On-Chain Analysis of NFTs Supply and Demand: A Data Perspective by IntoTheBlock
CMC Research

On-Chain Analysis of NFTs Supply and Demand: A Data Perspective by IntoTheBlock

1 year ago

IntoTheBlock brings us blockchain analysis of the NFT market, following a significant drop in demand — and an increase in supply.

On-Chain Analysis of NFTs Supply and Demand: A Data Perspective by IntoTheBlock

The recent market downturn has caused an interest drop in NFTs. Valued pieces recently took a reality check, quickly losing a great percentage of their value. The pop-culture phenomenon fueled by the crypto bull market of 2021 brought quick and value to the industry, attracting many new participants. However, during the market decrease, demand slowed down while the supply trend remained high, resulting in the loss of value for collections.

Demand in the NFTs space can be perceived as the daily volume traded. This indicator helps to identify trends in space.

Source: IntoTheBlock NFTs Insights

The indicator above helps to comprehend how much appetite is there in the industry. As depicted, volume is down 96% from its year to date high on Jan. 19, 2022. During its all time high, the Ethereum mainnet processed $991M: currently, the volume traded by NFTs stands at an average of $40M daily throughout the last seven days.

Moreover, the market downturn also affected companies at the structural level. For example, leading marketplace Open Sea cut 20% of its staff in July. While relaying in a 2.5% fee of the sale price as commission, the recent drop in demand affected their revenues. The marketplace managed to process an impressive $4.85 billion during January 2022, marking its highest processing month after dropping into a 13-month low in August 2022.

Besides volume traded, it's also worth analyzing supply from an economic perspective. NFT collections created stand as a measure of supply for the sector. These metrics are important to better understand the dynamics driving NFT boom and bust cycles.

Source: IntoTheBlock NFTs Insights

During the crypto market collapse and the NFT demand drying up, the supply side was experiencing massive shocks of new collections being minted. On Aug. 21, 2022, a new all-time high was achieved for collections minted on the Ethereum mainnet of 3.08K new collections. This new all-time high occurred after two consecutive new all-time highs in a span time of 11 days. This high supply has brought imbalances to the market with demand levels remaining constantly low.

Oversupply of the market in combination with current market conditions has led prices for NFTs popular collections to further decrease in price. This can be noticed in IntoTheBlock's matrix for Most Valuable NFT Collections.

Source: IntoTheBlock NFTs Insights

The table above shows the 10 most valuable collections, sorted by their market capitalization. The market capitalization in this case is calculated as the median price of the last 50 NFT sales times the number of pieces in the collection. As it can be perceived, all of the top 10 most valuable NFT collections have decreased over the past 30 days, with an average decline of 23.8% in ETH terms. This provides further evidence of how sensitive popular collections are to these supply and demand waves.

In this case, current demand is shown by the volume traded in the collection. As it can be seen, demand for the top 10 NFTs collection (with the exception of Moonbirds) is down in the last 30 days. Moonbirds experienced an increase in demand after Collective Proof, the company behind Moonbrids, announced a $50M series A funding round led by a16z.

The NFT market is still at early stages, and new projects continue to innovate and grow under these harsh circumstances. There is great interest for new areas like: NFTs over-collateralized loans, with companies like BendDao continuing to innovate in this area in order to unlock new opportunities for the market. Decentralized NFT exchanges are starting to take off with SudoSwap. Finally, at the collection level, we can see new product lines with Pudgy Penguins launching physical toys.

To conclude, having a well-rounded understanding of the NFT space as we do for other assets is harder: it involves an extra layer of complexity. Tools and analytics will help us navigate and comprehend into the future of this new developing market.

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