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    Will NFTs emerge from the bear market?

    Will NFTs emerge from the bear market?

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    Recent market developments have created a strong foundation for the leading crypto assets. Despite this, prices for non-fungible tokens (NFTs) have rather lagged behind their fungible counterparts. Do NFTs have a chance to overcome the bear market and make a comeback?

    Just like cryptocurrencies, non-fungible tokens (NFTs) experienced an impressive upward trend after 2020, followed by a sharp downturn in the following two years. Similarly, NFTs have already been declared "dead" by various groups. However, a closer look at the current state of the NFT market shows that both prices and user numbers are stabilizing. While unsustainable projects have been struggling to keep up with fungible tokens, others have solidified their communities.

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    Is the bottom for NFTs in?

    Towards the end of the last year, the NFT market took another massive hit. Prices for most collections plummeted by 90% from their peak merely one to two years ago, leaving collectors in a desperate state. However, some projects are showing promising signs of revival. The NFT projects that had raised capital have had time to innovate and refine their projects.

    Floor price development of leading NFT collections / Source: DeFi Llama

    Recently, high-profile partnerships and collaborations have sparked renewed interest and investment in the NFT space, contributing to its gradual recovery. Since beginning of the summer crypto influencers are warming up the market sentiment, highlighting positive price developments.

    Blue chip NFTs struggle

    One problem that NFT projects faced was generating long-term value and return on investment for the holders without diluting their value through additional collections. NFTs were used as a fundraising product that, when implemented correctly, raised millions in capital. NFTs came with the outlook of additional perks. These could be exclusive benefits, access, royalties, etc. and the expectation of positive price performance. However, these promises have remained unfulfilled for many. The disappointment is clearly visible in the current floor prices, with a lot of blue chips at a fraction of their all-time highs.

    During the 2021/22 bull market, led by NFTs, many established collections raised significant amounts through new mints and venture investments. Strong communities formed around projects, celebrities wore NFT merchandise, entrepreneurs launched spin-offs using NFT IP, and promising releases were made by NFT companies. But most projects couldn't keep up with the fast-paced crypto cycles. Holders quickly lost interest and confidence in the projects, resulting in declining bottoms. The projects had time to build undisturbed while the market's attention was focused on ETFs and memes. Below are some of the leading NFT projects and their latest developments.

    Pudgy Penguins: an NFT project with a sustainable business model

    The iconic NFT penguins have successfully expanded their business model beyond the crypto space and digital realm into physical goods with the sale of toys. The project's move into toy manufacturing capitalizes on its established brand, loyal community, and proprietary IP. While other NFT projects have released toys or figurines in the past, they have mostly done so to reward owners. The Pudgy Penguins are the first to successfully create a separate stream with a novel purpose unrelated to the crypto market.

    The Igloo company, the parent company of the Pudgy Penguins brand led by CEO Luca Netz, has reportedly generated significant revenue from toy sales. Their Amazon debut in 2023 generated $500,000 in sales with over 20,000 toys sold. Shortly after, it was announced that the toys were available in physical stores across the US. The plushies can now be purchased at Walmart, Target, Smyths (also in the UK) or Five Below. Earlier this year, the company confirmed that the Pudgy Toys line had generated up to $10 million in sales in less than a year, with over 750,000 toys sold. This strategic move not only diversifies their revenue, but also increases brand visibility and engagement with a broader audience.

    In addition, the toys are a gateway to the Pudgy Penguin digital ecosystem. Each toy comes with a QR code that, when scanned, creates a digital penguin powered by NFT technology on the Polygon blockchain. However, the team cleverly worked around the lack of technical understanding of the blockchain components by streamlining the onboarding process. Terms like seed phrases, wallet, NFTs, etc. are eliminated and the account/wallet can be opened with 2FA. This integration encourages physical shoppers to explore the digital side of the brand and is likely to be a focus for the brand. This is reinforced by the recent announcement of the acquisition of Frame by Pudgy's parent company with the aim of building its own L2 chain. VanEck, the investment manager behind one of the Bitcoin ETFs, is sporting a Pudgy Penguin as a profile picture on their X account.

    "Pudgy Penguins could prove the world that NFTs are a powerful tool to build an IP and brand in a more efficient and organic way. This does not mean everything we do should be Web3 based or focused on the Web3 audience: to become a successful IP, you need to meet consumers where they are, and today that's still Web2 platforms and retail. Not only does it create more sources of revenue for the business (which can be shared with the community through the decentralized ownership of the IP) but it actually creates an opportunity to bring more people into Web3 by making them fall in love with a character and a universe, which will motivate them to try new products built on Web3 with purer intents than financial speculation." - Fifi, Leader at Pudgy Penguins Europe

    Bored Ape Yacht Club

    The Bored Ape Yacht Club (BAYC) is one of the most prominent NFT collections. It is managed by Yuga Labs, which also controls or acquired the IP of iconic collections such as CryptoPunks, Meebits, The Mutant Bored Apes, or the Proof Collective, which includes collections such as Moonbirds, Oddities, and Grails. Yuga Labs has also raised significant venture capital funding, $450 million in 2022. Meanwhile, BAYC has established groundbreaking partnerships with renowned fashion brands such as Gucci and Adidas. These collaborations aim to connect the digital and physical worlds, for example by integrating luxury fashion into the NFT space and offering unique experiences and products to communities.

