As the prices of various asset classes have fallen across the board this year, the NFT market has also experienced a difficult few months. Recently, topics such as NFTFi, NFT market, and BendDAO have also sparked heated discussions in the market.

As a professional research organization in the industry, ConsenSys regularly publishes industry observation research reports on NFT, DeFi, etc. In this recently released NFT monthly market research report, ConsenSys has refined various indicators to help you understand the industry and interpret various trends through quantifiable data and insightful observations.

Original author | Cryptoeconomics Research Team

Source | Please see "Read original text" at the bottom of the article

Compiled by HYD, Cecilia, bfrenz DAO

abstract

01. The decline in NFT prices has exceeded that of native tokens and many DeFi projects. The key driver is the concentration of value in a few collectibles, which has been exacerbated by the loss of value of native tokens (the basis for NFT pricing).

02. The transition to new NFT use cases may come sooner rather than later. Investors have experienced larger and more stable losses on collectibles. Attention may shift to segments such as utilities that benefit from new capabilities in emerging markets.

03. Over the past few months, Ethereum has lost significant market share to Solana and other blockchains; increasing Solana’s share to a high of about 43% in September. One reason is the scalability and low fees of other blockchains. Another is that Ethereum’s role in the NFT space may be more toward a store of value.

04. Competition between markets is heating up. X2Y2 on Ethereum and Hadeswap on Solana have taken significant market share from leaders OpenSea and Magic Eden, respectively. Emerging markets compete on the basis of new pricing models, optional royalties, and lower fees.

Introduction: Global NFT Activity

At any time this year, the prices of many types of assets have fallen widely, and the NFT market has also experienced a difficult few months. The subdued macro environment has significantly reduced on-chain activity across the crypto ecosystem, with NFT prices falling across the board from their 2020-21 highs as investors move down the risk curve and sell assets. In this report, we extract various indicators to help you understand the industry and interpret various trends through quantifiable data and insightful observations. Weekly trading volumes for art, collectibles, and games have been trending sideways in the second half of the year, in line with ETH’s price action. However, when looking at weekly sales, there is a clear skew, with Games trending upward while Art & Collectibles have continued to decline since August 21, 2022.

Source: The Block / ConsenSys Transaction Volume

This suggests that NFTs’ transition to new use cases may come sooner rather than later. Sales data by category show that art and collectibles have seen a gradual decline in sales share since July, with a 42% drop in October. One explanation is that demand for collectibles is much more concentrated than demand for games; 93% of traffic comes from NBA TopShots, while Sorare leads games with 71%. Another reason is that collectibles have proven to be less profitable than other segments. Data from NonFungible shows that investors have suffered larger and more stable losses on collectibles over the past few months. As a result, investors may be looking to other NFT segments for profitable trading, such as utilities, where features such as customized price sensitivity and professional marketplaces can play a key role.

Source: The Block / ConsenSys Source: Nonfungible Price Watch

Despite NFTs’ massive growth over the past two years, prices have fallen more than those of native tokens and many DeFi projects. The reason is that the value of NFTs (a function of demand) is highly concentrated in a very small number of collectibles, whose prices (denominated in native tokens) soared during the boom. But in recent months, demand for purchasing virtual goods has begun to decline as users exit the Web 3.0 economy. This has had a downward impact on NFT prices (floor prices), which has been exacerbated by the depreciation of native tokens relative to the US dollar.

Source: Nonfungible / ConsenSys Market Active Wallets

The recent quiet of Web 3.0 has seen a decrease in user interaction with NFTs, which can be seen in the number of active wallet addresses. The peak reached 31,000 wallets in July, and fell to about 12,000 wallets in October. As you can imagine, NFT trading volume has been declining week by week, reaching $45 million in the last week of October; a 17% decrease from $54.5 billion at the beginning of the second half of the year. This difference is the result of high-value NFTs being concentrated in a small number of wallets. Chainalysis estimates that about 9% of wallets held 80% of the total value of NFTs at the beginning of the year. It is also worth noting that the number of active wallets has been relatively stable in the last two months, while transaction activity has continued to decline. This may indicate that our wallet activity has bottomed out, and users are still interacting with Web 3, but are more likely to hold on to their virtual items for the time being.

