NFT Trading Volume Declines; Utility and Gaming Applications Will Determine Its Future

As reported by CoinGecko, Blockworks estimates that the volume of NFT trading in 2023 was less than half of what it was in 2022, falling from $26.3 billion to $11.8 billion. The digital art market has been largely overlooked by crypto investors in 2022, as volumes have decreased in each succeeding quarter. According to the NFT director at Mysten Labs, Rohan Handa, uninspiring macroeconomic conditions and high-profile collapses contributed to the protracted decline and eroded investor and public confidence in volatile crypto sectors.

The decline in the NFT market is evident in the financial performance of OpenSea, a trading platform that was formerly assessed at $13.3 billion. December 2023 saw an approximate $170 million trading volume, following nine consecutive months of trading volume above $2 billion between 2021 and 2022. Early in November, 50% of OpenSea's workforce was let go, and one of the company's investment supporters, Coatue Management, reportedly reduced the price of its shares by 90%. CEO of OpenSea Devin Finzer has hinted at upcoming "OpenSea 2.0" product enhancements and introduced an email-only wallet creation onramp.

In late 2023 and early 2024, NFT trading began to exhibit signs of recovery, fueled in part by the proliferation of Bitcoin Ordinal inscriptions and the enthusiasm surrounding the Solana ecosystem. Numerous NFT participants are of the opinion that the technology's future does not consist of trading collectible JPEGs. Handa stated that the ascent of non-crypto native users to NFT status in 2021 constituted the initial stage of market maturation for NFTs. The subsequent stage entails the practical implementation of NFT assets.

According to Dirk Leuth, co-founder of the metaverse gaming platform Upland, coupling NFTs with utility, gamification, and financial incentives is what the future holds for the space. Verification of identity for access, reward systems, or governance, and tokenization of illiquid real-world assets as NFTs in order to implement a representative version on-chain are a few examples. Handa and Leuth both expressed optimism regarding NFT applications for gaming, and an S&P report forecasts that the market for this NFT application in particular will increase by billions of dollars over the next few years. "2024 will be the year of gaming NFTs," predicted Handa.