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2017 was the year of Bitcoin, Ethereum and ICOs. 2020 was the year of DeFi. Then 2021 was the year for NFTs. A year when the sector went from zero to one (as Peter Thiel may call it). From Beeple’s $69M drop to NBA Top Shots, the ambitions for NFTs got larger and larger. Auction houses like Sotheby’s and Christie’s began working with NFT projects like BAYC, traditional companies like Paypal and Visa began buying CryptoPunks. And most recently, Nike’s acquisition of RTFKT shows the embrace between traditional Web 2.0 companies and native Web 3.0 players. Let's briefly mention Facebook’s rebrand to Meta, which was a boon for my metaverse names. SandBox and Decentraland are two names that focused on digital real-estate in the metaverse, where we have seen digital assets moon and their token prices jump astronomically (146x and 46x, respectively).
There are two core themes that, in my opinion, led to large scale adoption of NFTs. First, the authentic ownership that NFTs provide, where the jokes of “right click, and saving” grew old. Second, the ability for communities to build in a digital world, be autonomous, and have digital identities. The NFTs that saw success not only had utility but also a strong community element behind them. For us, that poster child was BAYC in 2021.
The NFT sector can be divided into two broad categories - Art and Gaming. Art saw success with projects like CryptoPunks, BAYC, ArtBlocks, and renowned artists like Damien Hirst or Web 3.0 native artists like Pak selling out in minutes. The Gaming sector exploded as people saw the value leveraging decentralization and blockchain tech to build a truly community oriented platform to hang out and game. It is very early, since most games (looking at you Wolf Game and Axie) look like they were made in the 1980s. But, the sun may be setting on closed garden ecosystems and developers like EA (really, no one likes them). NFT Gamings offer the flexibility to do world-building, community engagement, and create an continuously engaging experience that is controlled by the community / DAO.
The biggest NFT game of the year: Axie Infinity. The game launched the entire concept of play-to-earn, by proving to critics, at least thus far, that you could have seemingly sustainable economics for players. So much so, that there is an entire sector of companies that have raised to support play-to-earn ecosystems with players, where they can game and earn a living wage (e.g. Yield Guild Games). With the success of Axie, which saw peak valuations and revenues in July/August 2021, we have seen crazy speculation in other projects in the space like Loot, Illivium and UFO. While traditional PFP (“Picture for Proof” or “Profile Picture”) projects like BAYC have launched plans to enter the space.
Another unique project that I would like to call out is RTFKT, a hybrid between the digital and physical world. The project released NFTs that if held would allow you to get physical representations, like sneakers. Recently, RTFKT launched the CloneX project with artist Murakami and there is speculation that there will be more in store both in the real world and the metaverse. And now they have the backing of Nike.
So those were a few scrambled thoughts on NFTs that don’t do the space justice, but call out some notable projects that I have followed or found interesting. My hope for 2022 - watching the BAYC Universal Band play at the SuperBowl with an after party that requires CryptoPunks to get in. Now that was a mouthful, and a year ago, I would be called crazy…but seriously can someone make a DAO, buy StarWars, and build an open-world game, that would be wonderful.
Investment Associate | Ember Fund
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