NFTs Crashed, Now What?

Introduction

NFTs crashed after the Otherdeed public mint. Floor price and trading volume both collapsed. Coupled with the significant drop in ETH price, the loss is unprecedented.

The floor price of Bored Ape Yacht Club ("BAYC") was $428,258 on April 30, the day before the Otherdeed mint. A month and a half later, its floor price was $104,478 on June 15. A decrease of 75.60%. Mutant Ape Yacht Club ("MAYC") performed worse and registered a loss of 81.60% during the same period. BAYC floor price today is lower than MAYC floor price prior to the Otherdeed mint. If you take profit from a MAYC then, you can afford a BAYC now.

The decrease in NFT trading volume was more severe.

The NFT market recorded $1,323 million of secondary sales in the three days following the minting of Otherdeed. It only recorded $1,663 million in the thirty days between May 16 and June 15. Transactions totaled only $15 million on June 15. That's a decrease of 97.48% compared to May 1.

Anyone who held NFTs through this period inevitably lost money. As liquidity is drying up, prices are likely to drop even further. In my article on how to value NFTs in February, I wrote that there would be market-wide corrections. I didn't pick a date, but clearly the time has come.

NFTs crashed, now what?

I cover two topics in this article:

1. Review current issues in NFTs. Bear market is for building. Whoever solves these problems is best positioned to embrace the next bull.
2. Envision the future. We are too obsessed with flipping apes and punks to heed other opportunities, where NFTs could change the world.

Current Issues

NFTs' popularity skyrocketed over the past year.

NFT market cap grew from $0.47 billion at the beginning of 2021 to $19.29 billion at the end of May this year. NFT holders increased from less than 0.5 million to more than 2.25 million.

Profile picture projects ("PFPs") are the jewel in the crown, because PFPs are the only NFT category that has found real product-market fit. At the moment, PFPs command 67.5% of NFT market cap and 78.7% of NFT trading volume. One of the most iconic NFT moments was Steph Curry changing his profile picture to the BAYC he bought.

The rapid growth bred many unsolved issues, six of which are explored below.

High Trading Costs

Trading NFTs is expensive. There is typically a 7.5% fee for every deal (2.5% marketplace fee plus 5% royalty). NFTs must be treated as collectibles, not tokens, for such high trading costs to sustain. Otherwise, NFT marketplaces are nothing more than online casinos, where every trade is PvP, and only the house wins.

Many do not appreciate the impact of trading costs on their profits. Suppose Azuki's floor price was 10 ETH yesterday, and it is 12 ETH now. If you bought at 10 and sold at 12, your realized profit is 11%, not 20%, because sale proceeds are just 11.1 after 2.5% OpenSea fee and 5% Azuki royalty. On the flip side, if you buy an Azuki at 10, selling it anywhere below 10.75 will incur losses. This calculation does not include gas fees, and it gets worse when projects charge higher royalty percentages. For example, VeeFriends and Adidas Originals Into The Metaverse take 10%, and NFT Worlds takes 9.5%. It makes flipping NFTs unlucrative and bleeds traders to death.

Other industries impose high royalties. For example, authors are paid 7.5% for paperbacks and 25% for eBooks. Musicians receive 15-25% from album sales and streaming. But those royalties are for primary sales. Neither the publishing nor the music industry charges anything on secondary sales.

Awarding a percentage of secondary sales to the original artist is one of the primary innovations in NFTs. This is great for artists. They deserve to be compensated. However, earlier NFT projects charge significantly less. BAYC and MAYC take 2.5%, CrypToadz takes 1.25%. Bored Ape Kennel Club, CryptoPunks and Meebits all take 0%. It's unclear which project started the trend of charging higher royalties.

Besides royalties, OpenSea's 2.5% is absurd. The highest maker/taker fee on Binance is 0.1%. Major brokers like TD Ameritrade charge $0 commissions on US stocks, ETFs, and options. No platform fees, no transaction fees, no trade minimums. The traditional art industry does demand high fees on secondary sales, where auction houses and galleries charge commissions of 10-50% on secondary sales. But no sane person would ever compare OpenSea with Christie's.

