We discuss the state of the NFT market, micro trends and liquidity, major projects and events, trader & whale analysis, NFTFi and valuation.
1. NFT trading volume in Q1 2023 increased sharply but then declined. This was due to Blur's incentives and airdrop. The number of NFT holders dropped to its lowest point in the last 12 months on April 19, with just 11,187 traders.
2. OpenSea had dominated the NFT royalty market, but Blur surpassed it in mid-February and remained on par with it in March. Blur's optional royalty and zero gas fee approaches targeted price-sensitive users, making it the new leader in the royalty market share. The number of wash trades on Blur is gradually decreasing, indicating that real traders are settling down.
3. Affected by the bear market at the end of 2022, the profitability of the blue-chip decreased significantly in Q1, but some projects still performed well. BAYC has the strongest profitability in the seller's market, and Azuki's whales have increased by 100%, which is the most resilient blue chip this year. The whales’ trading continues to impact profit fluctuations, while an enormous gap exists between the rich and poor holders of projects.
4. There are various methods for generating income through NFTs, including buying high-quality NFTs at a low price and holding them for the long term, bulk-minting NFTs from niche projects and selling them at a higher price, and identifying profitable NFT categories for high-frequency trading. Profitable NFT traders can be divided into three categories.
5. The trading volume and number of Bitcoin Ordinals market in the past four months have been on the rise, but its trading volume only accounts for 0.02% of the ETH market. Due to the slow transaction speed of Ordinals NFT, high cost, and limited application range, Ethereum NFT still occupies an advantage in the application range and speed.
6. NFTFi lending market revived in the Q1, with loans amounting to about $25 million from January to March. ParaSpace accounted for the largest market share of the lending market, while NFTFi led in the number of NFT lending users.
CHAPTER 1 MARKET OVERVIEW
Roller Coaster in the NFT Market
According to NFTGo, the number of NFT holders dropped to its lowest point in the last 12 months on April 19, with just 11,187 traders. However, the overall number of holders increased by about 12.62%, reaching around 4.3 million by April. It is worth noting that holders experienced a sharp spike in early and late February, which might be attributed to rising popularity of zero-fee of Blur and Yuga Labs ecosystems.
It is noteworthy that the recent decline in NFT transactions has accompanied a year-long trend of fewer buyers than sellers, indicating changing market behavior.
Many blue chip NFT projects experienced a decline in floor price over time, with Bored Ape Yacht Club's floor price dropping by two-thirds from its peak of 153.7 ETH in April 2022 to below 50 ETH.
However, what we are witnessing in the NFT market is not a decline but the early stage of its second major cycle, that is lagging behind the overall crypto market. The average correlation coefficient between Ethereum (ETH) and the NFT markets is 0.76. It shows that the NFT market is not as volatile as the traditional cryptocurrency market. In most cases, the NFT market does not react immediately to much volatility. For example, when the price of ETH fell, many blue chip NFTs witnessed relatively small declines in their dollar-denominated prices.
The chart below, for example, shows that even if the market cap of ETH falls, the NFT market cap does not follow immediately and is more stable; the variance of the NFT market cap index is 1.35E+09, which is much smaller than the variance of the ETH market cap index of 2.99E+10.
Over the past two years, the NFT market cap and the number of NFT holders has increased by 10-fold. Despite this remarkable growth, the NFT market is still relatively small, accounting for approximately one-tenth of the total ETH market cap. Nonetheless, the continued expansion of the NFT market suggests a significant potential for future growth and adoption.
From the end of 2021 to the beginning of 2022, the NFT market was dubbed as the historical "NFT Bull Market." However, since the second half of 2022, the market has largely been in a cooling-off phase. Given the community-driven nature of the NFT market, new concepts and trending topics will be essential to drive the next wave of growth.
Ethereum Dominates NFT Transactions
Ethereum remains the biggest Layer-1 for the NFT market in 2023 so far, followed by Solana, Polygon and BNB Chain. In April 2023 alone, Ethereum's NFT trading volume was $514M, accounting for approximately 70% of the overall market's trading volume, followed by Solana with a trading volume of $90M (12%), Polygon (7%), and other platforms at less than 5%.
Ethereum remains the leader in the number of NFT transactions, accounting for more than 50% of total transactions in 2023 YTD, with a monthly transaction volume ranging from 1 to 2 million. Solana has had a weak performance in early 2023 due to the mishaps in 2022, including irregular transactions on the network and the impact from FTX’s bankruptcy, together with the fierce competition from Ethereum, Polygon, and other new L1s such as Aptos. As a result, Solana's trading dynamics are slowly decreasing.
