For the skeptics, it is hard to wrap one’s head around why people are paying hundreds of thousands of dollars for a cartoon jpeg, nor understand why people are spending so much time on Discord grinding for whitelist spots.

In response, we would encourage the skeptics to look at the bigger picture and try to understand the value and promise of NFTs.

NFTs have enabled the possibility of digital ownership and supported the evolution of Web 2.0 (a read-write economy) to Web 3.0 (a read-write-own economy).

In a world where people are spending a significant amount of time infront of their screens, the ability to verify scarcity of digital assets for the very first time has the potential to spearhead a generational shift from physical to digital ownership.

In this section, we will review the NFT market activity, fundraising activity, as well as trends and outlook for the sector.

NFTs have a lot of potential in the metaverse. They provide a way to represent ownership of assets, create scarcity, and monetize content. While some challenges need to be considered, such as how to represent ownership and prevent inflation, there are already several projects working on solutions. However, if these challenges can be overcome, then NFTs could play a big role in the future of virtual worlds.

NFT Market

NFT for Dummies: Bored Ape Yacht Club NFTs

Despite a sharp decline in trading volume in June, the NFT market has had an overall resilient first-half. 2023 started strong for NFTs as trading activity surged, contributed by the launch of the LooksRare and X2Y2 marketplaces and the corresponding trading rewards offered by them both.

NFT sales recorded approximately $17.7B in first-half 2023, which is similar to sales recorded in second-half 2021. This is also a nearly 10x growth on a year-on-year basis when compared to first-half 2021.

The bulk of the trading volume was front-loaded, with most sales being logged between January and May. Trading volume in June was approximately US$678M, a sharp drop of over 80% compared to the average monthly trading volume of US$3.4B from January to May.

NFT trading volume (US$M) was flat

NFT trading volume (US$M) was flat
Source: CryptoSlam, Binance Research

Monthly NFT trading volume (US$M) was front-loaded with most sales in Jan – May but experienced a sharp drop in June

NFT trading volume (US$M) was flat
Source: CryptoSlam, Binance Research

A deeper look at underlying drivers reveals that the relatively resilient first-half was contributed by healthy growth in terms of unique buyers and number of transactions, but offset by a fall in average sale price.

This is intuitive as cryptocurrency prices have been on a downtrend over the past few months which translates into lower NFT sale prices in USD terms.

Unique buyers and total transactions grew but average sale price (USD) fell

NFT trading volume (US$M) was flat
Source: CryptoSlam, Binance Research

The Metaverse NFT market refers to the buying and selling of non-fungible tokens (NFTs) within virtual worlds or immersive digital environments. The market has been gaining significant attention lately due to the growing interest in the Metaverse, a term used to describe a shared virtual space that merges the physical and digital worlds.

NFT market size to cross usd 342.54 billion by 2032, with an 27.6% cagr by 2032 – report by market research future (mrfr) nft market is growing due to the increasing global demand for digital art and cryptocurrency usage.

The global Metaverse Market size is expected to grow steadily over the anticipated frame, recording a CAGR of 47.2% during 2023 to 2027. The metaverse industry spending value will increase from $61.8 bn in 2022 to rise around $426.9 bn by the end of 2027.

The scope of the Metaverse NFT market is vast, and it includes a variety of digital assets such as virtual real estate, avatars, art, and even virtual fashion. The growth drivers of this market are numerous, including the increasing adoption of blockchain technology, the rising popularity of gaming and virtual worlds, and the growing demand for unique and scarce digital assets.

Additionally, the Metaverse NFT market presents new opportunities for creators, artists, and gamers to monetize their digital creations and for investors to diversify their portfolios by investing in these unique assets.

NFTs Price Performance

NFTs Price Performance

NFTs had a negative performance year-to-date when measured in USD terms primarily due to a fall in ETH prices. The Nansen NFT-500 index which consists of the top 500 Ethereum NFT collections, weighted by market capitalization, is used in our analysis to track broad NFT market activity.

Admittedly, it is not a perfect representation of the NFT market given that not all NFT collections are based on Ethereum.

Ethereum NFTs command a dominant market share (>80% of secondary trading volume) and can be used as a barometer of the NFT market.