Royalties and platform fees together make the cost of flipping NFTs astronomical. Tokens and stocks are never traded with a 7.5% commission.

Researchers discover that when traders pay high trading costs, they tend to engage in more risky trading behaviors. They also trade significantly less, trade higher-priced targets, hold their trades longer, and experience much larger price swings. This leads traders to realize more dramatic gains and losses.

There is clear evidence that high trading costs discourage NFT trading. In terms of market cap, NFTs represent 1.9% of all crypto as of June 15, 2022. Volume wise, NFTs only generate 0.09% of the entire crypto trading volume. Other findings apply to NFT trading as well. Dramatic gains attract new players. But most participants will end up with negative returns.

High trading costs are only sustainable if the subject is some kind of collectible. NFTs are not made to be flipped on a daily basis either.

Most successful NFT projects are run as brands, such as Bored Ape Yacht Club and Azuki. Consumers spend premiums for jpegs just like fans over-pay for Supreme t-shirts. While there is a market for second-hand luxury goods. A Chanel bag or a Rolex watch is never traded on a daily basis.

Top NFT projects right now function weirdly as a combination of non-fungible and fungible tokens. On one hand, they attempt to construct something much more than a profile picture, i.e., a community, an identity, a mission, etc. On the other hand, they are traded like stocks. Imagine Elon Musk taking a 5% cut from every Tesla stock trade. Does it make sense?

Looking ahead, if NFT projects continue to operate as brands, as they should, the fungible token (stock) aspect should play a less and less important role. Building long-lasting brands like Louis Vuitton does not require frequent speculation around its price. A monkey picture should be a consumer product rather than an investment. Because of the high costs, attempts that treat NFTs as tokens to trade are destined to fail. For example, NFT Index Funds and NFT market place for pro traders.

Unethical Trading Behaviors

Unethical trading behaviors occur much more frequently than one would have hoped.

First of all, it is easy to manipulate the NFT market. Most projects have a limited supply, and the number of traders is small. Around 700 to 1,500 pieces are usually available for sale for a 10,000-piece NFT project. It is not that difficult to pump up the price of a collection and then dump on those who FOMO. Many projects also protect their floor price by buying pieces with their own money.

At the end of April, when an NFT project with over 100k Twitter followers launched, a mysterious wallet spent more than 300 ETH and market bought 40% of the available supply on secondary markets. The project's floor price went up by 80% within a day.

Insider trading is not uncommon either.

Yuga Labs announced that they acquired CryptoPunks and Meebits from Larva Labs on March 11, 2022. Those acquiring Meebits because of the announcement only became exit liquidity for the early movers.

One could easily spot the four buying waves of Meebits prior to the official announcement. Meebits' floor price was decreasing steadily towards the end of February 2022, as the entire NFT market was trending downwards. Suddenly, Meebits gained popularity among NFT flippers, or, to put more accurately, Yuga insiders. Floor price increased from 2.48 ETH to 3.46 ETH between March 4 and March 6. Then on the day before the announcement, as rumors about the potential acquisition started flying around on NFT Twitter, Meebits floor price rose quickly from 3.5 ETH to 5.4 ETH before falling back to around 4.5 ETH. The official announcement marked the local top for Meebits, peaking at 6.98 ETH. Meebits did not break this all-time-high record until nearly two months later.

Another more public case involves insider trading by the former Head of Product at OpenSea. As reported by The Block, Nate Chastain, OpenSea's former Head of Product, was arrested on June 1, 2022 in New York. A grand jury has indicted Chastain on wire fraud and money laundering charges, each of which carries a maximum sentence of 20 years in prison.