The State of NFT Marketplaces and Wash Trading
Blur becomes the market’s new darling
OpenSea was the number one platform in terms of trading volume up until December 2022. However, soon after Blur's launch, its volume surged and surpassed that of OpenSea.
The chart presented above illustrates the significant increase in Blur's trading volume after its airdrop on February 15. Cumulative trading volume data from January to April of this year shows that Blur has outperformed OpenSea by 120%. Despite this, the number of independent traders on OpenSea is about three times higher than that of Blur, which has approximately 590,000 traders. This suggests that the majority of traders on Blur are professionals who trade with high frequency and average amount per trade. In terms of the number of addresses, OpenSea has only grown by 12%.
In addition, NFTGo provides GoTrading solutions that can help you build your own NFT marketplace aggregator swiftly and easily.
Unexpected wash trades
This phenomenon is not merely reflected on the short-lived boom in users attracted by the "airdrop incentive", but over time, the number of transactions identified as wash trades on Blur is gradually decreasing, which means real traders are settling down. For instance, after the release of the airdrop, the percentage of real trades on Blur increased from an average of 86% in March to an average of 93% in April. The following chart illustrates the comparison between the original trading volume and the statistics after wash trades are cleaned.
From January to April this year, the percentage of real transactions on Blur and OpenSea is nearly tied and surpassed other marketplaces by a wide margin. These two marketplaces combined have dominated the current market in terms of data and social popularity.
Blur overtakes OpenSea in royalty market share
In terms of royalties, according to researcher Hildobby, it shows that OpenSea has long dominated the list. However, the tables have turned since mid-February when Blur's royalty revenue surpassed OpenSea's and stayed on par with it. In March, Blur and OpenSea remained the major takers of the lion's share of royalties, but Blur hit its royalty peak of $1.7M on March 3 as well. On the other hand, OpenSea's royalty revenue fell to a low of $300K at the end of February after peaking at $1.5M on February 20. The discrepancy shows that Blur is now the new leader in the royalty market share. The main reason for Blur's win was its launch of optional royalty and zero gas fee approaches, which were targeted to the most price-sensitive users in the market.
Blue chip royalty volume surges as OpenSea and Blur engage in royalty war
Since the royalty war between OpenSea and Blur started in mid-February, the royalty volume of blue chips including BAYC, MAYC, Otherdeed, Azuki, and CloneX on Blur has grown rapidly. Many traders bid on blue chips with the purpose of gaining points so that they can get more Blur airdrops and tokens.
NFT marketplaces compete through lower fees
Since mid-February, the overall total marketplace fee among mainstream NFT marketplaces has dropped sharply. In response to the competition from Blur's low fees and to attract more users for its own market position, OpenSea also announced a limited period of zero marketplace fee and optional royalty. The total volume of OpenSea transactions dropped from a peak of over $600K in January to a low of about $50K in March.
CHAPTER 2 MICRO TRENDS & LIQUIDITY
Micro Trends in NFT Projects
NFT Floor Price vs Illiquidity Analysis
In the past 6 months, almost 70% of the illiquid NFT projects had a floor price of zero. In the past 3 months, 50% of the illiquid NFT projects had a floor price between 0 and 0.5ETH. This shows that the market has low demand on the lower quality collections.
The floor prices of around 69% of the illiquid NFTs dropped to 0 ETH within a period of 6 months, compared to 48% within 3 months and 18% within 7 days. This indicates that more than half of the illiquid NFTs are likely to experience a prolonged state of no demand and have a floor price of 0 ETH in the long run.
Majority of the projects are within the 100-1000 ETH market cap range
Based on data from NFTGo, over 50% of the NFT projects have a market cap between 100 to 1000 ETH ($0.2M to $2.1M as of April 2023). Following this, the next category is the 0 to 100 ETH range, which has a total of 1550 projects. In addition, 125 projects hold a market cap of 100K ETH and above.
Top 1% of NFT projects take up over 50% of the total market cap
Analyzing from project distribution, the top 50 projects account for less than 1% of the total number of projects in the market, yet their market cap occupies about 52% of the total. This data tells us that the proportion of NFT projects and market distribution far exceeds the 80/20 rule, which can also be reflected through the distributions of whales and normal investors.
Most NFT Projects' inflection point is at the 1K ETH Trading Volume
Such thresholds also apply to the 10K ETH point. The chart below shows the number of projects in each trade volume range: once the 7-day trade volume of a project reaches 10K ETH, it enters a somewhat “elite” club where there’s only a very small number of projects at the top of the NFT market.
