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By Andrew Hayward
Dec 23, 2022Dec 23, 2022
11 min read
After exploding to prominence and mainstream notoriety in 2021, the NFT market had a very different year in 2022. Momentum surged in the early months of the year before crashing down to earth alongside crypto prices, marking an end to much of the speculative frenzy.
But another year of NFT growth brought some fresh wrinkles to the space. We saw expanded use of NFT artwork to build brands and projects, for example, but also consolidation of IP made for a decentralized world and disputes over the nature of NFT creator royalties. Amid the turbulent market, there were bright spots and significant roadbumps alike.
We’ve covered the evolving NFT space all year long at Decrypt, but if you haven’t been following closely, here’s a recap of the stories that dominated the space in 2022.
Brands have flooded into the NFT space, but Bud Light’s play for the Super Bowl was truly unlike any other. Ethereum project Nouns—which is building open-source IP through a DAO community—granted the popular beer brand one of its high-value NFTs. And in return, Bud Light put the project’s boxy “Noun glasses” into its Super Bowl commercial.
With help from Vayner3, Gary Vaynerchuk’s Web3 consultancy, Bud Light went on to put Noun glasses on cans and let holders of its own NFTs vote in the Nouns DAO on its behalf. The Super Bowl cameo wouldn’t scream “NFT” to anyone who didn’t know its origins, but the alliance showed the potential for major brands to embrace Web3 collaboration in a meaningful way.
The NFT market was still surging earlier this year, and while we didn’t see any sales on the level of Beeple’s record-setting $69 million auction in March 2021, the February sale of a single CryptoPunks NFT for nearly $24 million still turned a lot of heads.
Deepak Thapliyal, founder and CEO of Web3 startup Chain, purchased the Punk for 8,000 ETH, doubling the previous record for the iconic Ethereum profile picture (PFP) project. In November, he tweeted that he was open to selling the NFT following the collapse of FTX, which impacted Chain, but Thapliyal ultimately decided to keep the crypto status symbol.
The NFT market would keep surging for a couple more months, but there was a clear top signal to the speculative madness in February. After collectors spent $70 million snapping up tokenized monsters for Pixelmon—a game that sounded like little more than an unofficial, NFT-infused Pokémon knockoff—the in-game artwork was released. And it was bad.
The clunky-looking, boxy monsters bore none of the Pokémon resemblance of Pixelmon’s concept art, instead appearing to be lazily thrown together. Even the founder admitted that the reveal was a “horrible mistake.” Now the NFTs trade for a tiny fraction of the mint price even after new in-game art was released, with a new team trying to create a proper game around it.
Bored Ape Yacht Club creator Yuga Labs made a big splash in the NFT space in March, announcing that it had acquired the influential CryptoPunks IP from Larva Labs, along with its metaverse-centric Meebits avatar IP.
The move centralized control of the NFT world’s two largest projects under one house, and came following dissatisfaction from some Punks owners over how Larva handled the project. In recent months, Yuga has granted CryptoPunks and Meebits owners IP commercialization rights, similar to the Bored Apes, while working to establish the Punks’ legacy in the art world. Yuga also announced soon after that it had raised $450 million at a $4 billion valuation.
The Bored Ape Yacht Club continued its expansion in March with the launch of ApeCoin, an Ethereum-based token built for metaverse apps. With a token claim available to owners of Bored Apes and Mutant Apes, NFT owners cashed in big—Bored Ape owners could snag a haul of approximately $80,000 worth of tokens on day one.
In an apparent bit of decentralized theater, Yuga Labs said that it didn’t create the token, although the startup and its founders will wind up with nearly a quarter of the total supply once it all vests. ApeCoin’s price has fallen about 85% since its peak, amid the crypto winter, but NFT holders who cashed out quickly scored big on the launch.
Last year’s biggest NFT project, Axie Infinity, started 2022 with a whimper: the monster-battling game’s free-to-play ecosystem was struggling, driving both NFT and token prices down dramatically. The cherry on top of the downward spiral was a late March hack that saw some $622 million worth of crypto funds pilfered from the game’s Ethereum sidechain.
The Ronin Network hack was pegged on insufficient decentralization, allowing attackers to send fraudulent transactions via its bridge to Ethereum. The U.S. government blamed the attack on North Korea’s infamous Lazarus group. Axie Infinity developer Sky Mavis raised $150 million in fresh capital to help fully refund affected users, and about 10% of the stolen funds have thus far been clawed back from hackers via exchanges.
With the NFT market still soaring, a new player showed that it could make serious waves in April. Proof, a Web3 startup co-founded by tech entrepreneur and VC Kevin Rose, debuted NFT access passes to an exclusive collectors’ community in late 2021, and then parlayed that move into a massive PFP project drop in April with the Ethereum NFT collection, Moonbirds.
In just two days, Moonbirds racked up some $280 million worth of primary and secondary trading volume, then raised capital from Reddit co-founder Alexis Ohanian to build out its Web3 community vision. Proof stirred up controversy by opening up IP commercialization rights to Moonbirds to everyone in August, but it remains one of Web3’s buzziest startups.
Yuga Labs would soon top the Moonbirds debut with the launch of virtual land deeds for its upcoming Otherside metaverse game, and once more, Bored Ape owners got a free drop of valuable crypto assets. Given how valuable the Ape NFTs became, there was enormous buzz around Otherside, and Bored Apes surged in value beforehand.
