Though we’re only a few months in, 2022 has already been a huge year for the NFT community. Artists and collectors alike have weathered the good and the bad – from acquisitions and fundraising to hacks and potential crashes. With Q2 of the 2022 financial year well underway, let’s take a broad look at how NFTs have fared over the course of Q1 with the help of an official report from DappRadar.
Dips vs. crashes
Early 2022 saw general interest in NFTs seemingly decline the world over. NFT sales even declined by nearly 30% from February to March, causing some members of the community to brace for what looked like a crash.
Although reading this dip as the start of a massive crash might have been a bit of an overreaction, there was good reason to expect the worst. With the turmoil in the global market from the ongoing Ukraine-Russia conflict, many industries around the world were slowing down, and the Web3 sphere was no exception.
However, instead of folding under all this uncertainty, the Web3 community came together under the shared banner of positive social change. Millions of dollars in crypto were donated to aid the Ukrainian humanitarian effort, with millions more expected to be raised via a state-run NFT auction.
An expanding market
All things considered, Q1 of 2022 was very favorable for the NFT community in spite of the dip.
Overall, the first few months of the year saw NFTs generate roughly $12 billion in trades, and signs are pointing to this bounce-back as an indicator of sustainable, long-term growth. This excludes outlier activity on the LooksRare market, which accounted for 62% of a $31.4 billion March.
Excluding activity on LooksRare, we’re seeing rising sales across the board, along with a growing number of unique traders active on the market. This suggests more diverse, and more importantly, more decentralized trading activity.
NFT sales and trades conducted using blockchains aside from Ethereum have also seen steady growth in recent months. Networks such as Avalanche, Flow, Polygon, and Solana have all been beneficiaries of this increased activity.
Towards the end of 2021, we started seeing more NFT groups partner up with established and influential brands for their launches. For instance, Adidas linked up with the BAYC and Punks Comic teams to launch their first NFT in December 2021.
Yuga Labs, the creators of the BAYC, took things a step further in the following months. With a few moves, it looks like they’re well on their way to fully emulating Adidas’ influence on the sporting goods and apparel market. Unfortunately, to most observers, this ‘influence’ looks a bit more like a monopoly – all happening in the span of a little more than a year.
Some of their recent moves include acquiring IPs from CryptoPunks and Meebits. With this, Yuga Labs now represents 44% of Ethereum’s Top 100 NFT Collections market cap. No other group even comes close. If this trend keeps up, we’re going to see the NFT market dominated by a few entities operating similarly to how investment groups do in the traditional finance world.
Be wary of hacks
Although it might take some time for the mainstream gaming industry to figure out NFTs, smaller studios have already enjoyed massive amounts of success by opting for a play-to-earn model. Since its launch in March 2018, Sky Mavis’ Axie Infinity has cleared the 10 million player mark, and with that, over $4 billion in NFT sales.
Unfortunately, this massive sales volume has also made the game a prime target for hacks. Just this past week, Axie Infinity reported losing $615 million in USDC and ETH on its Ronin Network to a coordinated hacking attack. So far, the game’s creators have raised $150 million in funds to reimburse affected users.
This is far from an isolated incident – the Web3 community has incurred over $1.19 billion in losses over the course of 2022, accounting for roughly 35% of all-time stolen funds. The NFT space, in particular, has suffered through at least three high-profile hacking incidents in the past few months alone. Hopefully, these incidents will trend downwards in the coming months as platforms get hip to the security vulnerabilities hackers have and will continue to try and exploit.