The NFT train has left the station. Or so you could be forgiven for thinking.

The massive excitement of the last three months around non-fungible tokens is settling into a more substantive operating reality. The initial surge of interest is starting to wobble, looking for long-term footing.

Google search volume on NFTs, once matching the 2017 level of interest in the initial coin offering boom, is down about 40%. Either people just know what NFTs are and are no longer learning about it for the first time, or the novelty is fading.

(Google Trends)

According to The Block and Crypto Art data, monthly Ethereum NFT platform volumes have gone from $200 million to $100 million. If you include NBA TopShot on Flow, that adds another $25 million to $50 million in weekly volume, down from a $150 million weekly peak. The number of transactions and engaged users is staying roughly steady – 400,000 monthly average users on NBA TopShot and several thousand around the rest of Web3. But the initial moment of discovery seems to be behind us.

Lex Sokolin, a CoinDesk columnist, is Global Fintech co-head at ConsenSys, a Brooklyn, N.Y.-based blockchain software company. The following is adapted from his Fintech Blueprint newsletter.

That’s what we would have observed of CryptoKitties in December 2017 only to be entirely wrong about 2021.

As an example, we wrote this fairly prescient piece in 2019, and it felt very uncomfortable and futuristic in that moment. But if someone took action and financially engaged with CryptoPunks or SuperRare or Murat Pak’s Archillect then, he or she would have made a life-changing return. In 2020, Dapper Labs followed CryptoKitties with TopShot, while the Ethereum ecosystem added hundreds of new companies and protocols as well as thousands of creators and collectors. More importantly, NFTs have changed the nature of the conversation about the internet and creativity, injecting economic markets and sustainable models that do not rely on advertising or streaming but do rely on authentic, engaged communities.


Another point of context is to think about ICOs. Today, most people think back to that period as one of irrationality and bad decision making. We do not. Rather, we think of it as the right ideas with a lot of bad execution at an early stage. 

The core idea that applications can be built as protocols on an open-source network and replace the nature of the firm, especially as it relates to media and finance, in fact did happen and continues to succeed. If we remove the line between token offering fundraising and the adoption of decentralized finance, we can see that the more grounded DeFi use cases implemented and made real the hallucinations of the ICO period. There is no growth without watering the garden.

We can borrow the analogy of an “endgame” from video games. The majority of players will buy the game and play it some part of the way to the end, and some portion of people will finish the full content. However, there will be a dedicated subset of people for whom the game becomes a social environment, with markers of status and wealth determined through digital labor. These players will outrank the vast majority of normal people, and interact with the game on another level. Few understand the nerd top 1%.

Instead of 20 hours, they may be spending 2,000 hours in this virtual environment. This is the endgame, and it is often carefully designed to keep the game elites hooked. New patterns and ideas can emerge during the development for these fanatics, and those ideas then get re-integrated into casual use.

For Ethereum, NFTs are currently the endgame. The reason CryptoPunks continue to hold $50,000 and much more in value is because they are the social and cultural symbol of the participants in the Ethereum money games. During Crypto Winter, the profitable thing to do on Ethereum was to speculate and trade deeply discounted tokens. If you navigated that well, it leveled you up for higher risk taking, speculation and network participation in the current environment.

And so those who have won sufficient capital appreciation are able to self-express and signal to others that they are playing the game on another level. It is this group of people that is spending $70 million on Beeple pieces, and pulling the concepts of the Metaverse into the real world. Here’s a flavor of how the Ethereum endgame is bleeding out to the rest of the real world.

Having established the scene, let’s take a pause to think about what long-term operating progress looks like. What should be our NFT thesis for the next few years? Here are our top five trends.

Incumbent media and enterprise IP networks

When the token market crashed in 2018, much of the crypto industry reverted to institutional enablement models. That meant delivering private, permissioned networks and protocols to support the use cases of large financial, governmental or commercial entities. This led to the creation of large digital asset and consulting initiatives (e.g., R3, IBM, Digital Asset) that focused on converting traditional economic activity to a controlled blockchain version.

The outcome to date is an acceleration in the development of Central Bank Digital Currencies and blockchain-based institutional capital markets and supply chains. The old world needs to be pulled into the new world, and it can get you paid.

The same thing will happen with traditional media. Large incumbent owners and publishers of media properties across art, music and film are going to massively explore the NFT space. Unlike financial firms, which are subject to regulated compliance, media companies are by nature creative. Their engagement with blockchain technology is likely to yield new permutations of what NFTs mean and how they can create value in an overall brand experience. So instead of asking how to narrow the scope of technology, media enterprises will ask and suggest how to broaden it.

Efforts like Palm from ConsenSys, featuring the art of Damien Hirst, as well as the continued growth of Flow and its institutional partners are symptoms of this vector of change. Getting Eminem to “drop” on Nifty Gateway or Snoop Dogg to be involved with Nyan Cat is the same thing. Familiar creative output – whether packaged into media conglomerates or well-known celebrities – will keep pouring into Web3.

Generative art and blockchain-as-medium

Art and creative output are reflections of the medium in which they are built. The palettes and instruments determine what people are able to make. Blockchain-based digital objects today are a pretty simple translation of Web 2.0 picture and video files to economically scarce versions of the same. This version of it is a moment in time, just like the skeumorphic design of the early iPhone, which looked like pictures of bookshelves and paper notepads, was replaced by flat and convenient icons that make software easier to use.

