1. Introduction

NFTs (Non-Fungible Tokens) are inextricably linked to Web3, and NFTs, as an important infrastructure of Web3, have driven the revolution of digital asset ownership. The purpose of this paper is to sort out the current status and future development direction of NFT application in the Web3 industry in order to provide a comprehensive analysis and evaluation.

2. NFT Field Panorama: Track Overview

In 2017, Larva Labs’ CryptoPunks and Dapper Labs’ CryptoKitties, as well as the presentation of the ERC-721 standard, marked the official birth of NFT. With the development of time, the NFT market has not only seen a rapid increase in transaction volume and turnover, but has also gradually been popularized and applied in multiple fields, which makes the NFT technology equipped with more usage scenarios. At present, NFT can be subdivided into the following fields:

• Digital Assets & Collectibles
  NFT represents a new form of ownership of digital content with its uniqueness and scarcity in the field of digital assets and collectibles.

• Decentralized Identity & Social (DID & SocialFi)
  As an identity symbol and social asset, NFT plays an important role in the field of decentralized identity and socialization. Representative projects include Lens Protocol and POAP, which are driving the formation of the Web3 social ecosystem.

• Meta-Universe with Virtual Assets and GameFi
  NFT drives the virtual world economic system in the metaverse, involving virtual land, props and characters. Representative projects, The Sandbox and Decentraland, show the gradual rise in demand for NFT transactions and asset management within the metaverse.

• NFT financialization (NFT fi)
  Applications of NFT in finance include pledging, lending, and slicing, represented by the projects NFTfi and Fragment, which promote the increased liquidity of NFT as an asset class.

• DAO and Community Governance
  NFT serves as a vehicle for voting rights or membership in DAOs, representing projects Friends With Benefits (FWB) and PleasrDAO, which promote the development of Web3 community autonomy.

3. Anatomy of a major NFT track in the Web3 industry

3.1 Digital assets and collectibles

The beginning of the use of NFT as a digital asset and collectible dates back to 2012, when the first NFT-like pass, Colored Coin, appeared, which showed the potential for real assets to be on the chain and laid the foundation for the development of NFT. However, the term NFT was formalized in 2017 by Dieter Shirley, founder and CTO of CryptoKitties. In the same year, the world’s first NFT project, CryptoPunks, was born on the Ether blockchain, which marked the beginning of the widespread use of NFT as a digital asset and collectible.

With its uniqueness and scarcity in the field of digital assets and collectibles, NFT represents a new form of ownership of digital content. Representing projects such as OpenSea and Blur and other NFT trading platforms, NFT Market Place fully demonstrates a wide variety of artwork ensembles to everyone, and also provides channels and venues for NFT trading, transforming the value of collectibles from a consensus of consciousness to a consensus of finance, and making more people aware of the potential value of digital assets and collectibles .

As of early December 2024, the data shows that Opensea’s transaction volume in the past three months was more than $500 million, while the second-ranked Blur platform was $240 million. From the growth data, in the past month, Blur’s transaction volume is gradually approaching that of Opensea, and interestingly, through the analysis of wallet data, we find that whales prefer to make transactions, while Opensea has more active users, which shows that the competition between platforms is gradually entering a white-hot stage.

3.2 Decentralized Identity & Social (DID & SocialFi)

The application of NFT to the DID (decentralized identity) space dates back to 2017. Specifically, EtherID is an identity protocol that was launched on November 29, 2015 and features a built-in marketplace that allows users to buy, sell, and transfer identity records to each other, which may be the first NFT marketplace in the entire blockchain.

NFTs play a crucial role in decentralized identity (DID), especially in building and verifying digital identities, managing social relationships, and protecting digital assets.

Using Lens Protocol as an example, let’s look at the role of NFT in DID and SocialFi:

Lens Protocol uses NFT technology to create decentralized digital identities for users, known as Profile NFTs. these NFTs represent the user’s identity information and are fully owned by the user, not by a centralized authority.

In Lens Protocol, users’ social relationships are also cast as NFTs, i.e., Follow NFTs. These NFTs record the following relationships between users and can be traded and transferred, thus giving economic value and liquidity to social relationships.