The NFT-500 index returned -69% in USD terms. This is primarily contributed by the fall in ETH prices by -71% in the same period. Isolating the effects of the fall in ETH price, the asset class returned +8.3% when denominated in ETH.

This is noteworthy considering the overall bearish market environment. If you had put your ETH to work by investing in NFTs instead of holding ETH, NFTs would have offset some of the losses of your portfolio.

Ethereum NFTs

People can usually make perfect copies of digital entities. Any reproduction of a text file will be identical to the original.

But NFTs, or non-fungible tokens, are one-of-a-kind digital items. NFTs are tied into the blockchain as a unique entity (see about NFT Thefts).

NFTs are used in a wide variety of crypto projects. For example, Decentraland is a metaverse virtual world where NFT land sales are a thriving industry. And Axie Infinity even ties virtual animals into unique NFTs so that they can be cultivated or sold.

NFT performance was negative in USD terms and but positive in ETH terms

NFT performance was negative in USD terms and but positive in ETH terms
Source: Nansen, Binance Research

The positive returns in ETH terms could have been contributed by positive investor sentiments due to NFT-specific events in the second half of June such as the NFT.NYC conference, as well as several notable acquisitions and fundraises. Prior to these events, the performance of the NFT index was in negative territory but started picking up momentum in the latter part of the month.

Nansen NFT-500 Index (ETH) showed a strong recovery in the latter part of June

NFT performance was negative in USD terms and but positive in ETH terms
Source: Nansen, Binance Research

NFT Marketplace

NFT Marketplace

NFT marketplaces play an important role in facilitating trading activity by connecting buyers and sellers. OpenSea remains the leading NFT marketplace by trading volume and has approximately 50% market share.

While OpenSea has largely maintained its market share over the past year, competition is fierce. New entrants such as LooksRare, X2Y2, and Magic Eden have demonstrated strong performance.

Market share of NFT marketplaces reveal that OpenSea is still the dominant leader but X2Y2 is a strong competitor

NFT Marketplace
Source: Footprint ANalytics (@bond), Binance Research

The Rise of NFT Aggregators

2022 witnessed the rise of NFT aggregators which allow traders to buy and sell NFTs across different marketplaces from a single platform (think of it as Skyscanner for NFTs). Such a functionality is coherent with and well-suited to fit general trading behaviors. At the end of the day, most NFT traders are inherently marketplace-agnostic. They typically do not mind which platform they are using as long as they are able to secure their ideal NFT at the lowest possible price. In this sense, NFT aggregators are able to capitalize on such user behaviors by consolidating listings across different marketplaces and presenting the listings in one unified interface.

NFT aggregators also bring additional value in terms of allowing traders to sweep the floors of collections by buying a bunch of lowest-priced NFTs without having to visit every single marketplace individually.

The top aggregators Gem and Genie have seen significant growth with over 511,000 ETH in trading volume so far this year. That represents an approximately 21x increase compared to 2021. Market share of NFT aggregators has also grown from slightly over 1% at the end of 2021 to around 5% today. Note that the chart represents end-of-month snapshots which could result in some fluctuations depending on trades on that particular day.

The market share of NFT aggregators (end-of-month snapshot) has been fluctuating but is on a general uptrend

The market share of NFT aggregators (end-of-month snapshot) has been fluctuating but is on a general uptrend
Source: Dune Analytics, Binance Research

While market share of NFT aggregators is still small, the recent acquisitions of Gem by OpenSea, and Genie by Uniswap are evidence of the strong interest that incumbents have in NFT aggregators and are also an affirmation of the value proposition of NFT aggregators. NFT aggregators look poised to play a pivotal role in shaping the NFT trading landscape in the long run.

The incentive to use NFT aggregators will likely rise if and when competition between NFT marketplaces heats up further and as liquidity becomes increasingly fragmented.

Overall, given the better user experience and ease of finding the cheapest NFTs all through one platform, the shift to using NFT aggregators is likely to continue gaining momentum. However, this shift might take some time to play out. Most NFT listings today originate from a small number of marketplaces (e.g. OpenSea, X2Y2, LooksRare) and it does not take much for a trader to check one or two exchanges before executing the trade.


 Peter Sonner by Peter Sonner

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