The drop garnered over $900 million worth of primary and secondary sales in the first couple days, helping to set a single-day trading record for top marketplace OpenSea in the process. But the mint was widely criticized for poor design and for driving up Ethereum gas fees (the price to send transactions on the network), some of which Yuga ultimately refunded, and for Yuga’s “tone deaf” response to complaints.
The Otherside launch was the year’s last truly massive drop, as the bottom fell out of the NFT market soon after amid the wider crypto crash and macroeconomic turmoil. Trading volume has fallen dramatically, with the monthly tally down 88% when comparing November data to January’s, with the number of NFTs sold falling sharply as well.
Prices on top collections have collapsed, as well, with the minimum asking price for a Bored Ape falling from $429,000 worth of ETH in late April to under $60,000 during November. The market is still yielding over half a billion dollars per month in trading volume, and top NFT projects see occasional big-ticket sales, but the buzz has faded.
Some traditional gamers are vocally opposed to NFTs, and that ethos apparently extends to Minecraft developer Mojang and parent company Microsoft. In July, the companies said that they intend to ban NFTs from fan-operated Minecraft servers, as well as ban derivative projects built from Minecraft’s existing game assets.
The move immediately put the crosshairs on Polygon-based fan project NFT Worlds, which intended to create a Minecraft server with player-owned NFT land plots. Ultimately, NFT Worlds opted to start fresh and build its own similar game instead. Another major game studio, Rockstar Games, recently said that it will similarly ban NFTs from Grand Theft Auto V servers.
Fueled by the speculative, FOMO culture around NFTs, social media scams accelerated in 2022. We saw examples on Discord and Instagram, with accounts hijacked to spread scammy links that stole NFTs from users who connected their wallets to them, but the flood of attacks was most apparent on Twitter.
Earlier in the year, the accounts of verified users (like journalists) were being stolen, rebranded, and used to share scam links, especially around projects like Otherside and Azuki. That trend subsided, and instead attackers started stealing the accounts of prominent creators like Beeple, Nouns, and Limit Break CEO Gabriel Leydon to share similar scams. Firms like MetaMask and OpenSea are trying to fight back, but such attacks are still flooding the space.
The Solana NFT space continued to solidify into a strong Ethereum rival in 2022, with a pair of prominent projects really taking off: Magic Eden and DeGods. Marketplace Magic Eden took over the Solana space when it launched in late 2021 and rode that momentum into a $1.6 billion valuation in June, fending off OpenSea’s move into Solana and expanding into Ethereum too.
Meanwhile, NFT profile-picture project DeGods grew from a rocky launch in late 2021 into a true titan across all NFT networks this year. The project’s NFTs became the most valuable on Solana, the community acquired a team in Ice Cube’s BIG3 basketball league, and then it parlayed that hype into the buzzy y00ts project launch this fall.
While much of the story around Bored Apes this year had to do with rising (and falling) NFT valuation and freebies for holders, another narrative continued forming as NFT holders used their owned Ape imagery to fuel art, projects, and plenty more.
The decentralized IP idea saw some early traction last year, but really caught fire in 2022 with high-profile projects like Snoop Dogg and Eminem’s music video and MTV VMAs performance, the launch of Bored Ape-themed restaurants and drink brands, and quite a bit more. The announcements are still coming regularly, but the may change if the market downtrend persists well into 2023.
The Ethereum merge proved to be anticlimactic in terms of market impact, but the transition to a dramatically more eco-friendly consensus model brought significant benefits to the perception of the NFT space. Thanks to the merge, the largest NFT blockchain now consumes over 99% less energy than before, due to the elimination of resource-intensive mining.
The environmental impact of Ethereum NFTs had been one of the biggest complaints from NFT critics up until that point, even when discussing assets minted on eco-friendlier networks. Now that all significant NFT activity takes place on platforms that don’t have an outsized energy hit or carbon footprint, more creators and brands may feel comfortable entering the space.
When it comes to major brands entering Web3, no blockchain network did more to aid mainstream adoption in 2022 than Polygon. The Ethereum sidechain network managed to line up brands like Starbucks, Meta, Nike, Reddit, and Disney, all of which are building projects or platforms on top of Polygon.
Their collective reach is enormous, and the early results are promising: In October, a Reddit executive said that more than three million of its users had created Polygon wallets to mint its collectible avatar NFTs. Most of those were freebies that don’t have significant value, but it’s still a huge step for onboarding the masses. The Starbucks NFT rewards platform and Meta’s Instagram NFT minting could reach even more people.
Over the last couple months, the biggest story in NFTs hasn’t been slowing sales, but growing pushback to creator royalties. Royalties—typically a 5% to 10% fee on secondary sales, paid back to the original artist or creator—are seen by many as a key aspect of Web3, ensuring that creators and builders share in the ongoing success of their work.
But some marketplaces started ignoring them this summer in a bid to lure traders away from major platforms, and gobbled up enough market share on Solana to convince Magic Eden to make them optional. OpenSea said that it was considering the same kind of move, and quickly faced ample backlash from creators.
Ultimately, OpenSea said that it would continue to enforce royalties, and rival platform X2Y2 followed suit and adopted OpenSea’s new Ethereum enforcement tool. This story isn’t over, however, with new royalties-enforcing NFT standards and tools in the works as creators attempt to protect a key source of revenue in Web3.