There are 19 NFT projects with a trading volume greater than 100K ETH in the top range, which are also the main projects that drive NFT market activity on a daily basis, as listed below.
The distribution of NFT prices by range shows a long-tail pattern
We divided NFT prices into 4 ranges according to density, and found that they each demonstrated the "long tail effect" as shown below in the following charts.
The concentration of NFT projects at the beginning of each price range can be attributed to two main factors. Firstly, most projects have an initial mint price within the 0 to 0.15 ETH range, which creates a correlation between the data and the price range. Furthermore, since many NFT projects lack physical assets, they tend to mirror the pricing from other projects, resulting in a similar data set among different projects. Secondly, resistance values exist in each price range, such as 0.1 ETH, 1 ETH, and 10 ETH, among other round number prices. Some NFTs even face resistance when their prices reach these values, which can cause them to hover at the edge of the price range or plummet rapidly to the next resistance value.
Analysis of NFT Liquidity and Characteristics
How market activity affects buy and sell efficiency
NFT liquidity is the ability to buy and sell an NFT efficiently at a reasonable price. In the absence of liquidity, some NFTs must be discounted in order to sell quickly. NFT liquidity is closely related to how hot the market is. We calculated the trends of trading volumes and traders' activities and employed them as an expression of liquidity trends. Therefore, we can conclude that the market saw its best overall liquidity in January to April of 2022, then it began to decline significantly in May, and was finally bottomed out in September. It wasn't until the first half of 2023 that liquidity started to recover.
Liquidity comparison across different projects
Another important factor to consider is the liquidity of NFT projects, which can vary significantly. Typically, the top-ranked NFT projects maintain a certain level of liquidity and exhibit less volatility, while the liquidity of lower-ranked projects tends to gradually decrease after issuance and become highly susceptible to market fluctuations.
The following are the top 10 NFT projects in terms of liquidity. Most of them are fractionalized NFTs and Pass NFTs. In addition, we found that NFTs without traits tend to have better liquidity.
CHAPTER 3 MAJOR PROJECTS & EVENTS
Trend Analysis of NFT Projects
Are blue chip NFTs reshuffling?
Since the beginning of 2022 until April 25, 2023, major blue chip projects have maintained some profitability for almost a year and a half. Unfortunately, by the end of 2022, each project suffered the impact of the NFT bear market and thus saw declines in monthly profitability. Among all the blue chip NFTs, Bored Ape Yacht Club had the strongest profitability in the sellers' market. On the other hand, Azuki experienced a loss of about 60K ETH a month in early 2022 and has been hovering around the break-even point for a year. It wasn't until early 2023 that flippers started to make a monthly profit of about 5K ETH.
In the first quarter of 2023, most flippers of NFT projects have been profitable, with February being the peak month. However, there are a few exceptions. Azuki has been maintaining a low and stable revenue status, while Moonbirds' profitability plummeted just after its release last year and even started losing money at the beginning of this year. In March, both BAYC and Moonbirds' profitability experienced a significant decline of about 30% to 50% compared to the previous month.
Comparing the change in blue chip data between April 24 and January 1, we can see that most of the blue chips have experienced a significant drop in both market cap and price. Moonbirds' was among the projects that suffered the most as its floor price fell by 65% and market cap plummeted 16% from $331M to $277M. It is worth noting that Azuki managed to defy the bearish trend in terms of floor price and market cap.
Furthermore, the change of holders reflect an intuitive change in the trend of blue chip NFTs. The original holders of these blue chips have sold their assets by different degrees, making the total number of holders decrease. However, the number of whales have increased and now NFTs are more concentrated in the hands of owners of big capital.
What is shocking is that Azuki's whales grew by 100%. As we can see from the list of Azuki's top 10 holders, 5 of them have purchase records from January to April. Thus, we can probably say that Azuki is the most resilient blue chip NFT project by far this year.
These data all point to us that blue chip NFTs in the market have undergone a significant turnover from January to April, which can be seen from:
1. The market rally in 2023 so far prompted some blue chip holders to sell and realize their gains.
2. The distribution of blue chip holders are now more concentrated than before, and the proportion of whale holders is also growing.
3. Blue chip prices generally fell by up to 50%, whereas Azuki bucked the trend.
New NFTs lack a sustainable demand
The following table shows NFTs with excellent performances from January to April, among which HV-MTL, Otherdeed Expanded, and Otherside Vessels are all NFTs of Yuga Labs' derivative series. Their prices are becoming stable and less volatile. Besides, DeGods is more stable at present since its move to Ethereum.