According to the indictment, Chastain was allegedly responsible for selecting which NFTs would be featured on the OpenSea homepage. From about June 2021 to September 2021, Chastain used secret wallets to purchase NFTs that would be featured on OpenSea. He then sold those pieces for two to five times his initial purchase price shortly after, as their value pumped because of OpenSea homepage exposure.

Unethical behaviors are not limited to the two mentioned above. Towards the end of February, before the reveal of an NFT project, one of the team members somehow accessed the metadata, uncovered the # of the rarest piece, and bought it at 200% of floor price. After reveal, the same piece was soon sold for 20x its purchase price.

Such behaviors are detrimental to the market and its participants. If left unattended, they will cause disastrous long-term consequences.

It is, of course, not practical to expect market participants to regulate themselves. While certain community members have stepped up, such as ZachXBT and NFT Ethics, the market cannot depend on vigilantes' individual efforts.

More tools should be developed to monitor trades and wallets and expose irregular trading activities, whether it's market manipulation, insider trading, or just wash trades to earn marketplace tokens. Regulators may also step in to secure the integrity of the market.

Zero Token Decimal

Token decimal is a fungible token concept. It refers to how divisible a token can be. It is 18 for most fungible tokens, i.e., you could, at the minimum, buy 0.000000000000000001 ETH (17 zeroes after the decimal point).

It is 0 for NFTs. In other words, you can either buy one or not buy one. You cannot buy 0.5 of an NFT. Having a token decimal of 0 hurts adoption, when popular collections become too expensive. If Bitcoin's token decimal was 0, its price would never reach $69,000.

Fractionalization is a way to allow more people to get involved with a popular NFT project. When an NFT is frationalized, it is divided into smaller pieces, where owning one piece gives you similar rights to owning the whole thing. Frationalization is essentially forging fungible tokens out of non-fungible tokens.

Bobu (Azuki #40) was fractionalized into ERC-1155 tokens on March 6, 2022. There were 20,000 pieces of Bobu for 0.01 ETH each. The community seems receptive to the idea of fractionalization. Owners changed their profile pictures to Bobu and formed a sub-group within the Azuki garden.

Issuing cheaper secondary collections is another way. Many cannot afford an Hermès handbag. An Hermès pocket square is much more budget-friendly. Similarly, if you cannot afford a BAYC, you can choose among a MAYC, a Bored Ape Kennel Club, or a piece of Otherdeed.

However, it is imperative to preserve the value of the primary collection when issuing secondary collections. Rolex makes 800,000 watches every year without diluting its brand value. But quite a few NFT projects flopped because they rushed to issue secondary collections while the demand was not there. It is a delicate balance that must be managed carefully.

To increase NFTs' token decimal, there is plenty of space for innovation and experimentation. For example, Bobu was fractionalized by Azuki officially. Can Azuki owners fractionalize their Azukis as they wish? Do secondary collections must come in the form of NFTs?

Crypto-Centric Circles

Over the past year, numerous celebrities have bought into NFTs, including Justin Bieber, Paris Hilton, Jimmy Fallon, Steve Aoki, Snoop Dogg, etc. The list is infinite and impressive. MoonPay even set up a concierge service to help high net worth individuals buy NFTs. However, despite all these adoptions, the gap between the NFT community and the rest of the world is still wider than the Grand Canyon.

Majority of NFT buyers still come from within crypto. As NFTstatistics.eth (punk9059) points out, “the process of a normie partnership translating into new ETH going into NFTs is unproven and slow-moving."

Many projects with outstanding real world achievements are struggling. For example, Aku is an NFT brand founded by Micah Johnson, former MLB player turned artist. The project enlists Pusha T and Upscale Vandal as advisors, a famous rapper and a well-respected fashion icon, respectively. But fans and admirers of Pusha T and Upscale Vandal are not converted to buyers and holders of Aku NFTs. On the contrary, meme projects that appeal to degens are much more successful, such as “Goblintown.wtf" and "i'll poop it." Crypto bros love memes.

