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Is the NFT hype over?

Web 2.0 platforms moving away from NFTs could indicate a decline, writes Helen Femi Williams.

a close up of a red and green electronic device

Pexels/Jonathan Borba

In May 2022, Meta entered the NFT market, signalling the company's intent to enter Web3 more substantially. From showcasing to selling, creators could produce their digital collectables on Instagram and sell them to fans on and off the platform. 

Users supported their favourite creators by buying their digital collectables directly within Instagram, including videos, and adding support for the Solana blockchain and Phantom wallet and other blockchains and wallets.

Ten months later, Meta announced that it would no longer support digital collectables and that the project would be "winding down."

 "We're no longer offering digital collectables on Instagram and Facebook. Any collectables you've already shared will remain as posts, but no blockchain info will be displayed," Meta wrote.

In addition, other companies, such as Disney, have also closed their NFT projects. Disney shut down its metaverse division and let go of all 50 team members responsible for developing new ways to tell interactive stories using technology.

Gary Nuttall, the founder of Distlytics, a blockchain consultancy, said, "There has been a gradual realiSation that NFTs are no longer a get-rich-quick scheme/scam. NFT art has died away, and firms are now exploring how to tokenize real-world assets using NFTs."

Kieron Carledge, chief of sales at Baanx Group, a provider of API-driven financial services, said, "It seems like tech companies are becoming increasingly disillusioned with the metaverse, as slow growth and waning user interest in new entertainment formats have left many feeling frustrated. Even major metaverse platforms like Decentraland and The Sandbox have seen a sharp decline in virtual land sales."

This article discusses why attitudes have changed towards NFTs, mainstream adoption, and what's next for companies trying to transition from Web 2.0 to Web 3.0.

Changing attitudes

During its peak, the NFT market attracted staggering sums, with a token of Jack Dorsey's first tweet fetching $2.9m and the primary token for Axie Infinity, a play-to-earn video game, sold for $9.75bn. Coca-Cola also raised more than $575,000 from selling a customized jacket for metaverse use, to name a few examples.

However, in recent months, companies such as Meta, Disney, and Microsoft have shut down their NFT projects. 

In November, Meta's AR and VR division, Reality Labs, lost $13.7bn, and around 13,000 Meta workers were laid off. They also announced in April that 10,000 more employees would be laid off in the coming months, 5,000 positions would be eliminated, and restructuring plans were also in the works.

Similarly, Disney cut its NFT unit as part of a broader restructuring program to reduce its headcount by 7,000 over two years.

Microsoft discontinued its Industrial Metaverse Core team, a project that was just four months old and aimed to encourage the use of the metaverse in industrial settings.

Carledge said the underlying problem with these Web 2.0 adoption projects is a need for more understanding and alignment with the principles of Web3. Web 2.0 companies may have different motivations for adopting blockchain technologies.

"Web3 companies are focused on creating more utility for NFTs, which includes uses beyond art such as gaming, music, and even virtual real estate. Web3 companies see NFTs as a way to disrupt traditional systems and unlock new possibilities. For example, gaming companies are creating blockchain-based economies where players can earn and trade NFTs for in-game assets or even real-world currency, he said"

The volatility of the market

Ivan Tan, co-founder of Sgnal, a Web3 consumer intelligence platform, believes that changing attitudes towards NFT projects are causing market conditions that push companies to restructure.

There were a series of market crashes throughout 2022, including the crash of major cryptocurrency exchanges and coins like Luna in August and, more explosively, FTX in November. 

This led to a steep fall in NFT prices linked to those currencies.

Since then, there has been a downward trend in NFT prices, even beyond the immediate fallout of the crashes. In October 2022, almost all NFT sales metrics, including volume and price, were lower than the previous year.

Global sales of NFTs grew in 2022 over 2021, following a sharp increase in 2021. NFT collectable sales grew by around 15 per cent year-over-year to 11.8 billion U.S. dollars in 2022. Still, NFT transactions relating to art declined over the same period, generating approximately 1.47 billion U.S. dollars.

By the end of 2022, NFT trading volume had plunged 90 per cent across sectors.

NFT Utility

Although NFT integration with Meta only lasted a few months, it's difficult to predict what could have emerged had the integration continued beyond displaying collectables. 

As an example of a successful Web2 company utilizing blockchain technology, Tan cited Starbucks Odyssey as proof that NFTs remain relevant and are evolving.

Starbucks Odyssey doesn't use crypto or wallets, but members can access the technology behind it. Members can purchase "limited-edition stamps" (NFTs) through a built-in marketplace within the Starbucks Odyssey web app experience.

"By leveraging Web3 technology, our members can access experiences and ownership that were not possible before. Starbucks Odyssey will transcend the foundational benefits that our Starbucks Rewards members have come to love and unlock digital, physical, and experiential benefits that are uniquely Starbucks," said Starbucks.

Other use cases of Web 2.0 NFT utility include the collaboration between Coach and Shxpir to launch an NFT collection based on the Coach satchel, Gucci's collaboration with the SuperRare NFT gallery, and D&G's collaboration with UNXD that resulted in the airdrop of unique wearables.

According to Nuttall, linking Real World Assets (RWAs) to tokens will be a significant growth area for mainstream adoption. 

"I see these teams have transitioned into marketing/creative agencies. Impact-wise, it's a reminder that any NFT/Web3 activation has to have an underlying use case and solve an actual issue. The consumer has matured past the hype/PR-based mindset," said Ivan.

What's Next?

While the NFT market has seen a decline in recent months, it is still too early to say whether this represents a permanent setback for the technology. 

As the market continues to evolve, it is likely that we will see new use cases emerge that take advantage of the unique properties of NFTs. 

As companies continue to explore the possibilities of Web 3.0, it will be interesting to see how they incorporate NFTs into their strategies and whether they can find a way to make them a truly valuable asset for their users.

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