Lens Protocol empowers users with more rights and opportunities by transforming profiles, followers, favorites and content into NFTs. Users can sell, rent, or license personal homepage NFTs to gain economic returns and ensure the security and privacy of their personal information.

NFT is not only a symbol of identity in the DID space, but also a vehicle for social assets and digital rights. Through the example of Lens Protocol, we can see how NFT provides users with ownership, control and economic value in the Web3 social ecosystem.

3.3 Metaverse and Virtual Assets and The Game Economy (GameFi)

NFT is not only a symbol of identity in the Metaverse and GameFi, but also a vehicle for social assets and digital interests. By providing proof of ownership, facilitating asset transactions and creating new economic models, NFTs are reshaping virtual world interactions and economic activity.

With the release of Decentraland in 2017, NFT was officially introduced into the metaverse. In the metaverse, NFT provides a secure means for people to fully own their characters, accumulated virtual world items and even virtual land in the metaverse.NFT ensures the authenticity and uniqueness of virtual assets through blockchain technology. Users can fully hold ownership of their virtual land and space in the metaverse through NFT. For example, in Decentraland, users can purchase land and build their own virtual worlds or experiences.

Unlike the meta-universe, NFT in the game economy extends the concept of digital ownership to represent a wide range of digital and physical assets, including in-game items. This digital ownership opens up new economic opportunities by allowing players to cultivate, sell, or rent their NFTs, creating a vibrant in-game economy.

2018 NFT games such as Axie Infinity utilize an “earn as you play” model, where players can cultivate creatures represented by NFTs to produce new, unique creatures that can then be used or traded within the game’s ecosystem, with different levels of NFTs generating a proportionate increase in earnings. .

It can be seen that NFT plays a key role in both Metaverse and GameFi, but with different emphasis and application scenarios. The role of NFT in Metaverse is to emphasize the ownership and authenticity of virtual assets, while the role of NFT in GameFi is more to emphasize the ownership of game assets and the ability to earn revenue through games.

3.4 NFT financialization (NFT Fi)

Launching in mid-2020, NFTfi is a peer-to-peer NFT mortgage marketplace that allows NFT asset holders to collateralize their NFTs, borrow the assets, and lend to others. nFTfi says it is launching because the art and collectibles market is very illiquid compared to legal, equity, and other types of assets, and even more so for NFT assets. The NFTfi product will provide significant liquidity and lending capabilities for NFT assets to meet the diverse funding needs of users. Depending on the nature of the demand, it can be used for two purposes - lending & borrowing.

In recent years, with the recovery of NFT market, NFT fi has seen a steady rise period, as we can see from the data, the amount of Total Borrowed has steadily increased, and the overall borrowing has reached $8.4B, of which Blur has taken the leading position in the NFTFi market with more than 80% share.

In the future, the NFTFi track map is further expanded to include multiple directions such as trading (marketplaces and aggregators), liquidity pools and LPs, lending and leasing, perpetual and options, fragmentation and valuation pricing, infrastructure, and analytical tools.

3.5 DAO and Community Governance

Since the beginning of 2021, the concept of NFT+DAO has gradually developed and matured, and the role of DAOs in the NFT market has become indispensable, with the emergence of four classifications of NFT-based DAOs: investment DAOs, social DAOs, governance DAOs, and guild DAOs.

The greatest application value of NFT in DAOs is to mark people’s on-chain credits and identities, such as Uniswap’s LP token and Bankless social member attendance NFT.

At the same time, NFTs are also used as a tool for DAO governance, where users holding specific NFTs can have voting and governance rights in the DAO.

4. NFT Market Analysis

4.1 Overall status of the NFT industry (as of 12 2024)

In June 2017, CryptoPunks, the world’s first NFT project, was born.The NFT ecosystem continued to grow from 2018-2020, with the market size growing by 825% and the number of active addresses by 201%.The NFT market exploded in 2020, when digital artist Beeple’s work Everydays: The First 5000 Days” sold for $69.34 million, becoming a landmark event for the NFT market.In 2022, the NFT market size reached $38.2 billion and is expected to grow to $342.54 billion by 2032, showing strong growth potential.

