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According to the Q1 2023 summary released by OKX Ventures, the NFT market performed strongly this quarter: on-chain data showed obvious signs of recovery, overall market activity increased, and the Ordinals protocol brought new NFT market opportunities. The quarterly fees of the Bitcoin network reached the highest level since Q4 2021.
But from the perspective of NFT blue chip projects and the entire NFT market, it is not so optimistic. Not long ago, Stephane Kasriel, head of business and financial technology at Meta, tweeted that the company will stop NFT and digital collectibles features on Instagram and Facebook, which will undoubtedly make the sluggish NFT sector worse.
So, how is the current NFT market developing? Where will NFT break through in the future? Let’s take a look. The overall development status of the NFT sector After the entire crypto market entered a bear market in the second half of 2022, the market was sluggish and the NFT market transaction volume also dropped sharply. However, at the end of 2022, the dark horse platform Blur rose strongly and confronted the top stream Opensea head -on. Subsequently, we saw Blur's strong counterattack and step by step to the top of the NFT platform list, which brought an increase in the NFT on-chain data in Q1 2023.
According to DappRadar data, NFT market transaction volume grew rapidly in Q1 2023, with an increase of 137%, with a total value of US$4.7 billion, reaching the highest level since Q2 2022.
Of course, the increase in data is not unrelated to the dark horse platform Blur: In February 2023, Blur launched a token distribution and incentive policy, and the platform's NFT transaction volume soared. The total NFT market transaction volume in February was US$2.04 billion, about twice that of January, of which the vast majority of transactions came from Blur, which is also the highest level since 2022.
2023Q1 NFT total market value change chart, source: Footprint Analytcs Although the entire NFT market trading platform has climbed, at the same time, the general board of blue-chip NFT floor prices has fallen. According to the NFTGo Blue Chip Index in the figure below, in the past year, NFT blue chips have experienced a short-term high (April 29, 2022) and then continued to fall, currently below 9,000 points. Therefore, the increase in NFT market trading volume has not benefited the high-quality projects that truly have a consensus in the industry. It seems that the vast majority of transactions may only be the result of platform token incentives.
Another major change is that the social media giant has shut down the NFT function: In May 2022, Meta grandly announced the introduction of the NFT function to its social platforms Facebook and Instagram. Less than a year has passed since then. On April 11, Facebook and Instagram officially closed the function of sharing NFTs. In addition, Instagram's initial issuance and sale of NFTs will also be closed.
In addition, although the highly anticipated NFTFi track has received a lot of financing recently, there have not been some very eye-catching star projects, and it will take time to accumulate.
Overall, at the beginning of 2023 , although NFT market data showed signs of recovery, intensified competition among trading platforms and the strong rise of Bitcoin NFT have brought a series of positive factors to NFT, blue-chip NFTs have suffered a Waterloo and social media giants have closed NFTs, indicating that NFT has not really emerged from the bear market. Compared with the prosperous NFT market before the bear market in 2022, there is still a big gap.
A disappointing blue chip NFT Friends who entered the circle early know that in early 2021, the NFT market experienced a wave of frenzy. NFTs led by BAYC became investment targets strongly sought after by institutions and celebrities. Relying on strong community consensus and operational means, they became blue-chip NFTs and occupied the vast majority of the market share.
As the crypto market switches from bull to bear, the once blue chip projects have seen their market value and average price both fall and show clear differentiation due to excessive hype and lack of innovation. Although the market has recovered from its lowest point in late last year, in the first quarter of 2023, many blue-chip projects such as Doodles, Moonbirds, and CloneX fell sharply, with the average price falling by 47.3%; BAYC, CryptoPunks, Azuki, etc. also fell slightly.
However, compared with the highest point, it is no exaggeration to say that the prices of these blue-chip NFTs have plummeted:
As one of the leading projects, BAYC's NFT price was once as high as nearly 900 ETH, worth millions of dollars, and the floor price was also over 100 ETH. However, recently , BAYC's floor price has fallen to the lowest point in the past five months, 53.99 ETH.
CryptoPunks, once known as the "Bitcoin" of NFTs, fell even more, with the highest transaction price exceeding 4,200 ETH in March 2022, which was about US$75 million at the time.
However, on March 21 this year, nearly $17 million of Cryptopunks were sold, and this sell-off dropped the floor price of Cryptopunks from 75 ETH to 62 ETH. From the data in the above figure, the price of Cryptopunks has dropped to 52.99 ETH. If there is another sell-off, the floor price of Cryptopunks may fall further.