The rest of the NFT projects have yet to break through the general trend despite having good data performance at the beginning. For example, Checks - VV, which had 21.2% of blue chip holders and performed well in the early stage, experienced a significant drop in volume by 97%. HV-MTL did not have enough trading volume, Opepen Edition tumbled after its trading volume reached a weekly peak of $25K, and Nakamigos also collapsed soon after its boom in early April.
DeGods, which was one of the top Solana collections by volume, migrated from Solana to Ethereum and saw its floor price surge 130% in just 8 days. For the last 30 days, DeGods steadily hovered within the range of 8 to 10 ETH, before starting to drop slightly to around 7.5 ETH in the last week of April. During this period, there are still more than 94% holders who are still holding and have never let go of this NFT.
List of the most expensive NFTs of 2023
Major Events of 2023 So Far
Ample room for improvement for BTC Ordinals
Bitcoin Ordinals are Bitcoin’s version of NFTs, which are inscribed into the Bitcoin blockchain on a satoshi, the lowest denomination of a BTC. However, this comes with a slower transaction speed, higher cost, and limited applications. In contrast, ETH NFTs, built on Ethereum's blockchain, support smart contracts, have a faster speed, lower cost, and a broader range of applications. While creating NFTs on Bitcoin is more complex than on Ethereum, it's possible with Layer 2 protocols like Lightning Network and RSK.
The auction of TwelveFold Bitcoin NFTs by Yuga Labs on March 6 took Bitcoin NFTs to a new high. The collection has a total of 300 NFTs and were sold at a lowest bid of 2.25 BTC and a highest bid of 7.11 BTC. The current floor price of Bored Ape NFTs, the hottest blue chip project on the market, is 61.59 ETH, worth 3.95 BTC.
Currently, the BTC Ordinals marketplace is seeing a rising trend in trading volume and quantity. The total number of minted NFTs reached 1.19M within four months and so did the trading volume of $20M.
However, its transaction volume only accounts for 0.02% of the ETH market, leaving a huge gap caused primarily by Ethereum's stronger capability to process smart contracts and to provide a better transaction speed. On top of that, ETH NFTs have a more diverse application scenario, such as gaming, art, and real estate. These factors contribute to making ETH NFTs the mainstream of the current non-fungible token market.
OpenSea Pro emerges as rebranded Gem.xyz, introduces new "Gemesis" NFTs
Gem V2 rebranded to OpenSea Pro and users who have used Gem.xyz before March 31, 2023 will receive an airdrop of "Gemesis" NFTs. Users can claim the NFTs for free before May 4. The floor price of Gemesis generally remains between 0.03 ETH and 0.05 ETH.
According to data provided by Mint Trends, the Gemesis NFT experienced rapid growth in trading volume within the first two days of issuance, but showed a significant polarization in holding time and purchase amount. Approximately 50% of the players have held onto their assets since purchase, with relatively higher asset value. The other 50% of assets were resold within 24 hours of purchase.
Judging from the Holder Trends, Whales and Blue-chip holders account for less than 7% of total Gemesis NFT traders, with a total NFT ownership of less than 12%. The large proportion of assets held by ordinary holders is also a reason for the relatively stable floor price of Gemesis NFT.
CHAPTER 4 TRADER & WHALE ANALYSIS
Distribution of Assets per Capita
After eliminating invalid projects, we calculated the assets per capita of a single project, showing that the average asset per capita is $3,893 and the median is $1,459. The fact that the average is 63% higher than the median means that the assets of the "rich" are extremely high in the overall assets per capita, thus increasing the gap between rich and poor holders of different projects.
Further calculation of the ranking of assets held per capita reveals a stratified distribution of the top positions, such as CryptoPunks that ranks first with $486K in assets per capita, Bored Ape Yacht Club that places second with $292K in assets per capita, and Azuki coming third with about $87K in assets per capita.
The stratification of assets per capita also allows NFT players to form groups of different spending power, allowing developers of NFT project and infrastructure to design and market their products according to different user needs.
Single-asset distribution of users
The average asset per capita among the 748 eligible NFT projects reveals that projects under $2K are the most common, with 52% of the total number of projects falling within this range. This suggests that NFT projects primarily attract users with smaller budgets, with 233 projects catering to this core user group.
