Top 8 DeFi Trends in 2022 – NFTs and Metaverses (Part II)
May 16, 2022
In the second part of this research series, we look at NFTs and Metaverses as the biggest trends in the DeFi space in 2022.
We are certain that by now you know what “NFT” stands for, but just to be safe – it refers to a “Non-Fungible Token”. That’s a digital token created on a blockchain that is linked to a one-of-a-kind digital (or physical) asset and serves as a blockchain-based certificate of authenticity. Assets represented by NFTs can include any type of digital content, including a photograph, a movie, music, a video game skin, or even a tweet. The image below (capital.com) divides assets into digital and physical assets, as well as fungible and non-fungible assets. NFTs are defined as non-fungible, intangible assets.
NFTs were clearly the biggest hit in the crypto industry in 2021 with trading spiking 21,000% to more than $17 billion. (CNBC)
Hundreds of millions worth of USD entered the NFT market in 2021. For the average person with minimal IT knowledge, an NFT is nothing more than a JPEG, PNG, or a GIF that anyone can download and use. It is, therefore, hard to comprehend why would someone spend hundreds or even millions of dollars on an infinitely copy/paste-able file. To comprehend why individuals pay such exorbitant prices for digital images, we need to comprehend why are NFTs useful.
NFTs, like crypto assets, have been continually expanding and developing in recent years. NFTs began as digital art and collectibles during the initial wave of the excitement, but today they have interactive utility, which means their usefulness goes beyond a speculative investment. The UX around NFTs has evolved and is becoming more intricate and varied by the day.
Utility NFTs may be divided into three categories: Access NFTs, Gamified NFTs, and Engagement NFTs.
These categories and subcategories are clearly distinct from one another because they serve various purposes. Users can, for example, utilize Access NFTs to gain access to special experiences, events, and premium content (e.g. the Bored Ape Yacht Club NFT collection, which is one of the most expensive ones nowadays).
Community NFTs, as a subcategory of Access NFTs, refer to the ownership of exclusive NFTs which signify belonging to a community of fans or supporters of a project. A good example here is Bankless’ NFT Token Badges that are distributed to users who financially support the Bankless Nation project. The Bankless community NFTs bestow various privileges to holders. Have a look at the image below.
Fantasy Sports, Gambling, and In-Game NFTs are the three types of Gamified NFTs. When it comes to In-Game NFTs, individuals who are actively playing a game can earn valuable NFTs that they can utilize in and outside the game. People may buy player card NFTs of different sportsmen and establish a fresh lineup each week with the aid of Fantasy Sports NFTs, while collecting points depending on players’ real-life performances.
GameFi is probably one of the most important upcoming trends in the NFT market, with almost 2 billion gamers on the planet.
The community of gamers spends more than $159 billion every year and it is estimated that spending could reach over $256 billion by 2025. With an increasing number of individuals devoting hours to this form of entertainment, both players and developers are looking for new ways to profit from it. Blockchain-based gaming is helping creators to more efficiently monetize their creations. Although most of the graphic content of these games is hosted on centralized servers, some of the assets – like avatars and various in-game items – are NFTs living on a blockchain. Usually, players can “mine” fungible tokens by completing specific in-game tasks and are further rewarded with special NFTs. In-game transferability of items represented by NFTs is done on-chain.
The advantage of using NFTs stems from the fact that they represent assets that could be owned entirely by the user, could be bought and sold on open, secondary markets, and be used in other games, as well as, DeFi protocols.
An excellent example of a GameFi project is Axie Infinity (image above, NewsBreezer). It is a digital pet community in which players may acquire creatures called axies used to combat, breed, collect, grow, and construct kingdoms for. The Ethereum-based game allows players to control their virtual assets and rewards those that achieve a high degree of expertise. Axies are NFTs that represent in-game digital assets. Players are able to exchange Axies on the in-game’s marketplace for real money (other crypto assets). You can also breed Axies, which lets you build potentially more powerful teams and yields additional NFTs to sell on the marketplace. As mentioned, Axie Infinity is built entirely around NFT items. Currently, there’s no way to play unless you buy the three Axie NFTs needed to create your first team. These can be purchased from the official Axie marketplace via a Web3 wallet -> Ronin wallet, which you will connect to the game.
Finally, a survey by Toptal showed that 62% of gamers and 82% of developers said they were interested in creating and investing in digital assets that are transferable between games.
From NFTs, we are moving into the second 2022 DeFi trend – metaverses. NFTs and metaverses in the DeFi space are intrinsically linked. Before looking into how that happens exactly, let’s first define what a metaverse is.
The Metaverse is a virtual world, accessed through a computer screen or a VR headset, that brings together various areas of people’s digital and real life, such as work, social engagement, and entertainment.
Several big tech players, like Meta, Microsoft, and Epic Games began developing and exploring this new topic in 2021. Because blockchain offers a foundation for digital ownership, identity, and finance, it is a critical piece of technology that enables user-owned metaverses.
Metaverses can usually be explored with three-dimensional avatars. Concerts, conferences, movie screenings, and art exhibits can all be held in these digital worlds. That’s happening already.
In late March 2022, Decentraland, [one of] the most hyped blockchain-based metaverses, hosted its own Fashion Week. Esteé Lauder gave out 10,000 free NFTs of glowing wearables for avatars. Dolce & Gabbana hosted a parade showing off new digital wares. The musical artist Grimes performed a DJ set as an avatar designed by the fashion house Auroboros. All that took place in Decentraland’s Luxury Fashion District [RestOfWorld]
It’s curious to note that a single square meter of digital property in the Fashion District of Decentraland costs about $1000, rivaling the prices of properties in the real world, including several European capitals (image above, TheIndustry.fashion).
How do you buy property in the DeFi-based universe? You guessed it – via purchasing NFTs. Virtual land in a DeFi metaverse is represented by millions of NFTs that correspond to parcels on a digital map. The exact location, dimensions, and even the allowed use (commercial, residential, etc) of the virtual plot are all added as information in the NFT.
Landowners with digital properties have a variety of options for monetizing their assets (image above, Decentraland map, nftplazas.com). For example, if their site is located in a prominent neighborhood with a large number of visitors (like Decentraland’s Fashion District mentioned above), they could utilize their virtual space to advertise.
NFT plots may be used in NFT video games too. In Axie Infinity, for example, the land can supply extra raw materials and tokens to users. Lands that can be explored with a 3D avatar can also be used as a virtual office space or to provide digital services and jobs. Institutional investors have already begun to infiltrate NFT land projects. The Metaversum Group, for example, made headlines when it bought a large amount of digital real estate. The management consulting giant PwC also purchased plots in Decentraland in December 2021 as part of their web 3.0 consulting services.
Towards the end of November 2021, the four leading virtual-land platforms — The Sandbox, Decentraland, CryptoVoxels, and Somnium Space — sold $100 million worth of virtual land in the form of NFTs in one week. [RollingStone.com]
Conclusion to Part II
With NFTs and DeFi-based metaverses gaining mainstream momentum in both 2021 and 2022, it won’t be long before a new class of virtual citizens is created within the world population. Those owning the most valuable assets in these fledging new universes will reap benefits in the physical world too. We expect to see even more world-famous brands enter the metaverse through NFTs. Without a doubt both NFTs and DeFi-based metaverses will continue to increase in prominence in 2022 and beyond, attracting various types of users, who are looking for new communication mediums that could help them get closer to a young and tech-savvy audience.
The recent market slump might create the perfect opportunities to grab avatars, items, and virtual plots of land on the cheap. Not a financial advice 😉
Expect the third part in the series soon!