Have We Reached Peak NFT Hype?

NFTs Have Developed A Lot Of Hype, But Have They Hit Their Peak?

Non-fungible tokens (NFTs) are a useful tool for artists and content producers to profit from their work more easily. Smart contracts have been the catalyst, allowing creators to own the future royalties in anything they "mint," or create, minting being the method by which an NFT is produced and added to blockchain protocol. Approximately USD 45bn of NFT were traded, in 2021.

The real power of NFTs, which may be viewed as a type of digital provenance, is that they are recorded on the blockchain, making the records irreversible. NFTs allow artists to gain money when the first auction occurs, but more significantly, whenever a NFT is traded in the secondary market, they will continue to get paid. This may be done directly into the smart contract or via an agreement with the exchange, which is uncommon for real-world art.  At the moment, artists are turning to exchanges since royalties must now be paid into the smart contract.

NFTs have become so popular that a lot of hype has developed, with several big companies and financial institutions minting or buying NFTs. Despite having been in existence since 2014, we appear to have peaked in popularity at the start of December 2021 according to Google trends data. This is supported by data from The Block, which shows that the amount of NFTs sold peaked in November 2021. The highest month for art and collectibles was May 2021, when much of the slack in this NFT market was filled by the gaming industry, where gaming collectibles on platforms like Axie Infinity have expanded dramatically.  The gaming subsector of NFTs is significantly different from the art and collectible sector, where most of the media attention is focused.

Moreover, the cost of an NFT has decreased dramatically. It's possible that there are so many NFT copycats now that collectors are becoming overwhelmed with options. The number of active NFT collections has increased by 560 percent since July, according to data from Chainalysis.

We don't want to detract from the exciting possibilities in the NFT sector, since there are some fascinating communities being built in the space. It's conceivable that if we've reached "peak hype," a crash in prices similar to what occurred during crypto price falls in 2018 may occur, with significant price variations between good and bad projects.

It's possible that we're seeing a trend here in which the costs of good and bad NFT projects are diverging; in the art world, value is highly subjective and personal. The price gaps are most likely to be widest in NFT works that aim to mimic originals or have been first to market.

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