It is too complex to set up a wallet, acquire crypto currency and buy an NFT. This prevents mass adoption. It was hoped that Coinbase NFT could solve the problem. But Coinbase NFT is a complete disaster. According to Nansen, Coinbase NFT generated only ~900 ETH of volume since launching on May 4, 2022.

There must be better ways to allow an average person to access NFTs. Nifty Gateway allows you to purchase NFTs with credit cards and store NFTs in a custodial wallet. But much more needs to be done. NFTs may have already peaked if they remain within crypto-centric circles.

Anonymous Project Founders

NFT frenzy resembles the 2017 ICO bubble. Projects like Pixelmon managed to rake in stupid amounts of money with little effort (everyone loves Kevin, I know). Hiring a freelance artist on Fiverr and borrowing smart contracts from existing projects are enough for setting up an NFT project.

Low-quality projects flood the market for two reasons. First, market participants are blinded by greed. They do little research before aping into a project. Second, anonymous founders can get away with their wrong doings easily. If a project fails to take off, rug it and start another one under a different alias (see ZAGABOND).

What's worse, 0xngmi published shocking evidence on Twitter that the founders of Milady, a well-known NFT project, are involved in a series of sickening activities, including racist, sexist, and homophobic blogs, grooming, gaslighting, and a suicide cult.

More recently, Sartoshi, founder and artist of mfers, announced that he would hand over mfers to the community and permanently vanish. While the community was not too surprised by his leaving, Sartoshi did irritate some members with two actions. First, Sartoshi still receives 25% of mfers royalties despite leaving the project. Second, Sartoshi released "the end of sartoshi" on his way out, making around $2 million from its sale. The collection cost 0.069 ETH each to mint. It now trades at 0.02 ETH on OpenSea.

Foolishness in the market will persist. But anonymity can be worked on. "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently," says Warren Buffet. If ZAGABOND, Milady founders, and Sartoshi had revealed their identities, they would have taken a different route.

Full transparency is not perfect either. For example, anonymity shields founders from insidious personal attacks. It should be possible to vet founders via a zero-knowledge proof way. Or founders could dox themselves privately to a smart contract. If everything moves smoothly, anonymity is preserved. If unfortunate events do occur, malicious actors can be held accountable.

Premature NFT Finance

NFTfi has been discussed a lot lately. In DeFi, one can borrow against fungible tokens to generate additional liquidity. Similarly, people hope that they could borrow against the NFTs they hold.

First of all, NFTfi should not be compared to mortgage. A mortgage is a loan to buy a piece of real estate. The property being purchased serves as collateral to secure the loan. NFTfi is more like a home equity loan, where ownership of the property is already secured. The key difference is the purpose. A mortgage helps purchase the underlying collateral, while a home equity loan aims to buy something else.

What is the purpose of NFTfi? Where do borrowers spend the additional liquidity?

Stock pledges in traditional financial markets is a fine precedent that offers some consumer insights. Stock pledges allow holders access to liquidity without giving up on ownership. For example, Elon Musk is rumoured to borrow up to $12.5 billion against $62.5 billion of Tesla stock to fund his acquisition of Twitter. It's interesting to note that the discount rate (loan-to-value ratio) applied to Elon Musk's pledged Tesla shares is 20%, which is lower than most NFTfi sites' 30-50%.

Stock pledges are not common. Between 2007 and 2016, 7.6% of publicly listed U.S. firms disclosed that their CEOs had pledged company stock as collateral for a loan, indicating the demand for NFTfi may be limited.

And the vast majority (90.5%) of CEOs pledge their stocks for personal spending. For example, Oracle's Larry Ellison presumably used such liquidity to purchase Lanai, Hawaii’s sixth largest island, for a reported $500 million in 2012. Only 6.0% of CEOs use the funds to double down on their company stocks. Another 3.5% of CEOs pledge to hedge their ownership.

