The ups and downs of the Korean NFT market: From boom to downturn, where does the future go?
Despite the downturn in the market, practical application examples such as tickets and product certificates are still appearing in the Korean NFT market.
Written by:Tiger Research Reports
Compiled by Deep Wave TechFlow
Summary of key points
Since 2021, various projects have sprung up in the domestic NFT market, including NFT platforms and communities led by large companies. However, the market has been unstable since 2022.
Due to overly localized concerns, lack of practical utility, and regulatory challenges, the decline in the market has even surpassed that of the global market.
Despite the downturn in the market, practical application examples such as tickets and product certificates are still appearing in the Korean NFT market. This shows that NFTs have the potential to develop into a technology with real value rather than just a speculative tool, so its future development is worth watching.
1. introductory
South Korea's NFT market has evolved in sync with global trends and has experienced rapid growth since 2021, particularly the popularity of blue-chip NFTs such as Cryptopunk and BAYC. This growth was driven by multiple projects rapidly developed on Klaytn (Korea's native blockchain network). Well-known projects such as Metakongz and Sunmiya Club have attracted the attention of global investors and are in the world's leading NFT marketplaceOpenSeaA large number of transactions have been made on it. Furthermore, the launch of a local NFT marketplace has also injected vitality into the South Korean NFT industry.
However, with May 2022TerraWith the collapse of Luna and the occurrence of major shocks such as the FTX incident in November of the same year, the market environment began to change, triggering the so-called “crypto winter.” As a result, the NFT market experienced a decline, and many projects faced difficulties and even terminated operations prematurely. Despite this, some companies are holding on, continuing to operate, or starting new projects.
In this report, we comprehensively analyze the current state of the South Korean NFT market, focusing on projects that have closed due to the market downturn and those that are still successfully operating in difficult circumstances. By comparing and analyzing the strategies of these projects, we aim to identify the key trends that are shaping the Korean NFT market and provide insight into its future direction.
2. Overview of the Korean NFT Market 2024
South Korea's NFT market experienced rapid growth in early 2022. As large players in the financial, retail, and telecom industries actively entered the NFT space, the market was quickly dominated by these big players.
2.1. NFT platform
During this period, competition among NFT platforms was intense, and each platform competed for domestic users by providing localized services to provide a one-stop solution from NFT creation to trading. This strategy aims to quickly attract a stable customer base from established businesses by providing a convenient user experience. Furthermore, these companies used their rich experience and resources in developing and operating platform-related services such as trading, sales, and settlement to quickly establish comprehensive markets and various related functions.
Source: Pala on the left, KT Mincl on the right
The market landscape changed dramatically in 2023. Many companies have begun shutting down their NFT platform services for a number of reasons. Due to too much focus on the domestic market, their user base is relatively limited and unable to compete with OpenSea,Magic Eden 和 BlurWait for global platforms to compete. Furthermore, the lack of attractive NFT projects that can maintain a steady trading volume has weakened their market position. Finally, the downturn in the overall NFT market has led to a drop in demand, which may have been a decisive factor in the shutdown of these platforms.
2.2. NFT projects
NFT projects are constantly emerging from a variety of entities, from large enterprises to community-driven entities. Businesses launch NFT projects by leveraging existing intellectual property (IP) or developing new character IPs, which aim to provide customers with a richer brand experience and enhance customer loyalty through unique benefits. Notable examples include Rakuten TV Shopping's Belly Bear NFT and New World Department Store's Puuvilla NFT project, which distributed 9,500 and 10,000 NFTs respectively. Both projects combined membership benefits and sold out quickly, becoming examples of the early success of the Korean NFT market.
Most of these projects rely on a simple membership-based business model and are mainly profitable through secondary market transactions. However, as the NFT market declined, it was difficult for these projects to maintain sustainable revenue, causing many projects to shut down their community channels or shut down altogether. Even NFT projects that rely on the brand values of large companies face the challenge of maintaining active communities. Despite some initial success, these projects failed to provide long-term value and practical utility, ultimately hindering their continued development and user engagement.
3. The NFT market continues to decline
Against the backdrop of a prolonged downturn in the global cryptocurrency market, South Korea's NFT market is experiencing a more pronounced decline. There are three main reasons for this steeper downward trend: 1) excessive localization of the domestic NFT market, 2) more NFT projects lacking actual application value, and 3) increased regulatory barriers associated with cryptocurrencies.
3.1. Over-localization of the South Korean NFT market
South Korea's preference for localized social media platforms and communities has led to its NFT marketplace being over-localized. When trends such as NFTs are popular domestically, they tend to form closed communities, limiting the participation of users around the world. Furthermore, the increase in NFT platforms designed specifically for Korean speakers has exacerbated this isolation, as users are more likely to choose native language platforms for convenience. This closed environment impedes the integration of the Korean NFT market with the global ecosystem.
This depiction of the Korean market is in stark contrast to the global NFT ecosystem. In the global market, NFT projects mainly rely on English-language community channels and marketplaces to operate. Platforms like Reddit, X (formerly Twitter), OpenSea, and Warpcast are the main places to discuss and promote NFT projects, all using English as the language of communication. This language gap is a significant obstacle for local South Korean NFT projects looking to expand into international markets.
