ConsenSys: NFT prices have suffered a "double crit", and competition in various trading markets has heated up

While the prices of many types of assets have fallen broadly this year, the NFT market has also experienced a few difficult times. Recently, topics such as NFTFi, NFT marketplace, and BendDAO have also sparked heated discussions in the market.

As a professional research institute in the circle, ConsenSys regularly publishes industry observation research reports on NFT, DeFi and other industries. In this recently released NFT monthly market research report, ConsenSys distills a variety of metrics to help you understand the industry and unpack trends with quantifiable data and insightful observations.

Original author|Crytoeconomics Research Team

Source | Please see “Read the original article” at the bottom of the article

Compiled by HYD, Cecilia, bfrenz DAO

Summary of contents

**01. The price of NFTs has fallen more than the price of native tokens and many DeFi projects. The key driver is the concentration of value in a small number of collectibles, which is exacerbated by the loss of value of the native token (on which NFTs are denominated).

**02. The transition to new NFT use cases is likely to come sooner rather than later. Investors incur greater and more stable losses on collectibles. Attention is likely to turn to segments such as utilities that benefit from new capabilities in emerging markets.

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

**04. Competition between markets is heating up. X2Y2 on Ethereum and Hadeswap on Solana have snatched 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 Event

At any time, the prices of many types of assets have fallen broadly this year, and the NFT market has also experienced a difficult time for several months. The sluggish 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 lower their risk curves and unwind their positions to sell assets. In this report, we distill a variety of metrics to help you understand the industry and interpret trends through quantifiable data and insightful observations. In the second half of the year, weekly trading volumes for art, collectibles, and games have been trending sideways, which is in line with the price action of ETH. However, when looking at weekly sales, there is a noticeable deviation from the fact that since August 21, 2022, gaming has been on an upward trend, while Art & Collectibles has continued to decline. **

Source: The Block / ConsenSys

Trading volume

This suggests that the transition to new use cases for NFTs could be sooner rather than later. Sales data by category shows that the share of sales of art and collectibles has gradually declined, falling by 42% in October since July. 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 more unprofitable than other segments. NonFungible’s data shows that investors have suffered more and more consistent losses on collectibles over the past few months. As a result, investors may be looking for other NFT niches for profitable transactions, such as utilities, where features such as custom price sensitivity and specialized marketplaces can play a key role.

Source: The Block / ConsenSys

Source: Nonfungible

Price Watch

Although NFTs have seen tremendous growth over the past two years, the price drop has outpaced the price 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, and the price of these collectibles (denominated in the native token) spiked during boom times. But in recent months, as users have exited the Web 3.0 economy, the demand to buy virtual goods has begun to decline. This has had a downward impact on the NFT price (floor price), which has been exacerbated by the depreciation of the native token relative to the US dollar.

Source: Nonfungible / ConsenSys

Marketplace Active Wallet

The recent lull in Web 3.0 has led to a decrease in user interaction with NFTs, which can be seen in the number of active wallet addresses. It peaked at 31,000 wallets in July and dropped to around 12,000 wallets in October. So it’s no surprise that NFT trading volume fell week-on-week, reaching $45 million in the last week of October, down 17% from $54.5 billion at the start of the second half of the year. This discrepancy is the result of the concentration of high-value NFTs 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’s also worth noting that active wallets have been relatively stable in the last two months, while transaction activity has continued to decline. This could be a sign that our wallet activity has bottomed out, with users still engaging in Web 3 interactions, but more choosing to hold their virtual items for the time being.

Source: Nonfungible / ConsenSys

On-chain NFT trading volume

Despite the decline in overall transaction activity, not all chains have been affected to the same extent. Over the past few months, Ethereum has clearly lost market share to Solana and other blockchains, with Solana’s share increasing to a high of around 43% in September. One reason is the scalability and low fees of other blockchains, which makes it more attractive to active traders and minting new collections. Ethereum, on the other hand, remains home to some of the highest-value NFT collectibles, such as BAYC, and some speculate that its role in the NFT space will lean towards more stores of value. Contrary to this argument, Ethereum is making progress on its roadmap that promises to alleviate some of the high fees and congestion it suffered before The Merge. Recently, Yuga Labs, the team behind BAYC, also proposed a plan to leave Ethereum, but the DAO voted against the move, which shows the struggle between chains. **

Source: The Block / ConsenSys

NFT market share

There have also been some notable developments in NFT platforms. On Ethereum, NFT marketplace “boss” OpenSea captured 90% of the market share in the first half of 2022 before being stolen by new players for a significant share of the market. In particular, X2Y2’s growth has been significant, reaching $1.3 billion in the last 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, where the marketplace airdropped its tokens to OpenSea users with high collateral yields provided they listed their NFTs on the platform. While the token price fell over the next few months, many users stuck with the marketplace because of its optional royalties and low transaction fees. X2Y2 0.5% compared to OpenSea 2.5%.

This has to do with the notion that OpenSea is facing increasing competitive pressure from new platforms that are starting to spin off their services. OpenSea’s initial success was in standardizing transactions across all NFT segments (with PFPs and collectibles dominating), but things shifted as new use cases and token standards emerged.

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

Source: Hello Moon

Hadeswap is a fork of Ethereum-based Sudoswap that uses a bonded price curve instead of the public auction pricing model used by most leading NFT platforms. The design mimics the design of an AMM, in which users act as liquidity providers for NFTs, and prices are set by a mathematical formula rather than a bid/ask model. For developers, this allows for more flexibility in designing the price sensitivity of assets, which can be particularly useful as NFTs are increasingly used for gaming, utility, and metaverse projects.

The data also suggests that the mechanism inhibits fake trading, where traders mimic activity by buying and selling collections between each other in order to spread misinformation about the popularity of NFTs. As the market shifts to 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 you can see in the chart below, wash trades account for a significantly higher proportion of Magic Eden’s overall transactions than Hadeswap.

Source: FlipsideCrypto

Unique buyer-seller events

Another metric of NFT market activity is the unique number of buyers and sellers. While the number of participants on both sides of the deal has been decreasing, it has been flat in recent months. In Q1’22, the contango spread between buyers and sellers showed more significant support for NFT prices. The tough macro environment in the second half of the year led to more users selling NFTs, and the gap narrowed, adding to the price pressure. Over the past few weeks, the number of buyers has been smaller than the number of sellers, but has continued to increase, and overall activity has remained largely stable since August.

Source: Nonfungible / ConsenSys

Primary and secondary market activity

Finally, we note that listings in the primary market have fallen from a peak of $370 million in May to around $755,000 in October, and listings in the secondary market have also declined. The result is that the liquidity of NFTs becomes more decentralized across markets, as creators list less often and on fewer exchanges. This is particularly serious for NFT aggregators such as Gem and Genie, which offer the best execution for users on NFT marketplaces. Demand for their services has stagnated as creators opt for a single platform to go public, while secondary activities have become limited. Gem’s market share has fallen from more than 20% in June to less than 5% today.

Source: Nonfungible / ConsenSys

Source: Messari

Conclusion

The NFT market has slowed down significantly over the past few months, ending the craze that drove 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 recovery is unlikely until the broader macro environment rebounds, the NFT market is rapidly evolving as new use cases and token standards emerge.