Non-fungible tokens are one of the most innovative developments and use cases for blockchain technology. Since going mainstream in 2021, NFTs have seen massive adoption. This is not surprising, given that the technology has clear signs of potential and use cases.
Although there are different types of NFTs, most of the trading activity and attention has been on PFP NFTs. PFP stands for Picture for Profile, and it describes the digital artworks that serve mostly as avatars on the metaverse and profile pictures on social media accounts. Projects such as CryptoPunks and Bored Ape Yacht Club contributed significantly to the popularity of this type of NFT, leading to the emergence of several other PFP collections.
Unsurprisingly, most traditional companies that initially adopted NFTs also focused on PFP. Twitter launched a feature that allowed NFT holders to post their profile pictures and link to that crypto wallet. Meta copied the same thing with Facebook and Instagram. Even Reddit released Avatar NFTs.
However, the popularity of PFP NFTs has waned in recent times. This is mostly because this type of NFT gained attention due to what they are, not what they can do. They represented a sign of exclusivity and a status symbol for the few lucky to mint them early or rich enough to buy them for big bucks later. The high prices of the NFTs also attracted celebrities, further increasing their popularity as it led to attention-grabbing headlines.
In terms of utility, most PFP NFTs offer no value for their holders beyond using them as profile pictures and being part of a digital community. This meant that most NFT traders only made profits by selling for a higher price than they paid. No wonder Bill Gates described NFTs as based on the greater fool theory. In recent months, most companies that launched NFT products have silently rolled back those features. Meta recently shut down the NFT minting and trading feature on Facebook and Instagram.
However, not all PFP NFTs are devoid of utility. Some, like BAYC and Cool Cats, offered some benefits for their users. For instance, BAYC holders got free mints for Mutant Apes, BAKC, Otherdeeds, and an Apecoin airdrop. Cool Cats also give several rewards to its holders. But these NFTs and others that offer utility were more of an exception than a norm. Most PFP NFTs offer no tangible value beyond the possibility of selling for more than you paid.
Despite the lack of utility for PFP NFTs, they account for more than 70% of the NFT market cap. This shows the dominance of PFP compared to all other types of digital collectibles on the blockchain. It also shows why the NFT market has significantly declined in activity. During the bull run of 2021 and early 2022, the NFT market recorded billions in trading volume thanks to PFPs such as BAYC, Azuki, Doodles, CryptoPunks, etc. But those days are long over.
The change in economic conditions means most people now consider utility above anything. High inflation, global interest rate hike, a drop in cryptocurrency value, and layoffs, especially in the tech sector, show we are in a risk-off environment. In such conditions, the NFT market, which has a utility problem, has seen demand drop along with interest and market cap. Even top projects with utilities, such as BAYC, have also seen their floor prices decline massively.
It is important to note that the decline in NFT trading volume and interest is not entirely because of PFPs. Beyond the macroeconomic factors, there have been catastrophic events in the crypto space, such as the Terra UST collapse in May and the FTX bankruptcy in November. All these also affected the NFT industry. DappRadar reported that the Terra Luna collapse had the most devastating impact on the NFT market.
Market Decline a Blessing in Disguise
The decline in NFT trading activity and interest is not altogether a bad thing. It has shown that NFTs in their present state are mostly risk assets good for speculative trading. But NFTs can be much more than this. Thus, the market decline presents a golden opportunity for the industry to move away from digital JPEGs on the blockchain to utility-driven projects with real-world value and use cases.
Fortunately, it is easier than ever to create NFTs with utility and application in the real world. Lineage Protocol, a decentralized metadata network, is focused on this. The protocol seeks to help creators unleash the true potential of NFTs by creating projects that have utility and can seamlessly integrate into multiple ecosystems.
Several real-world applications exist for NFTs in sectors such as gaming, sports, music, loyalty systems, real estate, and more. But the majority of the NFTs in existence don’t focus on these areas. This is due to many reasons, including the technical barriers to creating these NFTs. It is part of why some creators opt for the easy-to-create PFP collections. Fortunately, Lineage protocol promises a future where creators can do truly incredible things with NFTs.
With Lineage Protocol, creators can develop and deploy Dynamic NFTs, which are more interactive than regular NFTs. This makes them ideal for those looking to create more utility with NFTs. The protocol also improves on the current iterations of Dynamic NFTs with the multiple data sets feature that allows creators to add new data sets to existing NFTs. This means that even after developing the dNFTs, creators can still add new data sets (utilities) with Lineage.
Additionally, the multiple data sets feature enables NFT creators using Lineage Protocol to delegate collaborators' permissions. This means multiple teams can collaborate on NFT collection and add diverse data sets all of which can be easily approved through automation.
Given its emphasis on data sets, Lineage Protocol focuses on managing NFT metadata, which is a crucial part many NFT holders and creators ignore. Using the protocol, metadata becomes trackable, evolves, and interoperates on different ecosystems. This could significantly impact how NFTs are used, thereby enabling more adoption.
Non-fungible tokens can be much more than on-chain images that can be put on your profile to prove your status. Several use cases exist that could revolutionize multiple sectors and improve how certain things are done. But for the industry to take advantage of this potential, there is a need to look beyond PFPs. Until then, there is only so much digital images can do, no matter how expensive they are.