It is unclear how NFTfi borrowers use theirs. But it seems that the funds are put back into flipping NFTs. If degens use the money to buy more NFTs, NFTfi adds nothing but leverage to NFTs. It will create an unsustainable bubble that is destined to burst.

Going back to the real world parallels, not many borrow against their Hermes bags or Picasso paintings. NFTfi will live to satisfy the needs of a small group, but it will not get much bigger. Modern pawnshop dates back to the 1500s and has never been a big business.

Future Opportunities

A blockchain is a decentralized database. The primary value proposition is that it guarantees the authenticity and security of data without the need for a trusted third party.

When blockchain was first introduced, bitcoin was the only application. But use cases outside of bitcoin were soon imagined. It was argued that blockchain could be immensely effective in personal information storage, legal and medical records management, ticketing, voting, etc. Many sectors are ripe for disruption. All applications involve NFTs. Progresses made in these areas will lead to wider adoption of blockchain technology and drive prices to new highs.

Right now people assume NFTs are expensive jpegs. As discussed in the previous section, expensive jpegs have their own problems. Looking beyond jpegs, there are ample opportunities that might redefine the meaning of NFTs in people's minds.

When discussing these opportunities, NFTs can be classified into two broad categories, 1) digital copies of unique physical beings and 2) digital-native beings.

Digital Copies of Physical Beings

The world is becoming more and more digital. World internet users increased from 558 million in 2002 to 5.38 billion in 2022, representing 67.8% of the world's population from a mere 8.6% in 2002. Not only are humans migrating to the digital world, things are also moving. Personal records, bus tickets, even children's games are getting computerized. It is reported that fewer boys participated in organized sports in 2005 than in 1992, while the number of video game players is constantly increasing.

However, before the bitcoin network, all the digital records were siloed in centralized databases. Users face significant counter-party risks. Posts on centralized publishing platforms can be taken down. Hotel reservations can only be cancelled with Expedia or Hilton. Real estate purchases are lengthy and burdensome. Pioneers in NFTs are making some meaningful progress.

Writing and Music NFTs

Mirror, a decentralized publishing platform, has been experimenting with writings as NFTs. Mirror allows writers to mint their writing as a digital collectible. Writers can also customize the price and supply. Writing NFTs are completely free for writers to create. The NFTs are created on Optimism, an Ethereum L2.

Mirror's announcement "Introducing Writing NFTs" itself is released as an NFT at 0.01 ETH a piece and has a total supply of 420 pieces. It was quickly sold out and is trading at 0.08 ETH on secondary markets.

The concept of writing NFTs is very similar to music NFTs. Several musicians have released their music as NFTs via Royal. Both writing NFTs and music NFTs need to answer one question. Are they collectibles or productive assets?

The logic behind writing and music NFTs as collectibles makes sense. Kevin Kelly wrote 1,000 True Fans back in 2008. He argued that, "to make a living as a craftsperson, photographer, musician, designer, author, animator, app maker, entrepreneur, or inventor you need only thousands of true fans. A true fan is defined as a fan that will buy anything you produce." Web2 ventures like Patreon and Buy Me a Coffee are quite successful already. NFTs may unlock further potential due to the technical upgrade based on blockchain.

Writing and music NFTs could also function as productive assets, generating cashflow on a regular basis. This faces more challenges, because writing and music NFTs do not change their industry landscape. They rely on existing infrastructure to make money. Everybody knows musicians earn very little from streaming. Music NFTs on Royal share streaming revenue with owners. But the revenue is minuscule. The first monthly payout was only $10.20. That translates to an annual income of $120, which is not going to make music NFTs attractive. If writing and music NFTs cannot establish brand new distribution channels and get rid of middlemen, their innovation will be limited and their future will not be bright.

