NFT Trading Volume Declines, Future Depends on Utility and Gaming Applications

According to Blockworks, NFT trading volume in 2023 was less than half of what it was in 2022, sliding from $26.3 billion down to $11.8 billion, as reported by CoinGecko. Digital art trading has fallen off the radar for many crypto investors, with volumes dropping each successive quarter in 2022. The prolonged decline was caused by uninspiring macroeconomic conditions and high-profile collapses, eroding public and investor confidence in volatile sectors of crypto, according to Mysten Labs' NFT lead Rohan Handa. The downturn in the NFT market is reflected in the fortunes of OpenSea, a trading platform once valued at $13.3 billion. Its trading volume was roughly $170 million in December 2023 after nine consecutive months above $2 billion between 2021 and 2022. OpenSea laid off 50% of its staff in early November, and Coatue Management, one of its investment backers, reportedly marked down its shares in the company by 90%. OpenSea CEO Devin Finzer has teased forthcoming product upgrades to "OpenSea 2.0" and debuted a wallet creation onramp that only requires an email. NFT trading saw seeds of a turnaround in late 2023 and into 2024, partly driven by the proliferation of Bitcoin Ordinal inscriptions and excitement around the Solana ecosystem. Several participants in the NFT space believe that the future of the technology lies beyond trading collectible JPEGs. Handa said that the 2021 rise of NFTs was step 1 in onboarding non-crypto native users, and the second phase of market maturity for NFTs involves using the assets in real-life applications. Dirk Leuth, co-founder of the metaverse gaming platform Upland, said that the future of the space involves coupling NFTs with utility, gamification, and financial incentivization. Examples include verifying identity for governance, reward systems, or access, and tokenizing illiquid real-world assets as NFTs to bring a representative version on-chain. Both Handa and Leuth showed optimism around NFT applications for gaming, with an S&P report predicting the market for this particular NFT application to grow by several billion dollars in the coming years. "2024 is the year of gaming NFTs," Handa said.