How to Restore Trust in the NFT Market

Non Fungible Tokens exploded in popularity in 2021, with trading volumes approaching $17 billion. But, NFT gains have fallen dramatically in the last year. According to some estimates, trading volumes are now down more than 90% from their peak in January...
October 14, 2022

Non Fungible Tokens exploded in popularity in 2021, with trading volumes approaching $17 billion. But, NFT gains have fallen dramatically in the last year. According to some estimates, trading volumes are now down more than 90% from their peak in January 2022.

Some indicators suggest that the industry is currently perceived as untrustworthy. According to OpenSea, the largest NFT marketplace, more than 80% of free tokens minted on its platform were fake, plagiarized, or spam. According to a GetWizer survey, only 28% of respondents thought NFTs were a good investment, while 44% thought they were a bad investment. This figure has risen in recent years as public awareness of NFTs has grown. Worryingly, this suggests that trust is eroding as more people become involved. If adoption is to increase, users' concerns about trust must be addressed.

Some of the lack of trust and transparency can be attributed to the fact that the technology is still in its early stages, with limited data and no established norms. Most teams do not have established practices for informing current owners and prospective members of their progress. NFT marketplaces such as OpenSea display very limited information about NFT projects, making it difficult for potential buyers to thoroughly vet a project. Different players, ranging from projects to marketplaces, can play a constructive role in increasing market trust and transparency, thereby promoting growth.

Performance-based Incentives | Credits VantageCircle

Performance-based Incentives

Currently, there is little cost or consequence for new NFT teams that fail to meet their initial game plans. Roadmaps are the aspirations of a project. It usually broken down into milestones, and they have a significant impact on whether it is trusted. They exist to hold people accountable and to manage expectations, but these "milestones" are not always met, with little impact on the team. This inadvertently sends a message to members that it is acceptable to default on expectations and promises. While also sending a message to investors that roadmaps are not a useful tool for evaluating projects.

Instead of frontloading incentives, founding team members should adopt incentives that show alignment with the team's success. This demonstrates to NFT investors that the founding team members are committed to the project's success.

Several projects have been testing novel incentive mechanisms. Nouns, an on-chain avatar project, for example, compensates members with the proceeds of every tenth Noun's auction. Curious Addys' Trading Club, an educational NFT project, has implemented a return policy that allows minters to receive a refund within the first 100 days of buy.

Important updates should be consolidated

There is no reason for teams to limit themselves to a single platform. Important announcements and updates should be made via an RSS feed to ensure timely dissemination of critical information. An RSS feed is a type of web feed that allows you to receive automatic website and content updates. This is accomplished by extracting data from XML files and importing it into an RSS reader, which converts text files into digital updates.

Users who have subscribed to an RSS feed will receive accurate updates because information from teams is automatically compiled from multiple sources and delivered directly to users.

Users have the freedom and flexibility to choose their own RSS feed client, in keeping with web3's goals of decentralization and user choice. To ensure better discovery, teams should include this RSS feed link in the metadata of the NFT project when it is created.

Important Updates | Credits OOAccess

Self-regulate

NFTs are not currently regulated as securities and are not subject to the Securities and Exchange Commission's insider trading rules (SEC).

Beyond the legalities, trading on material information prior to an announcement violates the fundamental value of fair play and undermines trust. Allegations of price manipulation can tarnish the reputation of projects and, by extension, the entire sector if there is no defined policy in place to prevent them. In response to the indictment of one of their former employees, OpenSea, for example, implemented an insider trading policy.

Teams should have an anti-insider trading policy in place to gain the trust of potential investors. This policy should also be made public in order to ensure accountability. Tim Ferriss, a popular industry podcaster, open-sourced his policy, which could be a good starting point.

Providing Better Data | Credits Amazon AWS

Improve project evaluation by providing better data

Currently, NFT marketplaces provide only a limited amount of information about their projects. Typically, data presented now includes the floor price, sales volume, and transaction volume. This is insufficient for project evaluation. Marketplaces should go one step further and flag projects suspected of engaging in wash trading. They should highlight any identified team members as well as verified owners' project reviews. Potential investors will be able to make more informed decisions with the help of these additional data points.

Working Together | Credits VectorStock

Multiple players must work together

While the current market is dominated by millennials (a new StarkNet survey of 2,000 25 to 34-year-olds found that 42% of those polled said they'd invest in NFTs if they knew more about them), sustained growth occurs only if the market can move beyond the niche groups that currently dominate the space. Without additional trust, it is unlikely that the space will grow further.

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