How to Fix the Lack of Trust in the NFT Market

In 2021, Non Fungible Tokens exploded in popularity with nearly $17 billion in trading volume. Over the past year, however, NFT earnings have fallen sharply. According to some estimates, trading volume has now fallen by over 90 percent since its peak in January 2022.

A number of indicators suggest that the industry is currently seen as a low-confidence environment. OpenSea, the largest NFT marketplace, reported that over 80% of the tokens minted for free on its platform were fake, plagiarized, or spam. A survey by GetWizer found that only 28% of respondents considered NFTs a good investment, while 44% considered them a bad investment. This number has increased in recent years as awareness of NFTs has grown. Disturbingly, this suggests that trust is declining as more people get involved. If adoption is to increase, concerns about user trust must be addressed.

Part of the lack of trust and transparency can be attributed to the fact that it is a nascent technology with limited data and no established norms. Most teams don’t have established practices for notifying current owners and prospective members of the progress they’ve made. NFT marketplaces like OpenSea display very limited information about the NFT projects, making it difficult for potential buyers to thoroughly review a project. Various stakeholders of projects and marketplaces can play a constructive role in increasing trust and transparency in the market to further fuel growth.

Incentives based on performance

Currently, there is little cost or consequence to forming NFT teams that fail to meet their original game plans. Roadmaps are the aspirations of a project, usually broken down into milestones, and they have a big impact on whether or not you trust them. They are for accountability and managing expectations, but these “milestones” aren’t always met, with minimal impact on the team. This inadvertently sends a signal to members that it’s okay not to deliver on 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 embrace incentives that demonstrate a focus on team success, rather than anticipating them. This shows that the founding team members are committed to the success of the project and inspires confidence among NFT investors.

Various projects have experimented with novel incentive mechanisms. For example, Nouns, an on-chain avatar project that rewards members with the proceeds of every 10th noun auction. Curious Addys’ Trading Club, an NFT education project, has implemented a return policy that allows Mintern to receive a refund within the first 100 days.

Also see: 3 clever ways to use NFTs to grow your business

Consolidate important updates

There’s no need for teams to be limited to just one platform. You should post important announcements and updates to an RSS feed to ensure the timely dissemination 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 compressed content into an RSS reader, which converts text files into digital updates.

With an RSS feed, users who have signed up for the feed can receive updates accurately, as information is automatically compiled by Teams from the many sources and made available directly to users.

In line with web3’s goals of decentralization and user choice, users also have the freedom and flexibility to choose their own RSS feed client. Teams should include this RSS feed link in the NFT project’s metadata when it is created for better recognition.

Related: Is It Time to Ditch Crypto?

self-regulate

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

If team members act on material information before an announcement is made, it goes beyond what is required by law against the core value of fair play and undermines trust. Without a defined policy to prevent them, allegations of price manipulation can damage the reputation of projects and, in turn, the entire sector. OpenSea, for example, implemented an insider trading policy in response to charges against one of its former employees.

To increase the confidence of potential investors, teams should have an insider trading policy. This policy should also be made available to the public to ensure accountability. The open source policy of Tim Ferriss, a well-known industry podcaster, might serve as a good place to start.

Providing better data to evaluate projects

Currently, NFT marketplaces only provide limited data on their projects. The data presented now typically includes the minimum price, the sales volume and the transaction volume. This is not enough to check projects. Marketplaces should go a step further to flag projects suspected of being wash trading. You should highlight all identified team members and reviews on the project from verified owners. These additional data points allow potential investors to make more informed decisions.

Multiple players must make a concerted effort

While the current space is dominated by millennials (a new survey of 2,000 25-34 year olds conducted by StarkNet found that 42% of respondents said they would invest in NFTs if they knew more) an ongoing one growth that happens only if the market can move beyond the niche groups that currently dominate the space. Without additional confidence, further growth in this area is unlikely.

Related: Is the NFT Marketplace a Boom or a Bust?