What this means is that future creative objects on Web3 will relate to the native attributes of Web3. Those are its digital economic systems, the programmatic nature of time (i.e., blocks) and the graph shape of its nodes and addresses. Imagine Ethereum as a giant clock, with all the mechanical parts exposed, and click into those gears new interactive elements that are owned by the community. That’s a bit more like it.

For example of things in this nature, look at Async Art (and Async Music), Art Blocks,, EulerBeats, Hic et Nunc, as well as the Murat Pak Fungible drop on Nifty Gateway. These are not mere translations of videos anchored to an encrypted identifier. Rather, the works use the medium as an input. 

In the case of Async, both the visual pieces and the music pieces are cut into layers that can be owned by different entities. They may choose different states or components of the whole and force exchange around it. Investment funds or communities may battle out for some particular permutation of an art piece or song. This outcome uses ownership as part of the medium.

Digital Museums, DAOs and the Metaverse

The communal aspects of this economy are also becoming digitized at the edges. Software-defined investment collectives, called decentralized autonomous organizations, can form in days to bid hundreds of thousands of dollars on the purchase of popular creative expressions.

One such NFT example is a video created by Pplpleasr, originally built for promoting Uniswap but sold for the #StandWithAsians movement in response to the Atlanta shootings. The piece garnered a $525,000 sale to a DAO self-organized for the purpose of acquiring the work.

This is far from the only art DAO – examples include Flamingo DAO, BeetsDAO, $WhaleDAO, among various others. Such groups own gallery vaults of culturally relevant digital objects, sometimes with the vaults being fully tokenized and traded as pseudo NFTs.

This financial structuring can be done quickly, because of Ethereum’s underlying interoperability – NFTs can be sent to certain addresses and locked, new tokens can be issued that are collateralized by and redeemable into those NFTs, and so on. This is hard to accomplish in the “real world.” In the decentralized world, such things can be built in months. Check out B20, the tokenized Beeple fund from Metakovan, and NFTX, the CryptoPunks fund makers, as examples.

Further, it is not only acquisition that is communal but also appreciation and engagement of the art. Once bought, digital objects can be installed and showcased in a variety of digital worlds, from Cryptovoxels to Decentraland. These virtual worlds can be built on like in Minecraft or Roblox. However, they are also carved up into scarce real estate, and such real estate can be exchanged and purchased, which implies economic activity around cultural objects.

What it means to own NFTs: IPFS and multi-chain support

What do you actually own with an NFT, they say? What is an NFT, really? For a useful starting overview, see this description from the Ethereum foundation. The short answer is you own a reference to a file stored elsewhere, with both that reference and that file maximally secured and decentralized. But it’s complicated.

It’s complicated because each Ethereum-based platform (i.e., Nifty Gateway, Super Rare, Rarible, Foundation, etc.) may have slightly different ways of dealing with minting, burning and exchange. They code their smart contracts to adhere to standards but there are still implementation differences. Most likely the NFT will contain a reference to where the file is stored on IPFS, a protocol for decentralized file storage. That means if your particular website provider goes out of business, your file will still persist in the swirling chaos of the internet.


Even more complicated is the popularity of NFTs on non-Ethereum platforms, because they are not sufficiently decentralized to generate a trusted property rights system. We had mentioned Flow, the software powering NBA TopShot. It is unclear what happens to your digital object if Dapper Labs ceases to exist and all the privately run Flow nodes go offline. A similar statement can be made about Binance Smart Chain. But we do see Tezos, and the Hic et Nunc project, also using IPFS as the file storage backbone. So perhaps the answer will be that IPFS secures NFTs even in the multichain world. Perhaps this is why Filecoin is worth $10 billion in market capitalization.

Understanding this mechanic reveals one of the core thematics for digital objects.

Integration into DeFi and portfolio management

Lastly, we remind the reader that digital objects are an economic expression of cultural labor. Art in the physical world or, alternately, the mechanical rights to a song, generate financial returns and plug into financial reporting.

One can own a museum full of art and think of it entirely as a slice in an asset allocation rather than as beauty tethered to canvas – an asset class worth about $2 trillion. See our prior discussion on this framing here.

To that end, we expect to see both traditional and emerging art plug into traditional and emerging financial systems. By now the financial world is building bridges in earnest to on-ramp customers into bitcoin and crypto assets – whether through exchange-traded funds, Paxos-based PayPal accounts, or financial adviser providers like Onramp Invest. Financial systems will similarly need to package and integrate NFT-based assets into portfolio management systems and familiar asset allocations.

This might not matter for the first generation of crypto investors playing against each other in the endgame, but it will for almost everyone else. Companies like Lobus are exploring this space, and bridging the gap between existing and emerging art and its financialization. You can see a similar set of functionality in Zapper for NFTs already, which provides a mark-to-market price across your fungible and non-fungible portfolio.

We conclude with the obvious, which is that all of these creative objects will plug into decentralized finance across the spectrum of use cases. They will be useful as collateral for borrowing or fractionalized for investment or attached to fixed income instruments or used as governance and participation tokens. NFTs will be symptoms of living, breathing, collaborative communities, powered by the financial machinations of decentralized economies, driving novel user experiences and narratives.

These are stories we can believe.

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