The current offerings of streaming companies like Spotify and publishing platforms such as Medium and Substack are still competitive, because they bundle countless pieces of music and writings, and they offer the entire collection at a relatively cheap price. Bundling provides superior utility to everyone at the table (Chris Dixon explains the reasons beautifully in his 2012 post). Under a productive asset model, unless writing and music NFT companies can amass a similar collection, bundle it and offer it through their own distribution channels, the status quo is unlikely to change. Between the two, writing NFTs is more promising, because becoming a writer is much easier than producing music professionally. As the publishing industry is struggling, it may be more open to embrace disruptions.

Ticketing and Hotel Reservation NFTs

Tickets and reservations are a big untapped market for NFTs. Event tickets revenue alone is estimated to be $72.31 billion in 2022. And there are obvious problems with existing solutions.

Look no further than the chaotic UEFA Champions League Final held in Paris this year. The match was delayed by a good 35 minutes, because of "industry-scale ticketing fraud" according to French officials. People with fake tickets got into the stadium, while those with real tickets could not. Those who could not get in got angry. The situation deteriorated rapidly, which ultimately led to French police tear-gassing frustrated fans outside the stadium.

If the tickets were issued as NFTs and traded on OpenSea, not only could scams be avoided, UEFA could also generate additional income by taking a share in secondary sales as well. There have been several attempts to revolutionize the ticketing industry with NFTs, but none delivered yet. They face complications on both ends. On the supply side, it is difficult to compete for rights to issue tickets with current service providers. On the demand side, NFTs are too complicated for ordinary folks to manage.

A recent development took place in hotel reservation. Hotel reservation is essentially a type of a ticket. Dominican Republic resort Casa de Campo signed a deal with Pinktada to convert hotel reservations into NFTs.

Casa de Campo Resort & Villas opened in La Romana almost 50 years ago, as the first resort in the Dominican Republic. It's a luxury resort. According to the website, its rate starts at $439 per room per night.

For Casa de Campo, this move not only serves as good marketing to attract rich crypto nerds to play golf in the Caribbeans, but also helps it manage its bookings. Previously, guests who'd like to cancel their reservations need to contact the hotel. The refund process is not simple either. Now, the hotel takes no part. The guests simply sell their reservations directly to others. Authenticity is ensured because everything on chain is public. The buyer can verify that the reservation is issued by the hotel and check the entire transaction history. If there are no buyers on the secondary markets, the hotel could serve as the last resort (pun intended) and buy back the reservation at a discount equal to cancellation charges.

Issuing tickets and reservations as NFTs benefits issuers and buyers alike. Existing players in this segment are nothing but disappointments. Just check out any review for sites like Ticketmaster or StubHub. This could very well be the first NFT sector that sees a major breakthrough.

Real Estate NFTs and Others

Experiments are going on in many other industries. In real estate, there have been two instances where property is sold as NFTs.

In February 2022, a Florida home was auctioned off as an NFT. Real estate startup Propy hosted the auction. The 2,162-square-foot house is located in Tampa Bay. It has five bedrooms and three and a half bathrooms. The auction received 2 bids. The house was sold for 210 ETH (~$650k).

In June 2022, the US real estate firm Okada & Company listed a commercial property as an NFT on OpenSea. The property is a 46,299-square-foot office and retail building in the Flatiron district of New York City. It is a seven-story elevator building steps away from Madison Square Park and the Highline. The building is still available, even though its listing price seems incorrect.

The benefits of selling real estate as NFTs are less obvious. Okada explains that "due to the nature of real estate sales, the sale of the NFT does not warrant the completion of the real estate transaction, or reflect the transfer of the deed or title. The traditional real estate process must still be complete." These efforts are more likely intended for marketing. But they may also be first steps towards having all property records on chain.

Ripple (XRP) CEO Brad Garlinghouse also believes that the tokenization of various assets is underhyped. Garlinghouse cites carbon credit trading, which is often “challenged” by fraudulent activity, as a use case for NFT due to transparency and traceability. “It could really revolutionize carbon credit marketplaces,” Garlinghouse said and added that Ripple is investing $100 million in the segment. KlimaDAO is in the same business, though it is not doing too well.

