Are NFTs already in crisis?

Most people became aware of NFTs after March 2021, when digital artist Mike Winkelmann – known as beep – Sold one of his works at a Christie’s auction for the equivalent of $69 million in Ether, a cryptocurrency. The winner of the work entitled Everydays: The First 5000 Days was programmer and digital art collector Vignesh Sundaresan.

Since then, NFTs have attracted more and more attention and have become one of the most important assets of the crypto sector, a term that describes everything related to the blockchain and its applications. The acronym NFT stands for Non-Fungible Token (in Italian it can be translated as “non-reproducible token”) and denotes a digital certificate of authenticity: in short, they are labels that certify, via the blockchain, the originality and uniqueness of a content . In the case of Beeple and most NFTs, a visual work of art.

After a year of strong growth, the industry peaked last September with around 225,000 sales in a single day. Things have changed since then e.g noticed an article from the Wall Street Journal Much quoted and commented on in the industry these days: In the last week of April, the number of daily trades fell to around 19,000, a drop of 92%. The number of wallets active in the market – digital wallets for cryptocurrencies – also fell by 88%, from 119,000 in November to 14,000 in early May.

– Also read: Because the art of NFT is so cheesy

The drastic drop in activity appears to be accompanied by a general drop in awareness and enthusiasm for the sector. In March 2021, Sina Estavi, an entrepreneur working in this field, was awarded the prizeNFT links to the first tweet in history (posted May 21, 2006 by social network co-founder Jack Dorsey) for $2.9 million. Last April, just over a year after the purchase, Estavi re-listed it on OpenSea, the leading NFT trading platform, initially asking for $48 million. At the moment, the highest offer he received was $24,000.

Things aren’t looking any better for Coinbase, a cryptocurrency exchange service that this month launched Coinbase NFT, a section dedicated to these tokens. On the first day, the service had fewer than 150 registrations, according to the analytics company dune. About a week after launch, only 1,236 have used it to purchase an NFT.

There are many factors behind this crisis. First of all, the exponential growth that the sector experienced in 2021 and early 2022, a trend that will be difficult to stop forever. Also because, despite the increase, the industry has not succeeded in expanding the number of users as much as it would have been necessary. According to Chainalysis, a cryptocurrency analytics firm, the 9.2 million NFTs sold up to last April were bought by about 1.8 million people. Approximately five NFTs for each buyer.

Monkeys and Metaverses
L’Centralization characteristic of this sector This is also reflected in the excessive power accumulated by companies like Yuga Labs, creator of the successful NFT line Bored Ape Yacht Club, which last March acquired two other highly successful lines, CryptoPunks and Meebits. In the same days, the company announced that it had received $450 million in investment to build “a Metaverse for NFT,” a video game to be called Otherside. Also in March, the company introduced ApeCoin, a cryptocurrency that can be used to buy goods and services in this digital world.

– Also read: How decentralized is the decentralized web really?

At the time of ApeCoin presentation, reporter Casey Newton he pointed out how the currency – and the corresponding DAO, a type of organization accessed through the purchase of tokens – allows Yuga Labs to control the product and keep a portion of the profits without having to deal with other investors. According to Newton, the company “can speak of the benefits of decentralization […] while enjoying the benefits of centralization”.

On April 30th, Yuga Labs offered the first assets for its Otherside metaverse for sale, which despite the general downturn generated a very high demand that eventually exposed a structural flaw in the blockchain. Each transition that takes place on Ethereum, the blockchain used by Yuga Labs, actually involves paying an additional expense called a “gas fee,” which all users use to pay the miners, the ones whose computers work to complete transactions validate. This commission is not fixed, but increases in relation to the traffic recorded on the network: due to the great interest from Otherside, this additional effort has multiplied. A user, e.g. has come Paying $45,000 in gas fees to cover the purchase of an NFT that cost just over five thousand.

As for Ethereum, it could not withstand the traffic generated by these 55,000 NFTs, became overloaded and caused many inconveniences. In the same hours, many users became victims of thefts and phishing attempts by bots that took advantage of the chaos related to the event that emptied their wallets. An increasingly common phenomenon in the world of cryptocurrencies: in 2021 alone this type of scam has given in 14 billion dollars.

Days after the confusing launch of the Otherside metaverse series, the decline that has affected NFTs has also overwhelmed Bitcoin, the world’s most important cryptocurrency, which today has lost 54% of its value compared to last November’s peak (below the psychological threshold of thirty thousand dollars). Ethereum also had similar losses.

However, the cryptocurrencies that have lost the most value and are undermining the entire crypto-economy are the so-called stablecoins, translatable as “stable currency”, cryptocurrencies that are designed to maintain a fixed value – usually a dollar – to avoid typical fluctuations of this value to prevent speculative market. Some of these, like USDC and Tether (not to be confused with Ether), maintain this stability by accumulating liquidity and assets that they can use to “hedge” the stablecoins in circulation.

There are stablecoin “algoritmici”, like Terra, which do not have these types of reserves, “but get their value based on an algorithm that automatically balances the stablecoin with a partner currency.” This bond is called Peg (Hook) and is based on the constant creation and sale of tokens: in the case of Terra, the reference currency was the moon. These are systems whose stability, according to many critics, is in name only and actually encourages the continuous issuance of new cryptocurrency units without hedging.

Over the course of this week, Terra, USDC and Tether all lost their peg to the reference currency, causing huge losses and also taking Bitcoin – worth $24,000 – in which Terra had invested many resources, in circles. malicious who burned $800 million (Appreciation updated May 11) and that Alex Hern del Guardian he remembered the chain of events that led to the fall of investment bank Lehman Brothers, a symbol of the 2008 financial crisis.

Until a few weeks ago, the NFT crisis was attributed by its supporters to inflation or other contingent factors. The facts of the past few days are instead pointing to structural causes affecting the entire cryptocurrency sector, and some analysts are speculating that the collapse of NFTs could only be a first sign.

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