Another blue chip project, Azuki, is called red bean because of its Japanese etymology. Within a month after its release, Azuki's sales reached 300 million US dollars, and its total sales even exceeded CryptoPunks and BAYC at one point. Although the price is not as high as the first two "powerful people", the unit price once reached 420 ETH in March 2022, making it one of the hottest NFT projects in 2022. However, after entering the bear market, the popularity gradually declined, and the current floor price of Azuki has fallen to around 15 ETH.
Doodles created by well-known artists became blue-chip NFTs soon after they went online, and their trading volume has long been in the top 10 of the NFT market. The highest price was nearly 60ETH, and it has now fallen back to 15.3ETH.
In addition to the above-mentioned old blue-chip NFTs, the recently popular Bitcoin NFT, Bitcoin Ordinals NFTs, was also minted in large quantities in March.
On January 21, 2023, software engineer Casey Rodarmor released the Bitcoin network NFT protocol Ordinals, officially bringing NFT to the Bitcoin mainnet.
Data on Dune shows that Ordinals NFT has grown rapidly since February, especially image content.
However, unlike the mature centralized NFT trading market commonly used on Ethereum, there is no NFT trading market on the Bitcoin mainnet, and everything depends on over-the-counter transactions. There is no Mint page, and most of the sales models are self-trading, which is more troublesome to use.
Despite this, the Ordinals protocol has kicked off the "Bitcoin Mainnet NFT" craze. On April 21, according to Dune Analytics data, the cumulative minting volume of the Bitcoin NFT protocol Ordinals has now reached 1,192,910 pieces, and the total fees generated so far have reached 177.4931 BTC.
The popularity of Bitcoin NFT has injected new vitality into the NFT market, but it is still in its early stages. With the development and improvement of the Ordinals protocol, and the implementation of “infrastructure” such as wallet applications and NFT trading markets, Bitcoin NFT may bring new narratives and development opportunities to the NFT market that is stuck in a bear market.
Competition among NFT market platforms remains fierce Blur was officially launched on October 19, 2022. As a newcomer in the NFT market, it quickly became the main trading platform in the NFT market as soon as it went online.
OpenSea has always been the leader in the NFT market, known as the "eBay" or "Web3 Amazon" of NFT, and has long monopolized more than 80% of the NFT market share. The emergence of Blur broke this situation. Soon after Blur went online, it quickly seized the NFT market share as a dark horse and launched an impact on OpenSea's leading position. The secondary markets such as X2Y2 and LooksRare were even more bleak and had little resistance.
According to the latest data from Dune Analytics in the figure below, Blur's NFT transaction volume has been higher than OpenSea since February. From the data, Blur is the main reason for the growth of these market data. Its transaction volume has even exceeded OpenSea to become the leader in the NFT market.
However, the decline in March data also shows that the signs of recovery on the chain may be a "false" prosperity. It is likely that the expectation and scale effect of token distribution (multiple rounds of distribution, long time) have led to a surge in NFT transactions, and it is possible that people are swiping orders to obtain tokens. So, has Blur surpassed OpenSea in all aspects? It seems too early to tell.
But the fact that Blur was able to reach the top of the charts in a short period of time is also commendable.
On the one hand, Blur is different from general NFT trading platforms. Blur is an aggregation platform for professional NFT traders. The transaction speed of the platform is very fast, and it supports batch buying and selling and zero royalties.
On the other hand, in order to attract users, Blur launched multiple rounds of token distribution mechanisms, and even pioneered not charging any platform transaction fees. This even forced OpenSea to give up its original 2.5% fee in order to compete for users and launch a corresponding community incentive plan.
Platforms such as LooksRare, X2Y2, and Magic Eden have also entered an adjustment period to seize the survival space. For example, Magic Eden launched the Diamond Rewards program and tried the Bitcoin NFT market. LooksRare launched the V2 version, and the handling fee is almost zero. Blur's disruption has made the competition among NFT trading platforms increasingly fierce.
Comparison of relevant information of major NFT platforms (launch time, platform attributes, handling fees, loyalty policies, etc.)
Source: Binance research Competition in the NFT market often takes into account factors such as platform fees, royalty policies, supported blockchains, token incentive policies, and platform experience.
For example, Blur quickly "defeated" Opensea and took the leading position by relying on platform fees, token incentive policies, and platform experience . What factors will the competition focus on next?
At present, the royalty war is gradually escalating. For example, last month, Blur introduced a policy of implementing full royalties in order to prevent creators from trading on OpenSea. In response, OpenSea also announced that it would switch to optional creator royalties, which would allow creators to receive more royalties to attract users.
