NFT collectibles have existed for several years, but their first big glory time was undeniably in July 2021 - May 2022, when prices and hype reached unprecedented heights.
Back then, a record-breaking CryptoPunk was sold for the equivalent of $23.5 million, numerous NFT projects were born, and the FOMO (fear of missing out) drove the prices ever higher.
Fast forward to 2023, and the average weekly trading volume dropped from $158 million to $33 million, floor prices of most collections plummeted, and the tensions between NFT holders and the developing teams are escalating.
These tensions culminated in the recent Azuki Elementals drop scandal, which exposed the many things that are wrong with the current state of NFT collectibles.
Fortunately, with the benefit of hindsight, the space can learn from its mistakes… or so we hope.
What are NFT collectibles and where do they drive their value from?
From a strategic standpoint, there are two main types of NFT collectibles: those that hold inherent value, and those that rely on a roadmap and a developing team.
Notorious collections like CryptoPunks belong to the first category. Their role is mostly to show that their owners belong to a closed club (e.g. early crypto adopters in the case of CryptoPunks).
Most other NFT collectibles, which are also known as PFP (profile pictures), are not in themselves sufficient and need to offer a clear roadmap to show their communities how exactly the project is going to evolve and generate value for its community.
For example, Yuga Labs (the team behind Bored Apes Yacht Club collection) is developing a web3 gaming metaverse called The Otherside. This online role-playing game will have its own token economy, where BAYC NFT holders can get various perks and monetize their NFTs.
Yuga Labs have already conducted two closed demos of the playable metaverse, which went well enough for the community to continue believing in the project.
CryptoPunks and BAYC are probably the best examples of NFT collectibles. However, even these projects have seen their floor prices decline significantly, dropping from their peak levels of around $420k in May to $90k and $64k today, respectively. This decrease illustrates just how much the prices depended on the FOMO.
What went wrong with Azuki?
Azuki, on the other hand, serves as a clear example of not only waning hype but also failing expectations.
Launched in January 2022 by Chiru Labs, this PFP collection has quickly become popular, boasting beautiful art and teasing grandiose plans for future metaverse developments.
However, since then, the company has struggled to achieve substantial progress, facing embarrassing incidents such as a Twitter hack that resulted in over $750k being stolen from users' wallets and the founder's admission of abandoning previous NFT projects (a misdeed known as a rug pull).
Azuki's troubles did not end there. Recently, Chiru Labs released a new “Elementals” collection, which not only failed to introduce additional utility but also featured repetitive artwork. Some Azuki NFT holders have concluded that the additional NFTs only diluted the value of the existing Azuki collection and decided to act. They formed a DAO (decentralized autonomous organization) to demand Chiru Labs a refund of over $38 million.
Adding insult to injury, a vulnerability in the DAO’s smart contract allowed a hacker to steal around $68k from them. However, despite the setback, the DAO still intends on suing the Azuki founder.
Unsurprisingly, these events have sent the floor price of Azuki main collection from $27k before the drop to $13k (very far from the all-time high of $90k). Elementals NFTs are now being traded at 1.2 ETH, well below the mint price of 2 ETH.
The Azuki ordeal once again exposed the vulnerabilities of NFT collectibles that rely on external developments. In a crypto community that highly praises the principle of “don’t trust, verify”, such projects place excessive trust in the founding team.
Ideally, the failed NFT projects would incite the crypto space to devise new ways of securing the project’s roadmap and keeping its founders in check. New methods could include better community governance (DAOs with real power), mandatory smart contract audits, stronger legal protection etc.
It is also worth noting that collectibles represent only a small part of NFT use cases. Music, art, domain names, social media handles, media, fashion, education, and consumer goods are among the sectors in which NFTs are now being most actively implemented.
Written by D.Center
