I have been waiting a while to write this editorial, but I think the right time has come.
I have been avidly following every twist and turn of the current crypto crash, following various Reddit communities and scouring Google and Apple News for the reports of the latest crypto companies to fail, taking their investors’ money with them. The chain of dominos continues to fall, and nobody can predict where or when this “crypto winter” will end.
In talking about all this, there’s lot of jargon being thrown around which can sometimes be difficult to understand: smart contracts, DeFi, NFTs, DAOs, etc. The following 7-minute YouTube video explains all these and other terms, and I can recommend it highly (and it can serve as a refresher for the rest of you):
From the moment I first began writing about the blockchain-based virtual worlds and social VR platforms (starting with Decentraland, years before they actually opened their doors to the general public), I have been fascinated by the new crop of metaverse projects boasting some blockchain component. These projects seem to split into two kinds:
1. Projects with Non-Fungible Token (NFT)-based virtual real estate (e.g. Decentraland, Cryptovoxels, Somnium Space, The Sandbox). All such projects tend to have their own cryptocurrency (or use Ether, ETH), and offer a marketplace where you can buy and sell other blockchain-based goods, such as avatar wearables.
While examples of the second category are few in number, there has been an explosion of projects announced in the first category over the past couple of years. Many of these projects had hoped to duplicate the success of Decentraland, which had the great good fortune to do an Initial Coin Offering at the absolute perfect time, in 2017 raising US$24 million dollars before ever building a platform.
Decentraland’s successful subsequent virtual land auctions (with their frenzied bidding wars for NFT-based virtual pieces of land called, naturally enough, LAND) also attracted a lot of attention and favourable press. This no doubt encouraged other companies to set up similar schemes in an effort to duplicate that success. Among those that have actually delivered a viable product to date are Cryptovoxels, Somnium Space, and the still-in-alpha/beta-testing-but-soon-to-launch platform The Sandbox. Each of these projects inspired similar bidding frenzies for artificially-scarce NFT-based parcels of virtual real estate, in some cases setting records.
The following charts show just how much the value of the cryptocurrencies associated with just these six projects has tumbled over the past three months (all charts are via the CoinMarketCap website):
And here’s one that really hurts: the surge and plunge in value of Neos Credits (NCR) over the past year. At the moment, project development has come to a near-standstill as the CEO fights against the CTO and the rest of the dev team about the role crypto will play in the NeosVR platform (and the matter will likely land up in court for the lawyers to battle over).
It’s still not clear if NeosVR can recover from this fiasco, which breaks my heart because it has such great technology! I do consider this to be the textbook example of how crypto speculation and greed can cause problems with an otherwise stellar platform; without being hooked to NCR, a cryptocurrency which has as yet has no practical use on the platform, NeosVR would still be doing very well! Instead, it is bleeding investors.
In addition, you can see the clear downward trend in both sales volume and average sale price for the following NFT-based properties over time (all taken from the NFT Stats website). Some seem to be doing a bit better than others, but all are down:
The overall situation is grim, particularly for those who bought cryptocurrencies and NFTs at the height of the market, perhaps expecting to flip them for a quick profit. But, for the countless blockchain-based metaverse projects who hopped on the bandwagon after Decentraland and the other market early movers, the situation is even worse. In many cases, the newer companies expected to raise funds by minting and selling NFTs to investors, often well before anything concrete was built! Examples of such projects include two I have written about earlier this year, Wilder World and VictoriaVR, but there are literally dozens and dozens more such projects, more than I could ever hope to cover in my blog. The prognosis for these newer projects is not looking especially promising, as potential investors head for the hills.
And, sadly, the bullish crypto market also brought out all the scammers who wanted to take advantage of the hothouse atmosphere of crypto investment, accepting money up front for what was essentially vapourware, and then pulling the rug out from under those who had not done their proper due diligence. Greed and FOMO (fear of missing out) drove a lot of ignorant cryptobros to pour money into a lot of projects which, to date, have had little to show for them but a slick website and an active Discord (or Telegram) server where everybody was pumping everybody else up to buy and HODL (hold on for dear life to) their associated crypto and NFT assets.
Some non-financially-savvy people, believing that they were truly on to a sure thing, gambled money they could not afford to lose—their life savings, their retirement funds, even their childrens’ college funds—and have lost everything, or next to everything, in the current bear market, holding near-worthless assets they cannot find anyone to sell to. I keep reading heartbreaking stories in the various subReddits of investors who have lost everything. Many have spoken of suicide, and many Reddit communities have posted resources to support those who are struggling with their mental health as a result of their poor financial decisions.
In the current environment, I believe that any blockchain-based metaverse (or a metaverse platform with an associated cryptocurrency), is going to be in for a very rough ride over the next few months, as governments around the world raise interest rates, and the easy, low-interest credit dries up, and a global recession looms. People are going to retreat to safer investments, fleeing the demonstrably high volatility of crypto and blockchain assets like NFTs. We can expect to see a mass stampede to the exits in some projects, and frankly, not all the blockchain-based metaverse platforms out there will survive.
UPDATE July 14th, 2022: In yet another sign of growing trouble in the NFT space, which has seen sales nosedive in recent months, the major NFT marketplace OpenSea has announced today that it is laying off 20% of its staff.