Introduction
There is no doubt that 2022 was a chaotic year for crypto, the art market, and the global economy. But despite this unease, the NFT art market has shown a level of resilience which has been supported by the growth of the generative art and NFT movement. This last year, we have seen a shift from collectibles to generative collections, artworks which are produced through pre-programmed code to create a series of works. This report takes a look at the status of the market in 2022 and explores what kind of impact this art historical movement could have on the future of NFTs.
Findings at a Glance
- A Difficult Year but the NFT Art Market Remains Resilient
Overall, the data suggests that this was a difficult year for crypto and NFTs with huge amounts of volatility and uncertainty caused by crypto and external factors. Despite this, the art market appears to be holding resilient to these externalities and data indicates that the NFT art market is in a better position than this time last year.
- Paradigm Shifts in the Marketplace
2022 saw the introduction of new key players in the market which has forced a distribution of volume across NFT marketplaces. This has disrupted Opensea’s monopoly, although it remains the dominant marketplace with 27% (Dec 22).
The reduced volume has also heightened competition among marketplaces. This has fueled the resale rights debate and the move towards optionality in some cases, although there is an indication that the artist community has the power to challenge this shift.
- The Generative Art Renaissance
Generative art has seen a resurgence in 2022 which has been supported by the innovative and experimental processes that incorporate NFTs and smart contracts. Initial research suggests that generative art was not hit as badly as other NFTs during the FTX scandal but it has been slower to bounce back.
- Institutional Recognition
Cultural institutions, art fairs, and auction houses have all contributed to the popularization of generative art with collaborations between the traditional art world and the web3 space being integral to bridging the gap between these two markets.
- Promises from the Art Market
Data shows that the art market has faced similar challenges to the NFT art market. Upcoming trends suggest that generative art is set to gain further success in this coming year.
The Market in Review
Overall, the crypto and NFT markets have experienced high levels of volatility this year due to external influences such as the pandemic, the global economic crises, and the Ukrainian - Russian war. Crypto influences such as the crash of stablecoin Terra Luna in May, and later the FTX scandal in November, have also impacted the market.
Cryptocurrency prices have been in a downward trend with Ethereum seeing an average of a 67% decrease, Solana 93% decrease, and Tezos 80% decrease over 2022. This has also had an impact on the average price of an NFT which reached a low of $310 in September 2022. However, DappRadar reports that the price of an NFT averaged out as $2,015 over the course of 2022, which suggests that the market has also managed to regain some of its value over the year despite the downward trend.
Meanwhile, the NFT art market seemed to be relatively unaffected by this turn when compared to other segments of the market. Guthier Zuppinger from NonFungible.com reports that the NFT art market has seen a reduction in trading volume of around $2 million a week, but this is just a fraction when compared to the collectibles market which saw a decline of $100 million per week in the second half of 2022. This implies that the NFT art market holds some resilience during this difficult period, and indeed, the segment ended 2022 with volume that is still 2.5 times larger than in January 2021.
Overall, the top 10 marketplaces have seen a sharp fall in volume with a total of 81% decrease over the year which has not yet been regained. However the latest figures do show some promise.
Furthermore, 2022 saw the introduction of new marketplaces such as LooksRare, Blur, and X2Y2, which have challenged Opensea’s monopoly on the secondary market. Although Opensea remains dominant with around 27% (Dec 22) of the market, these additions show that the space is not yet saturated and welcomes new marketplaces to diversify the market.
This increase in marketplaces and decrease in market volume has fueled the optional royalty fee discussion. Royalty fees provide artists with the ability to earn revenue from their works via the secondary market, and a growing number of marketplaces are making these optional for buyers and sellers in a bid to reduce the transaction costs and encourage more users onto their platforms. This has sparked controversy in the artist community leading to some marketplaces such as Teia to respond with direct support for artists, and others even doing a u-turn on their initial decision to make royalty fees optional. This suggests that the artist community are reliant on marketplaces, but they also have some power to enact change. However, the royalty discussion continues, and remains hotly contested.
Overall, the number of active wallets in the NFT market has slowly declined throughout the year, with an average 28969 daily active market wallets. This includes an average of 978 daily active users in the art segment of the market, according to NonFungible Data.