The progress of turning digital copies of physical beings into NFTs is slow, because, despite potential risks, centralized data managers provide superior user experience to average customers at the moment. Average customers have little incentive to switch service providers even if they like the idea of blockchain. For example, OpenSea, a rather centralized marketplace, remains the go-to place for NFT traders. Bragging about decentralized, trust-less data management won't do the job. Having a killer end product is the key.

Digital-Native Beings

The other promising aspect of NFTs is the tokenization of digital-native beings. As people move from offline to online, not only do they make digital copies of things that are already in existence, they also create things in the digital world directly, such as a rare sword in a video game or an email account. Gmail is the most used email service. But for new registrants, it is very difficult to obtain their preferred gmail name, such as michael@gmail.com. What if michael@gmail.com is made a token and its ownership can be transferred? Ethereum Name Services does just that. The opportunities are immense. Moreover, they are better opportunities because they often do not require dealing with real world formalities.

Metaverse

When talking about digital-native beings, metaverse is an inevitable subject. Metaverse is a catch-all term for virtual worlds, VR, AR, and many other related fields such as online gaming and social media. Science fiction author Neal Stephenson coined the term metaverse in his 1992 novel Snow Crash. Metaverse encompasses any digital interactions between beings (humans and bots/NPCs alike) and their supporting digital facility and infrastructure. A Twitter thread is a conversation in the metaverse. On the contrary, a VR headset is not a part of the metaverse. It is just a tool for a human to enter the metaverse.

Every digital-native being in the metaverse can be tokenized. However, NFTs are mostly just people's profile pictures at the moment. A digital art NFT, such as a Fidenza, is worth a significant amount of dollars. But there are very limited ways to showcase a Fidenza as an owner. In other words, expensive jpegs belong to no metaverse homes other than Twitter and Discord, which limits their appeal and utility. In the real world, you may lend your Picasso to an art museum; in the metaverse, the best you could do is attach the jpeg to your tweet.

Progress is being made. Punk6529 introduced Open Metaverse, a decentralized open metaverse powered by Oncyber. The goal is a horizontal, brand-neutral metaverse where anyone can build and enjoy, including showcasing their NFT collections. No land will be sold. Actual work will be rewarded instead of artificial land scarcity. Proof Collective is working on Project Highrise. Proof claims that Project Highrise is a dramatic departure from the existing 'never-ending' worlds that feel like a digital ghost town. But not many details about the project have been shared.

There are also gaming-themed metaverse plays. SandBox, Otherside, and Illuvium are the biggest crypto-native attempts to combine gaming and metaverse.

The concept of metaverse is not new for gamers. Every game is technically a metaverse. Counter-Strike:Global Offensive (CS:GO) is a popular first-person shooter game. Players are either terrorists or counter-terrorists in this metaverse. My first experience of trading "NFTs" was buying and selling CS:GO skins on the Steam community market. CS:GO Skins were limited to one game. Skin NFTs would be more flexible and fun.

But when Ubisoft announced NFTs would be implemented in the PC version of its game Ghost Recon: Breakpoint, it was met with huge community backlash. Soon after the video announcement went live, the ratio of likes to dislikes was 5 percent to 95 percent. The video received about 22,000 dislikes before it was delisted. Apparently, gamers hate NFTs because they think NFTs (or crypto in general) are nothing but scams. More education is necessary.

The primary difference between the real world and the metaverse is uniqueness. There is only one Earth. Land is a scarce resource. It is impossible to have more than one New York City. But the metaverse is infinite. Everyone can create a New York City of their own. The future is no doubt multi-metaverse. It is impossible for one company such as Meta to own "the" metaverse.

The differentiator is what's inside a metaverse. As pointed out by Arthur_0x, a virtual metaverse without engaging content is cringe and people won't want to spend time there. People care more about content than whether it's a "metaverse" or not. But for any metaverse, a well-designed NFT system will only enhance people's experience in it.

