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In 2021, non-replaceable tokens exploded in popularity with trading volumes close to $17 billion. Over the past year, however, NFT gains have fallen sharply. By some estimatestrading volumes are now down more than 90 percent from their January 2022 peak.
A number of indicators suggest that the sector is currently viewed as a low-confidence environment. OpenSea, the largest NFT marketplace, reported that over 80% of the free tokens minted on its platform were fake, plagiarized or spam. An investigation by GetWizer found that only 28% of respondents viewed NFTs as a good investment, while 44% viewed them as a bad investment. This figure has been rising in recent years as awareness of NFTs has increased. Worryingly, this suggests that as more people get involved, trust declines. If adoption is to increase, concerns about user trust must be allayed.
Part of the lack of trust and transparency can be traced back to the fact that it is still a nascent technology with limited data and no established standards. Most teams don’t have set practices for keeping current owners and prospective members informed of the progress they’ve made. NFT marketplaces like OpenSea show very limited information about the NFT projects, making it difficult for potential buyers to thoroughly vet a project. Different players, ranging from projects and marketplaces, can play a constructive role in increasing trust and transparency in the market to further promote growth.
Boost based on performance
Currently, there are few costs or consequences for establishing NFT teams that do not follow through on their original game plans. Roadmaps are the ambitions of a project, usually divided into milestones and they have a big influence on whether or not trust is involved. They are there to be accountable and to manage expectations, but these “milestones” are not always met, with minimal impact on the team. This inadvertently sends a message to members that it’s okay to break expectations and promises, while also sending a message to investors that roadmaps are not a valuable tool to evaluate a project.
Founding team members should adopt incentives that show they align with the team’s success rather than pre-taxing them. This shows that the founding team members are committed to the success of the project and instills confidence in NFT investors.
Various projects have experimented with new stimulation mechanisms. For example, Nouns, an on-chain avatar project, compensates members with the proceeds from every 10th Noun’s auction. Curious Addys’ Trading Club, an educational NFT project, implemented a return policy that allows minters to get a refund within the first 100 days.
Related: 3 Smart Ways to Use NFTs to Grow Your Business
Consolidate Important Updates
There is no need for teams to stick to just one platform. They must make important announcements and updates via an RSS feed to ensure the timely distribution of important information. An RSS feed is a web feed that provides access to automatic website and content updates. This is accomplished by extracting data from XML files and feeding condensed content into an RSS reader, which converts text files into digital updates.
An RSS feed allows users who have registered with the feed to receive accurate updates as teams’ information is automatically compiled from the many sources and provided directly to users.
In keeping with web3’s goals of decentralization and user choice, users also have the freedom and flexibility to select their own RSS feed client. Teams should include this RSS feed link in the NFT project’s metadata when it’s created to ensure better discoverability.
Related: Is It Time To Leave Crypto?
NFTs are not currently regulated as securities and are not subject to insider trading rules by the Securities Exchange Commission (SEC).
Legality aside, when team members trade material information before an announcement, it violates the fundamental value of fair play and undermines trust. Without a specific policy to prevent them, allegations of price manipulation can tarnish the reputation of projects and therefore the entire industry. For example, in response to the indictment of one of their former employees, OpenSea has implemented an insider trading policy.
To increase the confidence of potential investors, teams should have a policy against insider trading. This policy must also be made public for accountability. The policy open source by Tim Ferriss, a popular podcaster in the industry, could serve as a good starting point.
Deliver better data to evaluate projects
Currently, NFT marketplaces provide limited data on their projects. The data presented now typically includes floor price, sales volume and transaction volume. This is insufficient to screen projects. Marketplaces should go one step further to highlight projects with suspected laundry trade. They should highlight all identified team members and reviews about the project from verified owners. These additional data points will allow potential investors to make more informed decisions.
Multiple players must make joint efforts
While the current space is dominated by millennials (a new survey of 2,000 25- to 34-year-olds, conducted by StarkNetfound that 42% of those surveyed claimed they would invest in NFTs if they knew more about them) continued growth is happening nothing but if the market can move beyond the niche groups that currently dominate the space. Without additional confidence, it is unlikely that there will be further growth in the space.
Related: Is the NFT marketplace a boom or a failure?