    Yuga Labs is expanding its ecosystem with ApeCoin, introduced in 2022 to support the broader NFT ecosystem. ApeCoin is the primary medium of exchange within the BAYC ecosystem, facilitating transactions for merchandise, events, and exclusive digital content. It also allows participation in a decentralized autonomous organization (DAO) where holders vote on decisions. This year, a vote approved developing its own layer 2 or 3 chain on Ethereum and Arbitrum. The ApeChain testnet "Curtis" launched on July 15th, offering more independence and development freedom. Yuga Labs is also developing "Otherside". This is a metaverse compatible with its NFT collections and other prominent NFTs, allowing players to use their NFTs as in-game characters, connect, play, and earn rewards in the game's economy.

    Azuki

    The anime styled Azuki PFPs, launched by Chiru Labs in January 2022, is among the most successful NFT releases. The first collection was a Dutch auction and sold out in four minutes, generating around $29 million. Following shortly after, in April 2022 Azuki launched the secondary collection "BEANZ". The Azuki brand nurtured expectations with a vast roadmap and multiple areas of development all tied together by Azuki's anime storyline. Azuki has started development of it's own metaverse experience "Hilumia", introduced the Physical Backed Token (PBT), and most notably it's own high end anime series.

    PBT is an open-source token standard that links physical items to digital tokens. enables decentralized authentication and tracking of ownership without a centralized server. This is hinting that Azuki is looking to expand outside of the digital realm, perhaps a similar approach to the PudgyWorld? A video game with an own native currency BEAN have been in discussion as well, adding to the challenges. On the anime side, Goro Taniguchi joined Azuki as a creative producer. Taniguchi worked on legednary anima pieces such as One Piece or Code Geass.

    In summer 2023 the collector base was further increased with the Azuki Elmentals collection of 20'000 PFPs. The Elementals collection raised 38M in 15 minutes. An impressive achievement as the Elementals are already the third collection within the Azuki ecosystem. Members of "The Garden" have preferential access to these facets of the brand. The Garden is the name given to the Azuki collectors community, who own an Azuki NFT or one of the secondary collections are granted access to exclusive drops, collabs, live events, and more.

    Doodles

    Doodles has established itself as a prominent and influential project within the NFT space since its inception in 2021. The NFT project's art is based on hand drawn elements of Scott Martin aka Burnt Toast. The art has his typical colorful and playful style. Julian Holguin's, former president of the American music and entertainment magazine Billboard, influence on the brand is clearly noticeable. The project has high-profile collaborations such as Pharrell Williams the Chief Brand Officer. It deliveres immersive events as done with rapper Coi Leray or together with established Web2 brands such as G-Shock and Crocs. Owners of Doodles NFTs gain access to exclusive events, experiences, and have certain voting rights.

    Snapshot of the Doodles collection / Source: OpenSea

    The Doodles ecosystem has grown with the introduction of secondary collections. A common move among NFT projects, for Doodles these are pieces such as Space Doodles, Dooplicators and Genesis Boxes. Apart from this an interesting application is the Stoodio. A platform that enables the customization of Doodles with wearables that come from these secondary collections. The Doodles community is a central aspect of the project. The community votes on candidates for the "Doodles Community Council" which ensures transparent communication and governance. With strategic moves like the acquisition of award-winning animation studio Golden Wolf and securing significant funding from Reddit's crypto friendly founder Alexis Ohanian's VC Seven Seven Six, Doodles has all the right pieces in place to break out.

    Claynosaurz

    Most of the prominent NFT projects were launched on the Ethereum blockchain. Ethereum while being battle tested and very innovative, has extremely high fees depending on the network usage. A stark contrast to this is the Solana blockchain were fees are at minimum rate of just a few cents. Solana's NFT ecosystem started blooming after the big NFT bullrun which had it's focus on Ethereum. Some noteworthy projects have been launch a highly anticipated one being the Claynosaurz NFT project which features dinosaur-themed characters designed in a claymation art style launched end of 2022. Each NFT is a detailed, digitized 3D clay sculpture, making the project unique in its artistic approach.

    The Claynosaurz project has built an engaged community through the strategic use of Discord, games, and events. It also leverages a rich and evolving lore with community input. Emphasizing Web3 principles, it differs from traditional IP development by engaging the community early and seeking continuous feedback. Beyond the initial NFT collection, Claynosaurz has expanded to include items such as Claymakers, Clays or collectibles distributed at events. As a revenue stream, the team is developing a game with a unique engagement model and plans to extend the IP into traditional media formats, including short-form video, TV shows, or movies.

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    About the author

    Victor has been actively involved in the crypto scene since 2019 and sees great potential in the possible applications of the technology and the resulting innovations. At the Crypto Valley Journal, he is responsible for the coverage of the topics NFTs & Metaverse. In 2021, he also co-founded the Swiss NFT Association. The association forms a knowledge hub around the topic of NFTs and organizes regular informative events.

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