Blog

By Purple Fox Legal

February 1, 2023

The non-fungible token (NFT) market has exploded in popularity over the past few years, with millions of dollars’ worth of NFTs being bought and sold on a daily basis. One of the key trends in the NFT market is a move towards decentralization, as artists, collectors, and other stakeholders seek out alternative platforms and marketplaces. In this article, we will explore how the NFT market is becoming less centralized, how this shift is reshaping the industry, as well as best practices and challenges to consider for those entering into an NFT agreement.

A Look at the Current State of the NFT Industry

According to NonFungible’s 2022 Q3 market statistics, the USD traded volume in the NFT market fell 77% from Q2 2022, dropping to $1.6 billion from $7.3 billion. This dip in trading volume is likely due to the current “crypto winter,” in which the prices of many cryptocurrencies have slumped. However, it is worth noting that other indicators of activity in the NFT market have not fallen as significantly. For example, the number of sales only fell 5%, and the number of active wallets fell 17%. Both of these metrics remained relatively strong, with $10.9 million in sales and $1.1 million in active wallets.

One of the most interesting developments in the 2022 Q3 NFT market was the reconstitution of the market itself. In Q2, Yuga Labs’ collections (Bored Apes Yacht Club, CryptoPunks, Otherside, and Meebits) accounted for 30% of the traded volume. In Q3, that figure dropped to 17%. This shift could be due to the entry of well-established brands into the NFT space, including Tiffany, Starbucks, Microsoft, MTV, the city of Shanghai, and Ticketmaster. These brands’ entry into the market could be a sign that the NFT market is slowly reaching a mainstream audience.

Another important element in the Q3 NFT market is the continued increase in the number of smart contracts, which rose 9% to over 17,000. This growth suggests that project creators are continuing to launch new NFT initiatives, despite the bearish market conditions. Overall, the Q3 NFT market statistics show that the market is evolving and becoming less centralized, with new players entering the space and established players seeing their market share decrease.

In the third quarter of 2022, the collectible segment of the NFT market saw over $537 million in trading volume and accounted for 60% of the market share.

Museums Around the World Embrace NFTs as a Legitimate Art Form

NFTs are gaining widespread recognition in the art world, with many museums around the world exhibiting and even minting their own NFTs. Six out of the top ten art museums have featured NFTs in their exhibitions and even offered non-digital artworks for sale on the mainnet. Additional renowned museums are carefully considering how to incorporate NFTs into their ecosystem.

“The Louvre, like many other museum institutions, is considering how NFTs can take part in the life of the collections, but has no announcement to make on this subject,” a Louvre spokesperson said exclusively to Currency.com in November 2022.

One reason that museums are interested in NFTs is because they provide a potential source of funding. However, some people may view this as a cynical exploitation of NFTs. On the other hand, the involvement of museums could be seen as a major victory for the NFT community, as it represents mainstream recognition and validation.

This trend is a testament to the growing acceptance of NFTs as a legitimate art form, and museums are taking advantage of the opportunity to showcase the benefits of NFTs to the public and cement their reputation as important players in the art world.

Best Practices for Structuring NFT Agreements

When it comes to creating an agreement for an NFT, best practice suggests that you include all necessary details. An NFT agreement should include information such as the nature of the asset, rights and obligations of both parties, rights to display or modify the asset, copyright and intellectual property issues, rules for the sale or transfer of the asset, and dispute resolution processes. 

Additionally, it is important to consider the jurisdiction of where this agreement will be recognized and enforced in case of a disagreement between parties. Taking these steps ensures that both parties are protected when entering into a contract involving an NFT.

It is essential for an NFT agreement to address the relevant scope and parameters. When creating such an agreement, important questions to consider include the following:

• Creation of the NFT and ownership (or licensing) of intellectual property
• Timing of the release
• Platform that will be used to sell the NFT (if there is exclusive use of a certain platform)
• Who has final decision-making authority in the creation process
• Whether an NFT distribution service will be employed, and
• Who will cover any necessary gas fees. With respect to gas fees, it is prudent to establish a ceiling for these fees as they can be unpredictable and could exceed the expected sale value of the asset. 

Taking all of these factors into consideration is key for ensuring that both parties are properly protected when entering into this type of contract.

Understanding Ownership and Regulation in the NFT Market

Non-fungible tokens (NFTs) have emerged as a popular tool for buying and selling digital art, music, and other forms of intellectual property. However, the legal landscape surrounding NFTs is still in its infancy, and there are a number of challenges that artists, collectors, and other stakeholders may face.

One common legal challenge for NFTs is the issue of ownership. In the physical world, ownership of a piece of art is relatively straightforward – if you have the physical object, you own it. However, digital assets like NFTs are more complex, and it can be difficult to determine who owns the underlying content. This can create confusion and disputes, particularly when it comes to issues like copyright infringement and plagiarism.

Another legal challenge for NFTs is the lack of regulation in the market. Because NFTs are a relatively new phenomenon, there are few laws specifically governing their use and trade. This can create uncertainty for artists and collectors, who may not know how to protect their interests or enforce their rights. Additionally, the lack of regulation can make it easier for fraudsters to take advantage of unsuspecting buyers.

Finally, there are also concerns about the environmental impact of NFTs. The process of creating and trading NFTs requires a significant amount of energy, which can contribute to carbon emissions. This has led to calls for more sustainable practices in the NFT market, such as the use of renewable energy and the development of carbon offset programs.

Importance of Hiring Legal Counsel Before Releasing NFTs

As the non-fungible token (NFT) market continues to grow and evolve, it is becoming increasingly important for artists and other creators to seek legal counsel before releasing their NFTs. There are a number of reasons why hiring a lawyer is essential for anyone looking to enter the NFT space

First and foremost, legal counsel can help protect your rights and interests as an artist or creator. NFTs can be complex and difficult to navigate, and it is important to ensure that you are fully aware of the terms and conditions associated with your NFTs. A lawyer can review your contracts and help you understand the legal implications of releasing your work as an NFT.

In addition, hiring legal counsel can help you avoid potential legal issues down the road. 

The NFT market is still relatively new, and there are many unknowns when it comes to issues like ownership, copyright, and intellectual property. A lawyer can help you anticipate and address potential legal challenges before they arise, giving you peace of mind and protecting your assets. An attorney can provide valuable guidance and support when it comes to navigating the legal complexities of operating an NFT business. 

Be sure to check out our blog article explaining what NFTs are and how they are transferred using blockchain technology.