NFT Roundup #10: NFTs are bubblicious
Buy the rumor, sell the news
This is a curated newsletter, covering news stories about NFTs. The NFT market is moving rapidly, and this is an attempt to provide some means of keeping up with its developments. Your curator is Dave Friedman.
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NFTs to drive our parallel universe—if a bubble doesn’t pop first
Nasdaq reports that the Metaverse could be worth trillions of dollars in a few years’ time:
Currently, several virtual land platforms are rushing to dominate the space, including Decentraland, CryptoVoxels, Somnium Space and Sand Box, which sell "land" or islands in which people can interact through avatars and access interconnected virtual worlds through VR headsets like Facebook's (FB) Oculus. The Sand Box, for instance, will feature the Walking Dead Metaverse in which users will be able to recreate the series’ storylines through Lego-like game characters.
Carlos Rodriguez, founder and CEO of digital-asset firm Securitize, agrees the market “is growing very rapidly, adding that NFTs are digitizing “multi-trillion art and collectibles markets” and could be worth several trillions by 2024.
Meanwhile, market researcher CoinMarketCap says 57 projects in the “Collectibles & NFTs” category have ballooned to $16.7 billion so far this year, up from $4.67 billion in January. A broader project pool, however, puts the market at nearly $20 billion.
While I have no doubt about the transformative potential of NFTs for everything from art to ticketing to collectibles to virtual economies, I rather doubt that we’ll see trillions of dollars of wealth created over the next few years. Given the amount of work required for a fully functioning metaverse, I don’t think it’s going to show its full potential for quite some time. For information about what has to happen in order for a (the?) metaverse to be fully realized, read the Metaverse Primer.
State media warm of ‘huge bubble’ in NFTs as cryptocurrencies lose steam in China
Before we dive into this news article, a fair warning: the link is from the South China Morning Post (SCMP), a nominally independent Hong Kong newspaper ultimately owned by Alibaba. Alibaba, in turn, operates with the explicit consent of the Chinese Communist Party; therefore, a degree of skepticism is warranted when reading anything published by SCMP: what is Beijing messaging in the article?
That proviso out of the way, the article notes:
A Chinese state-run newspaper has warned of a “huge bubble” in non-fungible tokens, or NFTs, just as the country’s Big Tech companies – including Tencent Holdings and Alibaba Group Holding – have started to test the water this new digital asset market.
The article published on Friday by the Securities Times, supervised by the Chinese Communist Party mouthpiece People’s Daily, said that “it is common sense that there is a huge bubble in NFT transactions” and that “many buyers only focus on NFT as a format instead of the artwork or asset itself”.
“Once market enthusiasm wanes and the hype cools, the value of these many strange NFTs will greatly decrease,” wrote author Wang Junhui, a staff reporter.
Its connection to CCP notwithstanding, there’s some insight in this article which we ought to consider. First, it is true that many people have dumped money into art NFTs without regard for the quality of the art to which the NFT is attached. But of course we see this with every bull market: get out the helicopter and just dump cash everywhere.
As much as I believe in NFTs as a concept I also agree that a lot of them seem to have been bid up to unsustainable values, and some people are going to emerge from the wreckage rather poorer.
More Zimbabwean artists pivot to NFTs as bubble concerns grow
Artists in Zimbabwe are turning to NFTs as a way to supplement their income:
A Zimbabwean artist, Greatjoy Ndlovu, joined the growing list of African artists pivoting to the non-fungible tokens (NFT) market after his digital artwork was sold for 0.7 ethereum. The sale, which took place on the Async Art NFT marketplace, is Ndlovu’s first foray into the digital art space.
According to a report, Ndlovu’s digital art piece, which is called Burnt Out, depicts the challenges that were experienced by health care workers who were fighting to stop the spread of the Covid-19 pandemic.
In addition, the report says Ndlovu is hopeful that his break into the NFT space will help “inspire many young creators to take a leap and test the market themselves.” According to the artist — who also serves as the Ambassador of SOS Children’s Village — NFTs represent an “alarmingly bright future” for African art makers.
When bitcoin first became popular, commentators assured us that developing countries would use it to facilitate commerce. They would spurn their debased and volatile currencies in favor of bitcoin. While it is true at the margin that some commerce in developing countries is conducted in bitcoin, the vast majority of bitcoin appears to be held long term by early adopters and institutions.
However, we have seen elsewhere that NFTs are being used by the same emerging markets for commerce. Zimbabwean artists are using NFTs to generate income from their art. Elsewhere, Filipino gamers are using Axie Infinity NFTs to generate income. The twist here is that Axie Infinity NFTs have become too expensive for the average Filipino to buy, so they borrow the NFTs from people who own them, play the game, and share a portion of their income with the owner:
Unlike many mobile games, Axie Infinity is not free to play. To get started, players need to obtain 3 Axie Infinity characters. In the earlier days of the game, the average Axie was selling for under $10. With the game’s rapid growth and the broader NFT rally, the average Axie is now selling for nearly $500 according to CryptoSlam.
Given Axie’s base within the Philippines and other emerging markets, a $1,500 entry tag is a non-starter for most would-be players. To mitigate this barrier to entry, an informal market emerged in which NFT owners began lending players the NFTs needed to play the game in exchange for a cut of their winnings. This is done through QR codes that let players use Axie NFTs in game without the lender having to cede ownership on-chain.
This informal market has blossomed into a formal play-to-earn financial services sector. The largest and most prominent player is a project called Yield Guild Games.
In both cases, we see an economy spontaneously growing out of speculative fervor. As with those who collect art NFTs, though, the obvious question is: what happens to all these people when the bubble pops? Again, there are two distinct phenomena here: one is the long-term potential of NFTs, broadly construed, and the second is the state of the NFT market as it exists today. The long-term potential is great, but the short term market seems overvalued.
NFT bubble? Randomized numbers on a black background selling at starting price of $6.5K each
Yesterday’s newsletter was devoted to generative art, or art generated by algorithm. Here’s a story about generatively created art which consists of numbers randomly distributed on a black background:
The project in question is called “The N Project” and it has generated 8,888 NFTs, each containing 8 random numbers on a black background. Of course, this isn’t all to it. Each number has a random chance of being included in the sequence, and some numbers are more “rare” than others, with 0 being the scarcest.
The entire collection is up for grabs on OpenSea, and according to the website, the floor price currently sits at above 2 ETH. Although, there are some NFTs that sell for about 1.75 ETH, which is around $6.5K at the time of this writing.
Mathematically, there is something interesting going on here: the probability of a given number appearing on a generatively created NFT is a function of the numerical distribution coded into the algorithm that creates the art. For more on the mathematics underlying the project, you can review this twitter thread:
But, is it something whose value will stay the same or grow over time? One man’s trash is another man’s treasure, as they say.
A warning to black America on NFT Ponzi schemes: 5 things to know
As NFTs enter the public consciousness we will start to see a lot of articles which claims that they are all fraudulent. And the articles will make clumsy and incoherent claims in support of their argument. As an example, we have this article which attempts to link NFTs to Bernard Madoff and Ponzi schemes. While Madoff’s scheme was definitely a Ponzi, and some NFTs can be structured to be similar to Ponzi schemes, it seems a stretch to assert that all NFTs are Ponzi schemes.
What is more confusing about this article, though, is that it jumps from Ponzi schemes to talking about insider trading, theft of money, funding for criminal syndicates, etc. In other words, take every malicious and criminal activity cooked up by man and associate it with NFTs.
While writers are free to make any claim they want, asserting that all NFTs facilitate crime is a rather blunt take on a complex and fascinating subject.