The Rise and Rise of NFTs | Interview with Charles d’Haussy
Part of our special research report
State of the NFT Market | Q1 2022
In partnership with CryptoSlam
Growth drivers of the NFT ecosystem
The growing popularity of NFTs is stunning, having risen from several hundred million dollars in sales when the market first started, to around US$20 billion in 2021. We believe the exponential growth seen around the world can be explained by the product-market fit: NFTs have effectively provided a bridge for millions of mainstream users to begin converting to Web 3.0 through a new asset class that is digital collectibles.
We believe there are a few main drivers of this growth, the first having to do with appealing to a digitally-native generation. NFTs bridge many gaps between the traditional and new worlds — physical and digital, mainstream and crypto — because everyone can resonate with collectibles in the niche they care about. NFTs have proven to be the first crypto use case to truly attract mainstream audiences into the crypto and digital world.
The second driver of growth is economics and speculation. NFT collecting and trading have become more than a hobby for many dealers of NFTs. In fact, the advent of play-to-earn gaming has introduced a way for many people in impoverished nations to make a living after having lost their jobs due to the pandemic. One example of this is Axie Infinity, a blockchain game that allows users to earn an income through NFTs and cryptocurrencies. In the Philippines, Axie Infinity players can make more than what they used to earn from their regular jobs in pre-pandemic days.
Ethereum and other blockchains in the NFT space
Ethereum is by far the most relevant blockchain in the world — for NFTs, for developers, for decentralized finance (DeFi) and beyond. Ethereum and Ethereum-compatible chains make up around 80% of total NFT sales. Additionally, Ethereum has over 300,000 developers — more than any other blockchain developer community globally. Ethereum settles 12 times more transactions than PayPal does daily.
Regarding the growth of other blockchains, we believe we’re moving toward an increasingly interoperable world. We believe that there will be many computational blockchains because they will form the backbone of Web 3.0. However, not all will play an equal role, as there’s a distinction between technology, adoption and community.
Ethereum is the first and primary blockchain for running software, and the idea is revolutionary. It has ushered in DeFi, the creative industries with NFTs, and now new organizational structures and gaming collectives. The demand for its capability outstrips the supply of computation — and so new chains like Polygon bridge into Ethereum and support additional use cases at lower cost and higher throughput in reliance on the Ethereum decentralization guarantees. Chains like Solana specialize in DeFi use cases, and should be additive to the Web 3.0 ecosystem. All of this is co-evolving as the infrastructure is upgraded on the way to Ethereum 2.0 and multi-chain integration. The entire sector is expanding so fast that we are all going to make it.
Key NFT projects and collections
The projects and collections that have caught our attention span across a few specific categories, including:
Popular “cult” crypto collectibles: There are a number of virally popular crypto NFT collectible projects such as the Bored Ape Yacht Club and Cryptopunks, each of which have some 10,000 uniquely generated characters. No two NFTs are exactly alike, and each one of them can be officially owned by a single person on the Ethereum blockchain. There are several others that are in this category of “club” avatars, and new ones are continuously launching every day.
The possibilities for these types of collections are endless, as they represent more than a digital collectible. They represent an access pass, a representation of one’s identity, and a social “flex.” People use these avatars as their social media profile pictures. People use these avatars to feel like part of a club. “Members” of these clubs support and follow each other. Membership in these clubs, represented by ownership of these tokens, is exclusive, and actually offers real value and adds to one’s digital identity.
Fan engagement: NBA Top Shot made almost US$1 billion in historic sales through their video NFTs that capture sports moments.
Digital artwork: The digital artist Beeple secured US$69 million at a Christie’s auction, and continues to produce daily artwork for his fans. There are a lot of other examples within digital art including generative art.
Rights and royalties: Treum has pioneered music rights and royalties through their EulerBeats project, which produces unique, generative songs, (and) which distributes royalties in perpetuity to the original owners.
Brand engagement: Multiple brands are exploring opportunities using NFTs to galvanize their brand engagement and loyalty platforms. These include the world’s major cosmetics companies, the largest intellectual property owners, entertainment companies and beyond.
Gaming: Gaming has long been known to be a great use case for NFTs, and there are multiple examples of blockchain in gaming, both in the Web 2.0 world and the blockchain world. One example is Axie Infinity, which is now the top ranking NFT collectibles of all time, with more protocol revenue than Bitcoin and Ethereum, according to numerous NFT analytics sites.
There are endless possibilities for the world of NFTs, and multiple projects have delivered incredible utility for their communities.
Environmental and security backlash
With respect to environmental concerns, there will be a major upgrade on Ethereum called “the Merge” (part of the Ethereum 2.0 upgrade), which will address the high usage of energy. Merge is the transition of the Ethereum blockchain to a more environmentally-friendly method of confirming transactions and data on the blockchain called proof of stake.
Proof of stake (PoS) will be:
- Substantially more sustainable: Tackling global concerns around crypto’s environment impact, it is 99.95% more energy-efficient. If you estimate the energy use of one proof of stake validator to be 50W daily — which is a high estimate — that’s about the same as streaming less than four minutes of Netflix.
- More decentralized, in line with blockchain essence: More validators, more decentralization. Proof of stake reduces the technical barriers for anyone to stake and secure the network.
- More secure: The ability to compromise the network will be magnitudes more expensive with proof of stake, not to mention that a 51% attacker is identifiable with validator addresses and can be forked away from the network in the event of an attack.
The NFT industry is also empowering green futures with layer-2 technologies that are environmentally and fiscally sustainable, with lower carbon footprints and inexpensive transactions.
special research report: State of the NFT Market
table of contents
The NFT Market By the Numbers
Blockchains and NFTs
The Rise and Rise of NFTs | Interview: Charles d’Haussy
NFT Avatars — A New Identity
Trends Driving NFTs Growth
Trends Within the Trend | Interview: Helen Hai
Asia Primed for NFT Growth
Getting Creative | Interview with Audrey Ou
Metaverse Set to Boost NFTs
The Metaverse Conquest | Interview: Sébastien Borget
NFTs Behind the Pictures | Interview: Reeve Collins
The Boost From Blockchain Gaming
NFT Marketplace Competition Heats Up
NFT Marketplace Rivals’ Arrival | Interview: Zach Burks
New Investors and Investments
NFT Hacks and Scams
Regulations on the Radar
Decoupling of NFTs from Cryptocurrencies
Challenges to Address