3.2. NFTs that haven't proven their worth
Source: left) SeouLartistNFT, right) BlueberryNFT
South Korea's NFT market is similar to global trends and initially attracted attention through collectible NFTs. Many NFTs related to well-known Korean artists and sports stars have been launched, and some have reached high trading volumes thanks to the fame of their creators. However, these NFTs, which are mostly viewed as collectibles or speculative assets, are struggling to maintain long-term interest and are gradually being marginalized in the market.
After this initial phase, the market ushered in a second wave, the advent of membership-based NFTs, which were mainly supported by large companies. Although the issuance price of these NFTs initially rose sharply, trading volume and price both fell sharply thereafter, with little sign of recovery.
MetaKongZ NFT sales trends, Source: Opensea
This phenomenon is due to people's ongoing questioning of the intrinsic value of NFTs. Although the development of digital technology has made the concept of “digital collectibles” popular and triggered a wave of speculation, this craze has gradually subsided. Simply owning a digital image does not sustain public interest and approval. Similarly, membership-based NFTs initially provided holders with benefits such as discounts and exclusive events, but it was difficult to create lasting value. This is mainly because these NFTs have failed to meet people's expectations and lack practical use, preventing them from developing sustainably in the market.
3.3. The high threshold brought about by regulations
Another major challenge facing the domestic NFT market is growing regulatory hurdles. The Virtual Asset User Protection Law, which came into effect in July, and the NFT guidelines released later made the operation of NFT-related businesses more complicated. According to the guidelines, an NFT may be classified as a virtual asset if it meets any of the following conditions:
When a large number or series of NFTs of the same or similar type are issued
When NFTs can be split
When NFTs can be used as a method of direct or indirect payment for certain goods or services
When NFTs can be used as a way to exchange virtual assets between unspecified individuals, or as a means of payment for goods or services related to other virtual assets.
Sunmiya Club will terminate the NFT pledge reward service after the Virtual Asset User Protection Law comes into effect. Source: sunmiya.club
Classifying NFTs as virtual assets is a huge challenge for businesses. In South Korea, a virtual asset service provider (VASP) license is required to operate a virtual asset related business. Once the license is obtained, the company is also required to pass an information security management system (ISMS) certification, a process that is expensive and time-consuming. This is a major obstacle for companies or project teams with limited funding and human resources, making it difficult for them to enter the NFT space. Furthermore, it has also raised the entry threshold for startups in terms of innovative applications of NFTs.
On the eve of the implementation of the Virtual Asset User Protection Law, a number of existing services have chosen to be curtailed or shut down to avoid strict regulatory requirements. Many NFT-related businesses may shift their business focus or exit the market altogether.
4. What will the future hold for the Korean NFT market?
Source: Hyundai Card
Despite the downturn in the domestic NFT market, there are still many examples of successful applications of NFTs. One prime example is Hyundai Card's introduction of NFT-based concert tickets to prevent counterfeiting and black market transactions. This shows how NFT technology can create real value in existing industries. Hyundai Card's move is more than simply adopting new technology; it solves real social problems and reflects the actual benefits of NFTs. As NFT technology continues to evolve, it may solve the inconveniences of everyday life and enhance the public's service experience.
Source: Vircle
NFT technology is also being used in fields such as product verification and customer relationship management (CRM). A typical example is Vircle, which provides an NFT-based product warranty service. The company is expanding its business through partnerships with fashion and electronics brands, as verification and after-sales service are critical in these areas.
The NFT digital warranty has several benefits, including solving the problem of lost paper warranties and enabling customers to easily activate and obtain after-sales service via mobile devices. For businesses, this data can be used for more efficient customer relationship management. In addition, digital warranty can also be used as a membership system, integrating customer information from various channels into a unified system. These examples demonstrate the potential of NFT technology to bring real benefits to businesses and customers.
5. conclusions
The Korean NFT market is still facing many challenges during the recovery process. In addition to the factors mentioned before, some negative events related to NFTs have also fueled negative public perceptions. In particular, scandals involving Korean influencers and “money ring” scams involving various projects have seriously damaged public trust. Furthermore, many people generally believe that NFTs are mainly a speculative tool, which remains a major obstacle to the market's development.
To improve this situation, it is necessary to accumulate success stories that show that NFT technology creates real value. A positive shift in public perception is critical to achieving this goal. This challenge isn't limited to the NFT industry; most Web3 projects are facing similar issues as they seek wider acceptance and understanding.
South Korea has an advantage in some areas where NFTs can be effectively applied, such as gaming, webcomics, and K-pop. Although the market is currently facing challenges due to the localization environment and unclear regulations, new experiments with NFTs within the existing framework are gradually unfolding, bringing exciting developments. With the increase in successful cases, the continuous improvement of NFT-related technology and expertise, and increased investment by the government and businesses, Korea is expected to launch innovations leading the global NFT market.