After the silence of the 2023 bear market, the 2024 non-homogenized Token (NFT) market is finally seeing volatility in market capitalization, with the latest data demonstrating the strong potential for recovery. Although trading volume in Q3 fell by 50% from the previous quarter to $1.1 billion due to volatility, this is still an impressive figure considering the current market environment. The global NFT market opened the first quarter of 2024 with a record $4.1 billion in trading volume, showing great initial enthusiasm. Although activity fell to $2.25 billion in the second quarter as the initial hype waned, meaningful demand continued.

Crucially, the $1.1 billion in volume in Q3 underscores the resilience of the NFT ecosystem and collectors’ love for this innovative asset class. And in October and November, we saw the NFT circuit reinvigorated, with multiple blue-chip COLLECTIONS continuing to rise in price as of December 3rd. As long as market conditions remain favorable, we have reason to believe that NFT trading will regain significant upside momentum in the coming quarters, driven by infrastructure and use case expansion. Despite the recent volatility, the long-term outlook and transformative potential of NFT technology inspires confidence that the market will rebound from this trough and become stronger.

4.2 NFT Hot Spot Analysis

Recently, the most active public chains for NFT trading have been Ethereum, Solana and Polygon.

Data shows that the total number of NFT assets on Ether reached 162,360,279 and the total number of NFT contracts was 330,850. In a 24-hour period, NFT assets increased by 4,560, contracts increased by 73, and the number of transfers reached 20,263. Additionally, Ether’s NFT trading volume increased by $4,442.23 to $36,206,522.92 in 24 hours. These figures show that Ether’s NFT market continues to experience strong growth and active trading activity.

Solana blockchain is favored by the NFT community for its high throughput and low transaction fees. On Solana, the total number of NFT assets is 333,571,960 and the total number of NFT favorites is 272,695. in 24 hours, NFT assets increased by 461,438, favorites increased by 64, and the number of transfers reached 598,515. the volume of NFT transactions on Solana increased by $6,376.38 in 24 hours, reaching 91,354,263.37 dollars. These figures reflect Solana’s rapid growth in the NFT space, especially in terms of asset growth and trading activity.

Polygon, a Layer 2 scaling solution for Ether, offers faster transaction speeds and lower transaction costs. On Polygon, the total number of NFT assets is 875,522,158 and the total number of NFT contracts is 1,991,035. in 24 hours, the number of NFT assets increased by 220,051, the number of contracts increased by 639, and the number of transfers reached 2,922,523. polygon’s NFT trading volume in 24 hours increased by 307, 334.73 to $2,623,402,464.91. These figures show that Polygon is performing well in terms of volume and asset growth in the NFT market, especially since its trading volume far exceeds that of the other two platforms.

A comprehensive comparison of these three public chains shows that despite Ether’s dominance in terms of history and influence in the NFT market, Polygon is way ahead in terms of transaction volume, thanks to its low transaction costs and high transaction efficiency. Solana, on the other hand, excels in asset growth and trading activity, showing its potential in the NFT space. Each of the three platforms has its own strengths, Ether for its brand and user base, Solana for its performance, and Polygon for its compatibility with Ether and cost-effectiveness. As the NFT market continues to evolve, competition and cooperation between these platforms will work together to advance the industry as a whole.

In the recent compilation, Liberty Cats has recently shined, becoming a market favorite with a trading volume of 14,724,230.4044 MATIC and a growth rate of 302.19%. This success is attributed to its unique high-end positioning, high average price NFT (33,464.3274 MATIC), and effective marketing strategy, which has attracted wide attention from core user groups and investors.

5. Conclusion

NFT, as the infrastructure of Web3, has driven a revolution in digital asset ownership. Since the birth of CryptoPunks in 2017, NFT has demonstrated its value in a variety of fields such as art, gaming, social, etc., especially in providing proof of ownership, facilitating asset transactions, and creating economic models.The NFT market has experienced significant growth, and it is expected to expand to more industries in the future, such as education and healthcare, to further drive the development of the digital economy.

Looking ahead, the NFT ecosystem faces both challenges and opportunities. Technological advances and market standardization will solve existing problems such as market volatility and copyright issues. Meanwhile, the combination of NFT with other areas of Web3, such as DAO governance and meta-universe, will bring new economic opportunities for creators and communities. As the infrastructure improves, NFT is expected to become a key force in connecting the virtual and real worlds and driving the digital economy.