Source: Nonfungible / ConsenSys On-chain NFT transaction volume

Despite the drop in overall transaction activity, not all chains have been affected to the same degree. Ethereum has noticeably lost market share to Solana and other blockchains over the past few months; Solana’s share increased to a high of around 43% in September. One reason for this is the scalability and low fees of other blockchains, which makes it more attractive for active traders and minting new collections. On the other hand, Ethereum remains home to some of the highest-valued NFT collectibles, such as BAYC, and some speculate that its role in the NFT space will lean toward more of a store of value. Countering this argument is the fact that Ethereum is making progress on its roadmap that is expected to alleviate some of the high fees and congestion it suffered prior to the merger. Recently, Yuga Labs, the team behind BAYC, also proposed plans to leave Ethereum, but the DAO voted against the move, showing the struggle between the chains.

Source: The Block / ConsenSys NFT Market Share

There are also some noteworthy developments in the NFT platform. On Ethereum, OpenSea, the “boss” in the NFT market, occupied 90% of the market share in the first half of 2022 before losing a large share to new players. X2Y2 in particular has grown significantly, reaching $1.3 billion in the past 3 months, with a similar share of the NFT market to OpenSea.

Source: The Block / ConsenSys

X2Y2’s popularity surged after the so-called “vampire attack” in February, with the marketplace airdropping its tokens to OpenSea users and offering high staking returns if they listed their NFTs on the platform. While the token price fell in the following months, many users stuck with the marketplace because of its optional royalties and low transaction fees. X2Y2 charges 0.5%, compared to OpenSea’s 2.5%.

This ties into the notion that OpenSea is facing increasing competitive pressure from new platforms that are starting to unbundle their services. OpenSea’s initial success was in standardizing trading across all NFT segments (with PFP and collectibles being dominant), but that has shifted as new use cases and token standards have emerged.

On Solana, market volume continues to be dominated by Magic Eden, which accounted for 85% of volume over the past 30 days. The platform raised $130 million at a $1.6 billion valuation in June, and its share of Solana-based NFT volume was estimated at 92% at the time. Despite being the clear leader, Magic Eden has begun to lose share as the battle for the second largest market intensifies. Hadeswap, in particular, has established itself as the second largest market over the past three weeks.

Source: Hello Moon

Hadeswap is a fork of Ethereum-based Sudoswap that uses a bonded price curve instead of the open auction pricing model used by most of the leading NFT platforms. The design mimics that of an AMM, where users act as liquidity providers for NFTs and prices are set by a mathematical formula instead of a bid/ask model. For developers, this allows for more flexibility in designing the price sensitivity of assets, which could be particularly useful as NFTs find more and more use cases in games, utilities, and metaspace projects.

The data also suggests that the mechanism disincentivizes wash trading, where traders mimic activity by buying and selling sets between each other to spread misinformation about the popularity of NFTs. As the market moves toward optional royalties and lower platform fees, wash trading becomes cheaper. But in an AMM model like Hadeswap, traders also incur LP fees, which can make wash trading more expensive. As shown in the figure below, wash trading accounts for a significantly higher proportion of overall transactions on Magic Eden than on Hadeswap.

Source: FlipsideCrypto Unique Buyer and Seller Activity

Another indicator of NFT market activity is the number of unique buyers and sellers. While the number of participants on both sides of a transaction has been decreasing, it has remained flat in recent months. In Q1'22, the positive spread between buyers and sellers showed more obvious support for NFT prices. The tough macro environment in the second half of the year led more users to sell NFTs, narrowing this gap and increasing price pressure. The number of buyers has been less than the number of sellers but has continued to increase over the past few weeks, and overall activity has remained largely stable since August.

Source: Nonfungible / ConsenSys Primary and Secondary Market Activity

Finally, we note that primary market listings have fallen from a peak of $370M in May to approximately $755K in October, with secondary market listings similarly down. The result is that NFT liquidity has become more fragmented across markets, as creators list less frequently and on fewer exchanges. This has particularly impacted NFT aggregators like Gem and Genie, which provide best execution to users on NFT marketplaces. As creators choose single platforms to list and secondary activity becomes limited, demand for their services has stagnated. Gem’s market share has fallen from over 20% in June to less than 5% today.

Source: Nonfungible / ConsenSys Source: Messari Conclusion

The NFT market has slowed significantly over the past few months, ending the craze that propelled virtual goods into the mainstream in 2021. While market activity has plummeted, there are some clear signs of near-term stabilization. At the same time, low fees, new features, and specialized pricing models are opening up the competitive landscape and shifting activity to other chains. While a recovery is unlikely until the broader macro environment rebounds, the NFT market is evolving rapidly as new use cases and token standards emerge.