Despite a highly publicized report that sales of non-fungible tokens (NFTs) are “flatlining,” the cryptocurrency tokens that carry art, videos and music, among other things, are doing quite well, a new report argued.
While transaction volume spikes and falls as hot new collections are released, “the number of active NFT buyers and sellers continues to grow,” blockchain data firm Chainalysis said Friday (May 6).
The report, “NFT Transaction Activity Stabilizing in 2022 After Explosive Growth in 2021,” is a preview of the firm’s forthcoming “State of Web3” report. Its findings fly in the face of an April report in The Wall Street Journal (WSJ) that said “flatlining” sales could be “the beginning of the end of NFTs.”
On the contrary, the number of weekly active collections — meaning one with any transaction in that time — on OpenSea, the top NFT marketplace, also continues to grow.
Show Me the Use Case
That all leads to a key question: So what?
It matters because there are a lot of potential uses for NFTs that make them an excellent medium for anything from songs to stocks.
Just last week, Goldman Sachs’ Head of Digital Assets Mathew McDermott told a Financial Times crypto conference that the investment giant was exploring using NFTs to hold and trade financial instruments.
“We are actually exploring NFTs in the context of financial instruments, and actually there the power is actually quite powerful,” McDermott said at the event, per CoinDesk.
That ranges for automating the entire life cycle of a bond transaction to issuing debt that could be fractionalized to attract smaller investors than can usually buy into such instruments — “democratization in action,” he called it.
NFTs can hold self-executing smart contracts, and they provide the ability to track the provenance and authenticity of a stock share as easily as a song — even collecting royalties on subsequent sales.
Darryl McDaniels, the DMC in hip-hop legend Run-DMC, put that in action a month earlier, working with an NFT firm called the Song That Owns Itself (STOI) to tokenize and fractionalize ownership rights to one of his songs, “Million Scars,” according to a press release.
That is, he said, “the first step” in his goal of creating a next-generation music industry that values both creators — who have a history of getting ripped off that predates records — and fans.
Meanwhile, the owner of the NFT of former Twitter and current Block CEO Jack Dorsey’s first tweet was offered a few hundred dollars for the asset. The problem? He bought it for $2.9 million.
The number of people willing to spend $23 million for an 8-bit picture of a blue-skinned, bandana-wearing CryptoPunk collectable avatar might or might not be diminishing.
“Overall, collectors have sent over $37 billion to NFT marketplaces in 2022 as of May 1, putting them on pace to beat the total of $40 billion sent in 2021,” Chainalysis said.
And in the first quarter of this year, 950,000 unique wallet addresses — a reasonably good approximation for people — bought NFTs, up 627,000 in the previous quarter.
The problem is that NFTs are still largely used by collectors — of art, of avatar characters — rather than users looking for NFTs for a purpose.
Other than in-game items to power massively multiplayer online games — most notably Axie Infinity, which is reportedly struggling — the big breakout use for NFTs has been as a marketing medium for the highly hyped but yet-to-come metaverse.
If the virtual reality worlds live up to their hype, NFTs could have a far bigger role in commerce — as community builders and even as receipts of something purchased in a metaverse but delivered in real life.
In the meantime, the Chainalysis report suggests that the number of buyers for more reasonably priced collectables is growing as well.