NFTs in Real Life

While it is important to figure out how NFTs would operate in the metaverse. Another large yet under-explored area is how to connect digital-native beings back to the real world.

Tokenproof is a startup that tries to tackle one specific problem, real-world proof of NFT ownership. One should not prove ownership of a bored ape by showing his Apple watch. Tokenproof enables users to prove ownership of NFTs without connecting to or even carrying their wallet.

Based on released announcements, tokenproof provided token-gating solutions at NFT NYC to Bored Ape Yacht Club, Proof/Moonbirds, mfer, World of Women, among others. A very impressive list of clients.

The tech behind tokenproof is simple. Users verify ownership of wallets/NFTs with tokenproof upon registration. Afterwards, users could verify using tokenproof only without the need to connect to their wallets anymore. Tokenproof is a direct response to hacks and scams happening in ownership verification today. Community feedback shows that tokenproof is easy to use and reduces relevant risks.

As the world is becoming more and more digital, one surely wants real life friends to know about his or her online achievements. Transmitting digital-native beings back to the real world is another exciting area that awaits innovation.

Soulbound NFT

Soulbound NFT is an interesting idea brought up in a January 2022 post by Vitalik Buterin. Soulbound originally is a gaming concept. It basically refers to non-transferrable NFTs.

The question raised by Buterin is that, "if someone shows you that they have an NFT that is obtainable by doing X, you can't tell whether they did X themselves or whether they just paid someone else to do X."

Most of the NFTs today are designed to be transferrable. As a result, the highest bidder can get whatever NFT he wants. But there are things that should be prevented from changing hands. Imagine Trump being able to buy New Yorkers' right to vote. Another example is that law forbids people from selling themselves into slavery. The right to live as a free man cannot have a price tag.

In areas where proof of work really matters, Soulbound NFTs will flourish. This is related to the idea of pseudonymous economy populated by Balaji Srinivasan, the separation of one's professional/social identity and legal identity. Srinivasan believes that "with remote work and crypto and (soon) AI avatars, no coworker needs to know anything about you — your accent, location, nationality, etc — beyond the fact that you can do your work." There are clear advantages. Pseudonymity provides not just freedom of speech, but freedom after speech. Opponents have to attack your idea, they can’t attack you. You maintain a pseudonym and develop a reputation around it. It provides accountability, but it's also a shield against character assassination.

For example, I am known as quantumzebra123 and my name is attached to this piece. If you find this piece helpful, the credit goes to quantumzebra123. This credit is soulbound to my pseudonym. At the same time, quantumhippo123 cannot take the blame for writing a 7,000-word non-sense. All such credentials can be soulbound NFTs tied with your digital identity. They define who you are. You cannot buy someone else's 5 years of coding experience to apply for a Solidity developer position.

Closing Thoughts

In the real world, only financial instruments such as currency and stocks are fungible. Everything else is non-fungible. In the same vein, NFTs should be much bigger than FTs. NFTs are not just expensive jpegs.

In a recent discussion with a friend, he commented that "we all want the space to grow, but at the same time we are all here for the money." Crypto still relies on the "get rich quickly" narrative. It is as bad for outsiders as it is for insiders. It seems that if you have not "made it" by being in Crypto for a year, you are a failure. Majority of the "builders" in this space are only thinking about how to get others to buy their bags.

I like the following quote from Stephen A. Schwarzman very much.

People in a tough spot often focus on their own problems, when the answer usually lies in fixing someone else’s.

Are you doing what you are doing to get rich? Or are you doing what you are doing to help others?

Crypto (rebranded as Web3 nowadays) needs to shift its narrative from making money to solving problems. Only money made from solving problems has sustainable foundations. We need user-friendly blockchain solutions that are superior to Web2 counterparts. NFTs are perfect candidates. As illustrated in the second part of this article, there have been promising successes on many fronts.

Bears markets are hard. But hopefully it gives people some time to look at potential disruptions by NFTs beyond monkey pictures.