How Art NFTs Made It Out Of Crypto’s Rollercoaster Year
In our last WAC Weekly of 2022, we took a look at the rollercoaster year in review, and Gauthier Zuppinger, COO of NonFungible.com, talked us through some data that shows another side to the “bear market” story: could the art NFT sector be growing while the rest of the market is in chaos?
Art NFTs in the bear market
In Zuppinger’s own words, it’s been a terrible year for NFTs. You’ll have seen this year’s headline-grabbing states, which we went into earlier this season. Looking at NonFungible’s data on the art market specifically, we saw its share in the overall NFT market decline from 13% to 5%.
Scrutinizing the data, he doesn’t think that this shows decreasing interest in NFT art, just that a decline in market liquidity overall means people are less interested in selling. The great “bubble-burst” he observes this year is in the collectibles market, with an overall decline in trading volume of $100 million per week, while the NFT art market has only seen a decline of around $2 million per week. That’s not good, but it’s much better than all other segments.
This resonates with what we observed at the beginning of this season. Artists, institutions, and developers are sticking around after the market crash. And with NFTs now useless as a get-rich-quick scheme, he sees more buyers interested in utility: the traders are gone, and only the long-term holders remain.
In the crypto art market specifically, the average ownership period has increased by more than 60% to around 63 days in Q3, and the total financial loss NFT art investors are seeing has decreased by 55%. While the total volume of assets being traded decreased by around 35%, creation of new NFTs increased by 11% over Q2. While the trading volume in the crypto art market has dropped massively since mid-2022, it ends the year 2.5x bigger than at the beginning of 2021. (Compare that to the NFT market overall, which ends 2022 3.2x bigger than in January 2021.)
Summing up, what Zuppinger sees in these long-term trends is a maturing ecosystem that’s ready to survive a crypto winter. What’s left in this slowly growing sector are the collectors, not traders, who are interested in the blockchain as a digital art medium, not as a route to short-term profits.
The biggest changes in NFT art this year
With that presentation in mind, the group split up to discuss one question: what was the biggest change in the environment for art NFTs this year? After they reconvened, much of the discussion centered around three main topics: changing perceptions around NFTs as a medium, regulation, and governance around royalties on art NFTs.
From digital reproduction to a new digital medium
When museums first became interested in NFTs last year, most of them were interested in creating digital reproductions of artworks that would generate a new source of income. As we discussed last season, there were several issues with strategy. In 2022, as galleries and museums become more familiar with the technology, we’re starting to see a mindset shift where museums are more interested as a technological medium and an artistic one.
An exhibition like Kunsthalle Zürich’s Do Your Own Research is the result of increasing awareness in the museum sector about blockchain technology and the culture surrounding it. With generative art projects like DYOR’s playrecordmint or the Living Room at Miami Art Week, we’re seeing more exploration of on-chain work as an artistic medium.
And on the collector side, we’re seeing less FOMO around buying art NFTs and more careful consideration around due diligence, wallet security, and collection management. Now that the hype has died down, and the NFT as a speculative asset is dead, the collection and trading of art NFTs as a practice has time to mature.
Hopefully, we’ll see it adapt more to the needs of artists and collectors rather than the whims of a fast-moving crypto market. Arcual, the private blockchain just for art galleries and collectors, is one of the most powerful signals that this is the direction things are heading. We haven’t seen anything like the full potential of NFTs as a technology for art: the wider space is innovating all the time, and this will have big implications for what these tools can do for the arts and culture sector.
Regulations and “rebranding”
So far this season we’ve talked a lot about “rebranding”. Companies like Instagram and Starbucks are introducing NFTs, but they’re called “digital collectibles; we’re seeing the term “Digital Fine Art” (DFA) used in place of “NFT”. Much of this is branding, but creators, companies, and institutions are having to be very clear about what they’re selling in response to regulatory scrutiny.
The collapse of FTX is likely the biggest story in crypto this year. While the market might shake off this year’s dramatic drop in value, the regulations imposed as a direct response to this scandal could become law in perpetuity. FTX’s Sam Bankman-Fried made himself the respectable face of crypto to US regulators; while some in government remain open to web3, the FTX story reinforces many lawmakers’ deepest reservations about the whole industry.
Many of those in Washington think there’s little more to web3 than financial instruments and expensive apes, and that the whole sector has to go. If that’s the case, says Nomic Consulting’s Erika Knierim, it’s not going to be enough to just change the name. To operate safely, every institution working in web3 may have to start being proactive about transparency: what are they really doing? What’s the utility? What’s the value?
And complying with the kind of scrutiny financial bodies are subject to is a skill: it’s a discipline that institutions might have to get used to, and it’s a responsibility that independent artists won’t want. So who’s going to be responsible for this? If this regulatory compliance can only be handled at scale by a blockchain platform on behalf of their customers, does that become the kind of centralizing force we want to avoid?
Once again, we’re seeing a need for a greater understanding of the blockchain as a technological medium: what can it really do, and what’s the potential beyond what we’re used to already? It’s an interesting question for artists and museums, but it’ll become more urgent once the people asking are regulators.
Collective governance and the royalties crisis
NFT royalties have been a huge issue in recent months. One of the foundational promises of NFTs for artists looked like it was in danger. The issue still isn’t settled, with the NFT marketplace Blur, in particular, making it easy to skirt around royalty enforcement. Companies are losing out on tens of thousands of dollars because of one marketplace, and the impact on individual artists will be even greater. At the end of 2022, there’s still no comprehensive solution in sight.
Industry-wide enforcement of royalties would require some kind of institution overseeing everything, which should immediately ring alarm bells for those concerned about centralization. But web3 tooling might enable innovative forms of regulation here. DAOs could enable consensus and collective action on this issue while distributing power across many, many stakeholders who otherwise aren’t cooperating, and might even be competitors.
And we’re seeing some movement in this direction. OpenSea faced enough backlash over its plans on royalty enforcement that it had to go back to the drawing board, and it’s recently announced plans to hand over its royalty enforcement tooling to the newly formed Creator Ownership Research Institute.
This industry body is built on top of a collectively governed multisig wallet held by marketplaces like Zora, Foundation, and SuperRare, as well as stakeholders like the NFT tooling company Manifold. It speaks well of the initiative that Manifold doesn’t even agree with the approach of blocking whole marketplaces, but finds itself co-operating to give individual creators a say in what happens to their work.
2023 and the WAC Fellowship
That’s the end of WAC Weekly for 2022, but we’ll be back in early January. Keep up with the discussion on Twitter and LinkedIn for insights on everything to come in the crypto art world in 2023. If you’re in the museums sector and looking for hands-on experience with web3, we’re taking our last applications for the WAC Fellowship until December 31st.
WAC Weekly is part of WAC Lab, a new program unleashing the full potential of Web3 for the arts and culture produced by We Are Museums in collaboration with TZ Connect and Blockchain Art Directory, and powered by the Tezos ecosystem.