Is Growing Fragmentation in the NFT Market a Benefit or a Bug?
Whether you call it “fragmentation” or “diversification”, the NFT market is splintering. Should we worry?
If you follow NFTs, you have probably noticed the trends.
Creative Factions
The NFT market has splintered into a huge variety of disparate styles and types.
Some artists create collections of profile pictures (PFPs) and collectibles. Others create only one-of-one art pieces. The two groups have little interaction and little in common.
On one hand, you have individual artists and small teams. On the other, there are large projects with corporate or investor backing. These groups have little in common and little overlap.
Some NFT creators are working to create beautiful and sophisticated artwork. Others are competing to generate the crudest and crassest images they can imagine.
In the collectibles category, the field has splintered into camps. There are the bored, the mutants, the zombies the pixelated, the goblins, the waifs, the samurais, and so on. Each style has its own aesthetic and its own group of supporters.
In the fine arts category, there are painters, drawers, digital artists, and photographers. These are further divided into realist, abstract, modern, surreal, impressionist, and other styles.
The point is that there is a lot of diversity in NFTs today.
Unfortunately, there is not a lot of cooperation or crossover between the factions.
Overwhelming Supply
Even within the creative factions, competition is fierce.
One problem is that there are too many choices. Collectors are faced with tens of millions of images from thousands of projects.
And tens of thousands of new NFTs are released every day.
Any collector who wishes to buy NFTs must be very selective. It’s natural that the first selection would be based on personal preference of style and type.
So, not only the creators are split into factions and styles. Collectors too fall into diverse categories and classes.
This produces even more fragmentation of the NFT market.
Personal Preferences
Everyone has personal preferences. And those preferences can be strong.
Think of Coke drinkers who won’t touch Pepsi. Or Ford drivers who would never buy a Toyota. Or anyone who has a favorite brand of beer.
It shouldn’t surprise us that collectors support and buy NFTs that reflect their tastes.
What is a bit surprising is that there seems to be little support for adjacent or similar styles and types.
For example, you might think that the fine arts crowd would like and support a collection based on classic portraits by famous artists. But, many seem to object to buying from a “collection” instead of a group of individual creations.
One might think that the PFP crowd would snap up artistic portraits in colorful styles. But much of that market segment has a taste for shocking, crass, and crude.
Few collectors are willing to buy outside their preferred style.
Benefit or Bug
Creators are faced with tremendous competition. And collectors are faced with an overwhelming supply. And the market is fragmented into dozens of competing factions.
So, what is an NFT creator or collector to do?
The answer depends on your approach to NFTs and the marketplace.
Collectors only need to follow their preferences and buy in their preferred sectors.
Creators are in a trickier position.
To those who are producing knock-off Bored-Mutant-Goblin-Punks, fragmentation may look like a bug. Creating an imitation of a successful collection may provide visibility in that market segment. But, it also exposes the project to tremendous competition. And fans of that style will recognize the work as being derivative.
For creators of one-of-a-kind artistic pieces, fragmentation may be a benefit. Such artists can find the niche that matches their style and introduce their work into it. They will have a ready-made audience that will appreciate their work. And the audience will recognize the work as being original.
Projects that are introducing a style that is new and unusual may find the fragmented market to be both a friend and a foe. If the artwork doesn’t fit into an existing category, the team may need to create a new category. That means highlighting artistic distinctions and building a community around them. This can be time-consuming, difficult, and tedious. But, it establishes the project as the leader in a new and original style. And that has obvious benefits.
Should We Worry
In many ways, the NFT market mirrors the larger crypto market.
There are big, established tokens with huge market caps. There are thousands of clone tokens that hope to copy the success of top projects. There are “meme” tokens that have big followings but little value or utility. And there are some innovative tokens that could challenge the big players.
The barriers to entry in both crypto and NFTs are not very high. In both cases, a small team with a bright idea and enough determination can create one. The result has been that thousands of unknown cryptos and NFT projects have flooded the market.
But, there doesn’t seem to be any particular reason to worry about this proliferation. We can trust that the market will sort out the winners from the losers. Natural selection will run its course.
Would-be creators will soon figure out that an NFT project is not an automatic ticket to riches. This will mean fewer new projects flooding the marketplaces.
Most existing projects will never sell out their collections. Or they will find little demand for their NFTs in the secondary market.
Some projects will enjoy modest success and generate some income for their creators.
And a few projects will make it into the top tier of market cap.
In NFTs, as in crypto, success will depend on three factors:
1) Creativity,
2) Implementation, and
3) Marketing.
Conclusions
The growth and diversification of the NFT market are much like those of the crypto market.
This diversity benefits collectors because it gives them access to so many styles.
Competition among projects will drive innovation, creativity, and execution by creators.
Natural selection and market forces will separate the winners from the losers.
As fast-moving and innovative as the NFT market may be, it is still subject to the usual market forces.
I find that reassuring. Don’t you?
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About the Author
Richard Crites is the founder and artist at AvatArt NFT Studios and the founder of OmniBazaar, Inc. He has 40+ years of entrepreneurial success and exits in four separate industries. Rick earned a Master’s degree in Aerospace Engineering from Stanford University. He has been active in cryptocurrency and blockchain since 2013. Rick’s writings are his opinions, not financial advice.
Follow Rick’s writing on Medium.
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About AvatArt NFT Studios
AvatArt creates NFTs with the help of artificial intelligence (AI). This is completely different from the “generative” process used by almost every other project. It produces NFTs that are unusual, attractive, artistic, and distinctive.
AvatArt Studios is releasing its initial collections to the community for free. This allows the market complete freedom in determining their value.
Learn more about AvatArt’s “Artistic Collectibles”.
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