The problem with NFTs

NFTs? Fad or here to stay?

We have found several issues with NFTs nowadays.

Firstly, the secondary market on NFT projects is limited because of low demand on that secondary market. The success of an NFT collection is often based on speculation and hype, but on the long term the absence of a strong secondary market will result in a depreciation on NFTs. Eventually, this will lead in lower demand on the NFT market as the resale value would be decreased. Without a new approach the NFT market for digital art and collectibles will diminish.

Secondly, we observe an increase in marketplaces that (re)sell NFTs. However, most marketplaces do not differentiate themselves from their competitors. This is a huge problem because the huge marketplaces are either the first-movers that have brand equity (like Opensea) or the marketplaces that have a track record of high quality launches (SuperRare). New marketplaces need to have a distinctive feature to differentiate from the other marketplaces to attract marketplace users for their own platform. Besides the distinctive feature it needs a focus on the long-term value creation of the marketplace. We have observed that current NFTs are often unfocused and try to be everything to everyone offering as much as one can imagine. This makes it more difficult for the market to grow and minimalizes the value creation for the NFTs individually.

Thirdly, we have noticed that current NFTs serve no purpose. They are created with minimal dimensionality: most NFT collections have little to no utility and offer limited engagement for holders. We notice that those NFTs have little potential to create long-term value. Most NFTs are destined to be shown off in their holder’s wallet but have no other purpose otherwise.

Of course, this is extremely unfortunate as NFTs are designed to be so much more. NFTs are engineered based on their blockchain ecosystems which enable them to be interoperable with decentralised applications and even integrated with blockchain programs of their own! Compared to standard fungible tokens, NFTs can enjoy more features embedded within the blockchain ecosystem.

Due to the high number of NFTs on the market higher quality NFTs are getting impossible to discover. NFTs are being created at a large volume. This is due to a low barrier of entry to the NFT market (direct upload to marketplace). Common occurrence of NFTs nowadays is the hype. As a result, this will lead to high market prices and eventually oversaturation. For that reason, market prices are greatly removed from the intrinsic value of the NFTs. This is partly due to the sensationalist articles written about NFTs.