However, it can be seen that one of the main challenges facing the NFT market is the lack of platform loyalty or user stickiness. Ultimately, most traders are profit-driven in nature. It doesn’t matter which platform they use. What matters is that they can buy low and sell high to the greatest extent. In this regard, price competitiveness is key. However, in addition to competing on price, the NFT market also needs to focus on creating high-quality products to cultivate brand loyalty and drive long-term growth. What can the new narrative NFTFi bring? Although it was mentioned earlier that NFT trading volume rebounded in Q1 this year, the increase in trading volume was mainly related to short-term stimulus and does not mean that the development of NFT will prosper. In the current market environment, many non-blue chip projects either strive to become blue chips or "wait to die."
Therefore, the current problem of NFT is how to break through the limitation of buying and selling to make a profit and solve the problem of insufficient liquidity. In addition to the bearish environment, the high threshold of blue-chip NFT (such as Boring Ape and Cryptopunks are too expensive for most users), and the lack of relevant application scenarios of NFT. The utilization rate of NFT assets by holders is very low, and it seems to have no use except for buying and selling.
In the early stages of NFT development, NFTs could be traded directly on trading platforms, which realized the commercialization of NFTs. The transition from direct transactions to indirect transactions, such as NFT lending, pledging, or securitization of NFT products, has truly enabled NFTs to enter the financialization stage.
It can also be seen from this that from the current NFT product characteristics, trading is the first financial demand of NFT, and the second financial demand is to release or improve the liquidity of assets. From the user's perspective, the most important one is the borrowing market, which corresponds to the need to release liquidity when holding NFT.
Therefore, in order to improve the liquidity of NFT, broaden the application scenarios and cope with the current situation of high thresholds, NFTFi came into being.
In fact, the development of DeFi has provided a very complete reference product and model for NFT lending. The introduction of NFT into DeFi has also spawned a series of new financial products with greater potential. The trading platforms mentioned above are the initial products of NFTFi, DEX and aggregators. There are also some NFTFi products such as oracles, lending, derivatives, etc. that are commonly used in DeFi, which are also quietly developing. Specifically:
- The two most commonly used data sources for oracles in the NFT field are Opensea's API and NFTX's floor price. The protocol uses the prices from Opensea and NFTX and other sources as a weighted aggregate and the final result as a pricing reference, which is a common model at present.
Representative products include Taker, an NFT lending protocol built on CuratorDAO. The Taker protocol completed its seed round of financing in July 2021 and its second round of financing in September. Currently, Taker provides a peer-to-pool NFT lending solution, in which the funds and income of the NFT pool are managed by DAO. -Installment payment <br/>The core appeal of buy now, pay later is to solve the current shortage of funds by overdrawing future consumption capacity. This payment scenario has extended from Web2 to the Web3 world. The builders of Web3 have also begun to apply this payment method to the NFT field. Currently, NFT and metaverse assets that can be purchased in installments include Cyan, Teller and other products.
- Borrowing <br/>As a financial infrastructure, borrowing has broad development space. The core mechanism of NFT borrowing is to use NFT as collateral to obtain loans. As in the DeFi field, borrowing is also a type of project that broke out relatively early in NFTFI. Currently, NFT borrowing projects include: BendDAO, NFTFi.com, DropsDao, etc.
- Derivatives
NFT derivatives work exactly the same way as they do in TradFi. The most famous NFT derivative project, NiftyOption, allows the purchase of NFTs in the form of financial options, giving the buyer the right but not the obligation to execute a transaction at a specified price and date in the future.
In addition, during Q1 2023, the Liquidity Book-based NFT automatic market maker protocol Midaswap, the NFT revenue generation protocol insrt finance, the NFT lending protocol paprMEME powered by Uniswap V3, the NFT derivatives trading platform NFEX that provides leveraged trading, and the community-centered NFT trading platform EZswap all received financing.
The value and application of NFT in rare collectibles, as well as its potential in promoting digital patents and copyright registration, are obvious to all. With the introduction of DeFi, the combination of the two may bring some new sparks to NFTFi. summary In general, as market competition intensifies, each platform needs to continuously optimize and improve its services to maintain competitiveness. The development of NFT itself also needs to break through the current dilemma of insufficient liquidity and realize more application scenarios to play the role of the cornerstone of Web3. Although the on-chain data of the NFT market showed a "brief recovery" trend in the just-concluded Q1, when NFT Summer will arrive is still a big question mark based on the current market situation.
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