However, comparing this to 2021’s data indicates that this downward turn is not as severe as it first appears. DappRader compares NFT unique traders in 2022 and 2021 to show that there were significant increases in users in the last year. For example, 2022 Q1 is up 675.88% from 409,298 in 2021 to 3.18 million in 2022. This trend has continued throughout the year until Q4, which saw a decrease from 2.6 million in 2021 to 2 million users in 2022. Therefore, the market is showing decline but has not lost momentum.
Indeed, Non Fungible’s Q3 report highlights that the average ownership period of an Art NFT has increased by 61.8% with an average of 63.6 days, which suggests that there is a shift towarding a ‘HODL-ing’ behavioral pattern during this challenging time.
Generative Art - A Primer
Generative art refers to any work that is ‘generated, at least in part, by some process that is not under the artist's direct control . The term was coined by the scholar Max Bense in 1965, who used this term to define a new genre of computer art that offered an exchange of information between the artist and the viewer. Artists employ algorithms and code to produce surreal and abstract iterations of an artwork, playing on the ideas of chance and randomness to explore new forms of creativity.
More recently, artists and technologists have applied this movement to blockchain technology. Early examples include the game Cryptokitties and the ‘profile picture’ project Cryptopunks which use smart contracts and code to generate a randomized collection of NFTs.
Blockchain technology has also evolved the artistic practice. Traditionally, generative art uses a ‘short-form’ approach where artists produce and deploy an algorithm to create a series of outputs which they curate into the final work. However, the introduction of NFTs has offered an alternative method known as ‘long-form’ which removes the element of curation by tokenising every output created from an artist’s algorithm. This is exemplified by an early experiment in 2019, Autoglypths by Larva Labs in which 512 ‘glyphs’ were produced and directly stored onto the Ethereum blockchain.
More recently, the launch of platforms such as Art Blocks and FxHash have popularized this long-form method. Artists can use these platforms to create generative scripts of code onto the Ethereum or Tezos blockchain, choose how many iterations they would like it to produce, and sell these as NFTs directly to collectors through these platforms.
2022 also saw the rise of user-friendly AI applications including DAll.E-2, Midjourey, Deep Dream Generator, and most recently, Lensa AI. Whilst these applications also produce a series of generative outputs, this process differs from blockchain-based generative art primarily through the different skills required to produce the outputs. In generative NFTs, artists require a level of coding skills to be able to make a script encoded on-chain, AI applications offer a more user-friendly experience as users only need to insert textual or image prompts to produce the work.
Generative Art and the Market
Generative art has been a growing trend throughout 2022. According to Google Trends data, searches on the Google search engine for the term ‘generative art’ spiked in early 2022. Although interest has waned since then, it remains a popular term worldwide with a particular emphasis in Singapore, Hong Kong, Morocco, South Korea and Canada.
Art Blocks and FxHash are two of the major platforms that support the creation of generative work. By the end of 2022, Art Blocks had reached over $1.4 billion in primary and secondary sales and established itself as one of the pioneers in bringing together generative art and blockchain technology. According to Coindesk, the platform has earned $82 million in royalties for artists to date, which is only second to Yuga Labs.
Meanwhile FxHash has grown steadily since its launch in April and it is currently ranked no. 9 (Dec 22) across all NFT marketplaces. FxHash has also partnered with Art Basel to produce a series of ‘live minting’ events which aim to bridge the gap between the traditional art market and this new mode of generative NFT art. Visitors to the FxHash booth were invited to mint an NFT using a QR code and a Kukai wallet, which enables visitors to mint simply using their email address. Together, these four events minted a total of 15,973 NFTs and has helped to fuel interest and acceptance of generative art in the global art market.
The success of Artblocks and FxHash indicates that the generative art movement has a growing following that has the potential to intersect both the web3 and traditional art market.
This is also supported by recent sales where generative art dominates the highest floor prices in the last 30 days (Dec 22) in the Ethereum Art segment. Currently, generative art sits at: (1) Autoglypths (floor price 339 Eth), (2) Portal (floor price, 300 Eth), (3) the Eternal Pump (floor price 245 Eth), (4) Fidenza (floor price 89 Eth), (7) Squiggly (floor price 65 Eth), (8) Ringers (floor price, 60 Eth), and (9) Elevated Decontructions (floor price 59.9 Eth).
