South Korea's NFT Market: On the Brink of Decline or New Opportunities?
Current Status of the Korean NFT Market and New Challenges
TL;DR
The domestic NFT market has seen various projects emerge, including NFT platforms and communities led by large companies since 2021, but the market has been unstable since 2022.
The decline has been even steeper than the global market due to 1) an overly localized focus, 2) a lack of real utility, and 3) regulatory challenges.
Despite the market downturn, practical use cases like tickets and product certificates are emerging in the Korean NFT market. This shows NFTs may develop into a technology with real value beyond speculation, making it worth watching their future progress.
1. Intro
The NFT market in Korea has evolved in tandem with global trends, experiencing rapid growth since 2021, particularly with the popularity of blue-chip NFTs such as Cryptopunk and BAYC. This growth has been significantly bolstered by various projects that were rapidly developed on Klaytn, Korea's indigenous blockchain network. Notable projects like Metakongz and Sunmiya Club have captured the attention of global investors and achieved substantial transaction volumes on OpenSea, a leading global NFT marketplace. Moreover, the launch of localized NFT marketplaces has injected vibrancy into the Korean NFT sector.
The landscape began to shift following significant disruptions such as the Terra Luna collapse in May 2022 and the FTX debacle in November of the same year, triggering the onset of what is referred to as the Crypto Winter. Consequently, the NFT market witnessed a downturn, causing numerous projects to face severe challenges or prematurely cease operations. Despite these setbacks, some entities have persevered, continuing their operations or initiating new projects.
In this report, we provide a comprehensive analysis of the current state of the Korean NFT market by examining both the projects that have shut down due to the market downturn and those that continue to operate successfully in challenging conditions. By comparing and analyzing the strategies employed by these projects, we aim to identify the key trends shaping the Korean NFT market and offer insights into its future development trajectory.
2. 2024 Korean NFT Market Overview
The South Korean NFT market experienced a surge of rapid growth in early 2022. As major corporations from the financial, retail, and telecommunications sectors actively entered the NFT space, the market quickly became dominated by these large enterprises.
2.1. NFT Platform
During this period, NFT platforms encountered fierce competition, with each platform striving to win over domestic users by offering localized services that provided a one-stop solution for everything from NFT creation to trading. This approach appears to be a strategic effort to quickly attract a solid customer base from established businesses by offering the most convenient user experience. Furthermore, these companies leveraged their extensive experience and resources in developing and operating platform-related services—such as trading, sales, and settlement—which facilitated the swift establishment of comprehensive marketplaces and various related functions.
In 2023, the landscape changed dramatically. Many companies began shutting down their NFT platform services due to several reasons. Their focus on the domestic market resulted in a limited user base compared to global platforms like OpenSea, Magic Eden, and Blur, which left them less competitive. Additionally, the lack of compelling NFT projects capable of generating sustained transaction volumes further weakened their position. Finally, the overall decline in demand due to the downturn in the broader NFT market likely played a decisive role in these closures.
2.2. NFT Project
NFT projects are emerging from entities that range from large enterprises to community-driven initiatives. Businesses are leveraging existing intellectual property (IP) or developing new character IPs to launch NFT projects to provide customers with an enhanced brand experience and foster loyalty through exclusive benefits. Notable examples include Lotte Home Shopping's Belly Bear NFT and Shinsegae Department Store's Puuvilla NFT projects, which issued 9,500 and 10,000 NFTs, respectively. Both projects incorporated membership benefits and saw immediate sellouts, positioning them as early successful models in the Korean NFT market.
Most of these projects relied on straightforward membership-based business models, with a strong focus on monetization through secondary trading. However, as the NFT market declined, these projects struggled to generate sustainable revenue, leading many to deactivate their community channels or shut down entirely. Even NFT projects backed by the brand value of large companies have faced difficulties in maintaining active communities. Despite their initial success, these projects failed to provide long-term value and practical utility, which ultimately hindered their ability to sustain engagement and growth.
3. NFT Market Continues to Decline
Amid the prolonged downturn in the global cryptocurrency market, the domestic NFT market in South Korea is experiencing a sharper decline. This steeper downward trend can be attributed to three key factors: 1) the excessive localization of the domestic NFT market, 2) the prevalence of NFT projects lacking practical utility, and 3) increased regulatory hurdles related to cryptocurrency.
3.1. Excessive Localization of the Korean NFT Market
South Korea's strong preference for localized social media platforms and communities has contributed to the excessive localization of its NFT market. When a trend such as NFTs gains traction within the country, it often results in the formation of closed communities which limits the participation of global users. Additionally, the increasing number of NFT platforms tailored specifically for Korean speakers reinforces this isolation, as users gravitate toward platforms in their native language for convenience. This has created a more insular environment that hindered the integration of the Korean NFT market into the broader global ecosystem.