The second peak in assets per capita is seen at the $20K point, which corresponds to projects such as Meebits, Cool Cats, and Otherdeed. The average asset value held by the core users of these projects is around $20K, which is a significant feature that sets these projects apart from others in the market.
Asset Analysis of NFT Whales
Whale assets proportion
Just as the blue chip projects mentioned above capture the biggest portion of the market share, whales’ capital is also one of the biggest factors that dominates NFT market movements. As of now, 485 whales hold 1.11M ETH worth of NFT assets, accounting for 11.71% of the total market cap.
Based on this year's data, whales purchased $26.2M assets and sold $31.6M assets from January to April of this year. This trend demonstrates an “exit” mode of the whale community.
Whales' top 10 preferred NFTs and their average buy prices this year are as follows:
Analysis of whales' trends and behaviors
Although selling was the theme of this year, buy transactions were still observed in March and April. On March 13, turnover rates were slightly higher as whales traded 7 CryptoPunks NFTs at an average price of 67.05 ETH (about $1M). In April, whales bought fewer NFTs and only purchased top blue chip NFTs such as CryptoPunks.
The chart below shows the trend of net inflow and outflow. As you can see, whales have yet to make any large transactions this year. All existing transactions are considered small-scale.
Most Profitable NFT Traders and How They Achieved It
Profiles of profit-making NFT users: value holders, flippers, and high-frequency traders
By analyzing the profit ranking, the characteristics of the profit makers are mainly divided into:
Strategies and mindsets of profitable bottom-fishing NFT traders
For individual NFTs, buy in batches (3 batches) according to the range, and buy only when the price is within your valuation range.
Buy according to the rate of decline rather than time, the greater the decline the more to buy.
Try to bottom-fish by making price offers. You might get a good catch sometimes.
For major blue chip projects, buy according to rarity. For new blue chips, buy a combination of diversified NFTs.
Instead of limiting yourself to OpenSea, try out other platforms as well, such as Blur, X2Y2, and LooksRare.
CHAPTER 5 NFTFi & VALUATION
Development of NFTFi
The NFT market faces two major challenges - limited valuation methods leading to reduced value discovery and liquidity, and limited practicality hindering integration with the mainstream crypto market. However, these challenges have created opportunities for NFT Financing (NFTFi).
NFTFi project comparison
In 2023, the NFTFi lending market is expected to revive, with around $25M in NFT lending from January to March.
ParaSpace is the platform with the largest market share in the total lending market this quarter, with a cumulative market share of $134M in Q1. This is mainly due to the attention received by ParaSpace’s V3 LP NFT collateralized lending protocol in early March, with over 1,000 MAYC pledged at its peak. Following ParaSpace are BendDAO and NFTfi, with market shares of $107M and $76M, respectively. The three major lending platforms account for approximately 65% of the market share.
In 2023 YTD, NFTfi remained the leader in the number of NFT lending users, surpassing BendDAO. The total number of users across seven lending platforms increased by 45%. ParaSpace doubled its total user count, while X2Y2 increased by 80%, and BendDAO and Arcade grew by 45%. The remaining platforms also saw an increase of around 20%, indicating a continued trend of rapid growth in the NFT lending industry.
As of May 3, Blur's NFT peer-to-peer perpetual lending agreement, Blend, has emerged as the top NFT lending protocol on the Ethereum blockchain in terms of both users and number, with over 10,000 ETH lent. Blend offers NFT holders access to liquidity and fixed amount loans with an interest rate that grows until the debt is repaid, rather than having a predetermined maturity date.
The active loan trading volume accounts for about 50% among a total of 911 loans, and the total number of active loan ETH is 6,047. Blend's edge in liquidity is evident from the shifts in its hourly loans over the previous three days, with about 500 transactions taking place each day.
A Framework for Valuing NFTs
NFT valuation is generally divided into several methods, including weighted average price, machine learning algorithm pricing, industry evaluation pricing, manual bidding, and game theory pricing, each of which has its own advantages and disadvantages. Firstly, TWAP and other predictions, quantitative models, are heavily influenced by data (market trading volume, NFT quantity in collections, etc.), and can be influenced by market fluctuations, difficult to respond to unexpected events, and vulnerable to manipulation (e.g. wash trading).
Financial instruments and peer review are also one of the methods. On the one hand, market balance can be achieved through game mechanisms, while on the other hand, price adjustments can be made based on market performance. However, using this method to value NFTs on a large scale is difficult, and is more suitable for pricing specific NFTs. Trait-based machine learning relies on traits that have a significant impact on NFT prices and cannot predict collections that lack traits.
List of NFTFi projects