A similar pattern can be found in Art Price’s top 20 ART NFT at auction in 2022 for artists under 40 where generative works appears no.14, no.9, and in the top four positions with (1) Refik Anadol Living Architecture: Casa Batillló (2022) $1,380,000 May 2022 at Christies. (2) Robbie Barrat AI Generated Nude (2018) $841,317 March 22 Sotheby’s. (3) IX Shells Beyond Recognition (2022) $189,000 April 2022 Sotheby’s. (4) Refik Anadol Melting Memories - Early Engram (2017) $100,800 June 2022 Christie’s.
Furthermore, initial research by Kaloh suggests that generative art was less affected by the FTX scandal in November 2022 when compared to PfP projects, with the top 10 collections of Art Blocks showing an average of 24% decrease, the top 10 collections of FxHash showing an average of 13% decrease in floor prices, and the top 10 PfP projects seeing a 35% average decrease in their floor price. Analysis of the same collections in December 2022 shows that FxHash increased by 4%, ArtBlocks decreased by 3%, and PfP projects averaged a 25% increase. This indicates that generative art has been slower to bounce back. It also supports the hypothesis that generative art is not impacted as severely by cryptocurrency prices when compared to PfP projects, although this finding is tentative.
Cultural institutions have played an important role in the popularization of generative art during 2022. Most notable is the recent exhibition of Refik Anadol’s work Unsupervised at MoMA, New York, created using AI-generated images using data drawn from MoMA’s collections and this currently exhibited on the ground level of the museum. Other exhibitions include DYOR at Kunsthalle Zurich, In Our Code at Unit London, Generations at Islamic Museum of Australia, and Unpredictable Lines, Cortesi Gallery in Milan, which suggests that generative art is becoming an international art market phenomenon.
Similarly, major auction houses have held generative art sales. For example, Sotheby’s Digital Natives 1.3 Generative Art brought together physical works and NFTs to celebrate the revival of the art movement, making a total of $2.3 million in sales. Meanwhile, Phillips’ exhibition and sale Ex-Machine: A History of Generative Art failed to reach its estimate, generating just $715,871 during the initial auction, but contextualized the movement by showing unseen works by digital and computer pioneers such as Herbet Franke and Vera Molnar with more recent generative NFTs such as Snowfro’s Chromie Squiggle.
Collaborations have also supported the popularization of generative art in 2022. As noted earlier, the partnership between FxHash and Art Basel implemented ‘live minting’ events at the various Art Basel fairs in 2022 including Hong Kong, Basel, Miami and Paris. In doing so, this practice has helped to promote this emerging trend in the traditional art market. The announcement of Art Blocks and Pace Gallery’s partnership in June 2022 only reinforces this growing entwinement between the art market and generative NFT art.
From the Art Market
Like the crypto market, Kabir Jhala of the The Art Newspaper reports that the art market has also felt an ‘end to a bull market’ with the hangover of the pandemic, the impact of the Ukrainian war, and the economic crises caused by spiking interest and inflation rates.
Despite this, the Art Basel report indicates that digital art sales rose on average by 5%, which suggests that the fall in the market has not dampened interest in digital work and this puts NFTs and blockchain-based art in a better position than the rest of the market. Indeed, auctioneer Simon de Pury predicts that in 2023:
‘While the initial gold rush and fever has clearly cooled down, NFTs, digital art and the use of the blockchain in the art market are here to stay. In many ways it’s only the real beginning now, as was the case after the initial dot.com bubble burst 20 years ago.’
De Pury’s reflections highlight a changing status of art NFTs in the ‘hype cycle’. The rush of the last few years reflects a ‘peak of inflated expectations’ but with the slowing of the market we are seeing a change towards a ‘trough of disillusionment’.
De Pury’s predictions foresee NFTs gradually plateauing as they are accepted within the wider art market, and generative art will likely play a large role in this paradigm shift. As noted earlier, generative art is supporting a stronger relationship between the art market and NFTs and other trends in the art market indicate that generative art is set to continue its popularity in 2023. For example, Josie Thaddeus-Jones of Artsy notes that abstraction and surrealism have been on the rise in the last year, similarly, the Venice Biennale exhibition was focused heavily on surrealism and digital work. In this respect, generative art could be in a good position for success in 2023, which could have a positive impact on art NFT and support a more stable and sustainable NFT market.
