Source: DBS Bank

What is fungibility? An asset is said to be fungible if it is not unique and is interchangeable against an asset of the same type. For example, dollars are fungible assets. Similarly, most crypto currencies are fungible or partially fungible assets. 
Conversely, some assets are non-fungible. This is the case with train tickets. Although there are thousands of them, certain characteristics are unique to each ticket, such as the seat number or departure time. Among digital assets, NFTs are non-fungible. This means that no two tokens created will be exactly identical and interchangeable. These unique tokens are stored on the blockchain.

In 2021, the NFT market reached its peak, with weekly trading volumes reaching between $750 million and $1.5 billion (between August 2021 and April 2022). Enthusiasm was at an all-time high, as numerous celebrities and artists backed and invested in NFTs. Auction houses such as Christie’s and Sotheby’s began to organize NFT sales, contributing to their legitimacy.

However, the year 2022 marked a major turning point in this history, with the NFT market experiencing a spectacular collapse. The average price of token sales has fallen by 92% since its peak. By way of example, Dorsey’s “first NFT tweet”, originally purchased for the exorbitant sum of $2.9 million, was worth less than $4 at the start of the year.

This spectacular fall can be explained by several factors. The first is the bursting of virtually all speculative bubbles by 2022. The FAANGs, small and mid-caps, venture capital, cryptocurrencies and NFTs have all experienced historic “purges”. The collapse in the value of NFTs has led to growing scepti-cism, triggering panic selling by speculators. 

Another important factor was market saturation. The initial runaway success of NFTs led to a flood of new artists and creators, resulting in a glut of digital assets, and reducing the perceived value and uniqueness of each NFT. 

The absence of a comprehensive regulatory framework has contributed to uncertainty, generating legal and security concerns for NFT transactions. Environmental concerns, due to the use of energy-intensive blockchain technologies, have also played a role.

In the wake of the crash, the NFT market has adapted and continues to evolve. Despite the crisis, NFT technology is progressing, exploring new use cases. This innovation is a response to those seeking greater utility and durability from NFTs. The market is diversifying into sectors such as gaming, finance, virtual real estate and virtual goods. In finance, NFTs facilitate the tokenization of assets, enabling fractional ownership and the fluidity of transactions on traditionally illiquid assets. Brands are integrating NFTs into loyalty programmes to boost consumer engagement. In the art world, NFTs are not limited to the sale of digital art but are redefining artist-public interaction by enabling the creation of unique, interac-tive and dynamic works. These varied applications highlight the vast potential of NFTs, showing that they are much more than just a digital tool, but a versatile technology capable of revolutionizing interactions in many sectors. 
Looking ahead, the NFT market appears to be heading towards a more stable and mature phase, with regulatory changes expected to boost user and investor confidence. The focus on green blockchain technologies is attracting new, environmentally conscious participants. Continued diversification into virtual real estate and virtual assets paves the way for new phases of growth. Concrete projects are expected to gain momentum, marking a significant change in image from the purely speculative nature of NFTs. A sign of the market’s upturn is the explosion in the number of NFTs developed on the Bitcoin blockchain since the launch of the Ordinals protocol in January 2023.