have all shuttered their NFT marketplaces. These closures underscore the harsh realities of remaining economically viable and competitive in a rapidly evolving industry. These platforms seemed to offer a clear path forward for trading digital assets. Today, they find themselves fighting to retain users and transaction volume at a consistently high level. These market conditions require NFT projects to rethink strategy. The time for waiting on first fairest glory is over — let’s work to build infrastructure and stable operating models that support it.
The NFT market had an astounding explosion. In March 2021, Beeple’s NFT ‘The First 5000 Days’ took the world by storm when it sold for a jaw-dropping $69 million. As recently as April of this year, the floor price of a single Bored Ape NFT was approaching $500,000. The COVID-19 pandemic brought to focus the speculative fervor that largely drove initial adoption. These unsustainable peaks and the resulting ‘crypto winter’ have magnified the fragility of numerous NFT projects.
The Pitfalls of Unsustainable NFT Models
Most NFT projects have failed because they focused on short-term drop revenue and disappearing trading royalties. This model is quickly becoming unsustainable as the initial hype fades away and trading volume begins to stagnate. With the current saturation of NFT projects flooding the space with little or no lasting value, both utility and functional value are important if not imperative.
For most NFT creators, there is a harsh truth — the first mint is typically the only one expected to provide an immediate capital infusion. Unfortunately, future royalty income is rarely enough and becomes nonexistent. This requires a change of mindset — toward producing value and usefulness over time for holders of your NFT. Projects that don’t adjust to this new normal will soon find themselves out of touch and left behind.
The market has changed its tune. Today’s buyers are looking for NFTs that offer tangible value or distinctive experiences rather than merely digital collectibles. One positive consequence of this change is that creators are being forced to bring value, utility, and creativity into the marketplace from day one. Their focus is not only on initial engagement, but on continued ongoing engagement and building a true community among this new base of NFT holders.
Strategies for NFT Success
The best NFT projects are the most utility-focused ones that develop the most independent communities. What all of these successful projects recognize is that memorable, lasting value is created in engagement, interaction and shared experience. By prioritizing the creation of a loyal community, NFT projects can keep community members engaged and dedicated, leading to sustained interest and long-term success.
Time after time, newer projects are succeeding because they’ve focused on utility, or revenue generation, or the power of an already proven design credibility. What’s different These successful projects all realize that improving the real world for NFT holders trumps speculative digital assets. They provide entry into gated content, governance engagement, and real-life physical rewards. This strategy, along with using private sector value capture approaches, is showing to be more sustainable than speculative value.
Even major brands like Nike and Louis Vuitton are taking the plunge into the NFT world. They understand the power of digital assets to increase brand engagement and win over new audiences. These brands are design credible, marketing savvy and strategically architected brands. More importantly, they can bring a much larger and diverse set of consumers into the NFT ecosystem. Collaborations with recognized brands can attract buzz and build hype, particularly immediately following a launch. This partnership provides tremendous fuel for NFT projects during that all-important launchpad phase.