This characterization of the Korean market contrasts sharply with the global NFT ecosystem, where projects predominantly operate through English-based community channels and marketplaces. Platforms such as Reddit, X (formerly Twitter), OpenSea, and Warpcast—the primary spaces where NFT projects are discussed and promoted—are all centered around English communication. This language gap creates a significant barrier for local Korean NFT projects seeking to expand internationally.
3.2. NFTs That Haven't Proven Their Value
The Korean NFT market, mirroring global trends, initially gained traction through collectible NFTs. Numerous NFTs tied to artworks by prominent Korean artists and sports figures were launched, with some achieving high trading volumes driven by the fame of their creators. However, many of these NFTs, seen largely as collectibles or speculative assets, struggled to maintain long-term interest and have gradually been marginalized in the market.
Following this initial phase, a second wave emerged with the introduction of membership NFTs, primarily backed by large corporations. While these NFTs initially saw their launch prices soar, they have since experienced a sharp decline in both trading volumes and prices, showing little sign of recovery.
This phenomenon arises from ongoing questions about the intrinsic value of NFTs. While the advancement of digital technology popularized the concept of "digital collectibles" and fueled a speculative rush, the hype has since subsided. The simple ownership of digital images has failed to maintain public interest and recognition. Similarly, membership NFTs, which initially offered benefits such as discounts and exclusive events for holders, struggled to generate lasting value. This was largely due to unmet expectations and a lack of practical utility, preventing these NFTs from establishing a sustainable market presence.
3.3. High Hurdles Due to Regulations
Another significant challenge for the domestic NFT market is the increased regulatory hurdles. The Virtual Asset User Protection Act, which came into effect in July, along with the subsequent NFT-related guidelines, has made the operation of NFT-related businesses more complex. According to the guidelines, NFTs are likely to be classified as virtual assets if they meet any of the following four conditions:
When identical or similar types of NFTs are being issued in large quantities or in a series
When it is possible to split an NFT
When it is possible to use an NFT as a direct or indirect method to pay for certain goods or services
When it is possible to use an NFT as a means to exchange for virtual assets among unspecified individuals, or when it is possible to be used as a means for payment for goods or services linked to other types of virtual assets.
The classification of NFTs as virtual assets presents a significant challenge for businesses. In South Korea, operating a business that deals with virtual assets requires obtaining a Virtual Asset Service Provider (VASP) license. After securing this license, companies must also acquire Information Security Management System (ISMS) certification, a process that is both costly and time-consuming. This creates substantial barriers for companies or project-based teams with limited financial and human resources, making it difficult for them to participate in the NFT space. Additionally, this increases the entry barriers for startups looking to explore innovative applications of NFTs.
In the lead-up to the enforcement of the Virtual Asset User Protection Act, several existing services have already scaled back or shut down to avoid the stringent requirements. Numerous NFT-related businesses may either shift focus or exit the market altogether.
4. What Does the Future Hold for the Korean NFT Market?
Despite the downturn in the domestic NFT market, there are still numerous examples of NFTs being effectively utilized. One notable example is Hyundai Card's introduction of NFT-based tickets for concert, designed to prevent counterfeiting and black-market trading. This serves as a prime illustration of how NFT technology can be applied to existing industries to create tangible value. Hyundai Card's initiative goes beyond the simple adoption of new technology; it addresses real societal challenges, demonstrating the practical benefits of NFTs. As NFT technology evolves, it may address everyday inconveniences and improve service experiences for the public.
NFT technology is also being applied in areas such as product verification and customer relationship management (CRM). A notable example is Vircle, which provides NFT-based product warranties. The company is expanding by partnering with fashion and electronics brands, where verification and after-sales service are crucial.
NFT digital warranties offer several advantages, including resolving the issue of lost paper warranties and enabling customers to access activation and after-sales service through their mobile devices. For businesses, this data can be leveraged for more efficient CRM. Additionally, digital warranties serve as memberships, consolidating customer information from various channels into a single system. These examples demonstrate the potential of NFTs to deliver real benefits to both businesses and customers.
5. Conclusion
The Korean NFT market still faces numerous challenges on its path to recovery. Beyond the previously mentioned factors, several NFT-related incidents have contributed to negative perceptions. Notably, scandals involving Korean influencers and rug pulls by various projects have damaged public trust. Additionally, the widespread belief that NFTs are primarily speculative assets remains a significant barrier to the market’s development.
To improve this situation, it is essential to accumulate success stories that demonstrate how NFT technology can create real value. A positive shift in public perception will be crucial to achieving this. This challenge is not exclusive to the NFT industry but is shared by most Web3 projects as they seek broader acceptance and understanding.
South Korea is well-positioned in sectors where NFTs can be effectively applied, such as gaming, webtoons, and K-pop. The market is currently facing challenges due to a localized environment and unclear regulations. However, promising developments are emerging as new attempts to utilize NFTs take shape within the existing framework. As more cases accumulate and NFT-related technologies and expertise grow, with increased government and corporate investment, South Korea could produce innovations that lead the global NFT market.
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