The State of NFTs in the Bear Market
Tech Deep Dives

The State of NFTs in the Bear Market

Created 10mo ago, last updated 10mo ago

CoinMarketCap Alexandria takes a look at how the NFT market — across marketplaces, collections and top projects — is faring amidst the ongoing bear market.

The State of NFTs in the Bear Market

Table of Contents

Remember NFTs?

Well, here's a refresher on what non-fungible tokens (NFTs) are:
Ahh yes, NFTs! How could we only forget about those funny little JPEGs, eh?
The state of NFTs in the bear market...could be better. Caught in between a macro liquidity crunch and the shocking turn of events and bankruptcy of crypto exchange FTX, the NFT sector is trying to find that next winning narrative.

CoinMarketCap Alexandria had a look at the state of the NFT market in Q3, 2022 and analyzed:

  • How much trading action has nosedived in the last quarter.
  • Which blockchains the action is happening on.
  • Which NFT sectors are hit especially badly.
  • The fight for market dominance between different trading platforms.
  • The current talking points in the NFT industry.

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Nft Trading Volume and Transactions in Q3 2022 — Down Bad

For the impatient, here's the TLDR:

Trading volume is down around 75%, but at least stabilizing at a low level. Transaction counts are looking stable.

Let's back this up with some numbers.

First, trading volume.
Exact figures differ across different platforms, but the consensus is the same — trading volume is down around 75% quarter-on-quarter. While DappRadar quotes $2.5B in volume, Binance Research comes up with $1.8B in NFT sales in Q3:
Volume had been down already in Q2, so the market is looking at a 90% decline in volume from its peak (a pattern that will come up repeatedly).

Any good news?

Yes. Sort of.

According to DappRadar, both sales count and unique traders count are flat quarter-on-quarter. In other words, people (or bots?) are still trading NFTs, just for much less money than they used to.
That coincides with data from Binance research on the number of unique buyers, which is also flat (and experienced less of a drop from its peak).
NFT transactions, which have been flat quarter-on-quarter, actually experienced a significant uptick in volume in September:
While the difference between unique buyers, unique traders, and NFT transactions is unclear, one thing isn't: there's some trading going on in the NFT market, but liquidity is much more shallow. While not indicative, the flatlining of the trend may suggest that a bottom is forming, or likely to be near, as speculative or short-term NFT traders have left the market.

NFT Blockchain Dominance in Q3 2022 — Ethereum Remains Ahead (For Now)

Looking at how trading is split across different chains, Ethereum is still at the top of the food chain, but Solana is gaining ground, and quite quickly so:
Binance cites a 13% market share increase for Solana in Q3, though Ethereum is still on top with 65%. DappRadar comes to a similar conclusion, even though their numbers vary wildly from those on Binance (presumably because of differing methodologies).

Again, while the numbers differ, the pattern is clear. Ethereum is, for now, leaking market share to Solana.

On a more positive note for NFT traders on Ethereum, the market cap of the top 100 NFT collections on Ethereum is doing well in currency-adjusted terms:
In plain English: the market cap declined 27% in ETH terms but 44% in USD terms compared to Q2. In other words, when the price of ETH started declining, the market cap of NFT collections held up better than expected.

NFT Sector Overview In Q3 2022 — Gaming Is the Best of the Bunch

Comparing the different NFT sectors, it's more bad news.
They're all down and all down bad. An overview courtesy of DappRadar data:
  • Digital art (collections like Art Blocks, Fidenza, Chromie Squiggles) is down 72% in trading volume quarter-on-quarter (from $215m to $59m).
  • Fashion and luxury NFTs (like the much-hyped entry of Gucci and Burberry) did not live up to expectations — their already meager trading volume of $16m in Q2 plummeted to about $2m in Q3.
  • Gaming is down as well, from $500m in Q2 (and $1.1b in Q1) to $72m in Q3, a 84% crash quarter-on-quarter.
  • Still, while volume is gone, gaming NFTs remain more popular than art in terms of sales count (3m to 258k in Q3).

Read: CoinMarketCap and Naavik: 2022 Blockchain Gaming Report — New Frontiers And The Path Forward

And what about the famous Blue Chip NFTs?
Well, it's a mixed bag. Trading volume has been clobbered (-88% quarter-on-quarter), but holding days remain fairly high:

Unfortunately, there is no data available for median holding days since the average may be skewed by a few holders that never sell. Still, the top collections still have a decent chance of developing a sort of store of value attribute.

NFT Trading Platforms in Q3 2022 — OpenSea Facing a Challenge

Possibly the most interesting development in an otherwise stale market was the emergence of OpenSea rivals in Q3. Precisely, Magic Eden, X2Y2, and Sudoswap are gunning for more market share. Binance Research has X2Y2 almost neck-on-neck with OpenSea for trading volume:

However, according to The Block, X2Y2 overtook OpenSea as market leader in Q3.

Particularly interesting is the rise of automated market maker (AMM)-modeled NFT marketplaces like Sudoswap and Blur.
Sudoswap surged even ahead of LooksRare, a platform that was tipped to be OpenSea's big challenger at the beginning of 2022.

NFT Industry Talking Points in Q3 2022 — Royalties or No Royalties?

Royalty fees are a fee that NFT creators get for recurring sales of their pieces.

While this has been one of the selling points for NFTs at the start, and its potential to change the way digital artists are compensated — it has now evolved to be a contentious subject in the space.

But one man's royalty is another man's opportunity to undercut the market, which is exactly what X2Y2 and Sudoswap did. X2Y2 gives traders the option not to pay any royalties; Sudoswap turned them off altogether. And in an illiquid market with highly-valued JPEGs, you as a trader have to take every advantage you can get.

While the strategy has paid off handsomely for the platforms, which are surging quickly in market share, no matter which statistic you choose to believe. But it is not good news for creators, who, in fact, make most of their money from royalties and not from the mint itself:

On the other hand, OpenSea and Magic Eden has seemingly committed to supporting royalties for creators:

The Block Research summarizes several possible solutions to the royalties debate:
  • Skin in the game: creators could retain a share of their supply, similar to equity or a share of circulating token supply. Larva Labs actually did exactly that with Crypto Punks, holding 10% of the supply.
  • Blacklisting: smart contracts that do not honor royalties could be blacklisted, though this strategy seems hardly enforceable in a free market.
  • Tip jars: collections that build genuine connections with their community could be rewarded with tips, reinforcing the community web3 spirit (Kumbayah!).
  • Harberger taxes: a somewhat-complicated model that would force NFTs to be constantly auctioned and owners to pay a tax on their holdings, which goes to creators.


So, when are we going back to the good old days?

It could be a while. But the NFT market seems to be consolidating together with the wider crypto market. Interestingly, trading volume and floor prices have dropped broadly in line with token prices. So for better or worse, NFTs are probably here to stay.

If you have some good ones, HODL!

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