Solana is leading the NFT market recovery, and the Ethereum NFT market is expected to follow suit in 2024.

Author: Gabe Parker, Galaxy Research

Translator: Luccy, BlockBeats

Editor's note: As the cryptocurrency market continues to evolve, Solana and Ethereum, as the main NFT ecosystems, are engaged in fierce competition. Galaxy Research analyst Gabe Parker has analyzed the performance of Solana and Ethereum NFT in 2023 in detail, highlighting the rapid recovery of NFT trading activity on Solana and the challenges facing Ethereum.

Gabe Parker pointed out that, driven by Blur and Tensor, Solana's NFT market has performed well in terms of active user numbers and trading volume. While Ethereum still dominates the market, it faces the challenge of declining active NFT users. As the NFT market evolves, the competition between Solana and Ethereum will continue to heat up in 2024. The following is the translation of the original text by BlockBeats:

Key Points

• NFT trading activity on Solana has recovered 2.6 times faster than Ethereum.
• In 2023, Ethereum contributed over 90% of the weekly NFT trading volume for 67% of the time.
• As of January 8, 2024, Solana's weekly NFT trading volume accounted for 25% of the total NFT trading volume.
• In 2023, the number of active NFT users on Ethereum decreased by 73%, while the number of active NFT users on Solana increased by over 80%. NFT users are identified as unique addresses that mint, purchase, sell, or transfer NFTs within a day.
• With the increasing popularity of the advanced NFT trading platform Blur, there has been a significant change in the concentration of the NFT market in 2023. Unlike existing enterprises such as OpenSea, Blur heavily relies on incentive programs such as token airdrops to attract users.
• In 2023, Blur accounted for 67% of the total Ethereum NFT trading volume. Prior to the launch of Blur, OpenSea had accounted for over 80% of the NFT trading volume, but in the same year, it only accounted for 29% of the total Ethereum NFT trading volume.

Introduction

In the fourth quarter of 2023, the NFT market saw a meaningful recovery. As of January 16, 2024, the NFT trading volume on Ethereum has grown more than 4 times since its low point in 2023, while the Solana NFT trading volume has increased by over 10 times. As the NFT trading volume recovers from historical lows, the floor prices of top NFT projects on Ethereum and Solana are also rising. This research report will focus on the recovery of NFT in the ecosystems of Solana and Ethereum and provide insights into their growth in 2024. The report will also analyze the characteristics of incentive-driven NFT markets such as Blur and Tensor, which have been consolidating significant market shares in existing NFT markets like OpenSea.

Ethereum NFT Market

The NFT trading volume on Ethereum hit a monthly low of $143 million in September 2023. The week of October 9 to October 16, 2023 was particularly challenging, with the NFT trading volume on Ethereum plummeting to just $40 million. However, there was a significant shift after October 9, 2023, with the weekly NFT trading volume on Ethereum astonishingly increasing by 380%. This sharp increase was mainly attributed to the second-season airdrop of Blur on November 20, 2023. Blur incentivized NFT bidding, listing, and lending on its platform with the $BLUR token. It is worth noting that NFT traders were actively participating in trading weeks before such airdrops, as evidenced by a similar trend during the first-season airdrop of Blur on February 14, 2023. Additionally, the consequences of the airdrop led to a wealth effect, prompting NFT traders to reinvest funds into NFTs to maintain their farming positions.

Although the weekly NFT trading volume on Ethereum has increased by 380% from its low point in 2023, it is still down by 89% compared to the historical high in March 2022. The Ethereum NFT market still has a long way to go for recovery. In 2024, the next cycle of the Ethereum NFT ecosystem may be driven by advanced NFT trading platforms (such as Blur and Blast) through airdrop incentives for trading activities.

OpenSea launched its professional trading platform in April 2023 to compete with Blur; however, since September 2023, OpenSea Pro has only accounted for 9% of the Ethereum NFT trading volume. The dominance of Blur in professional NFT trading still exists, mainly due to its first-mover advantage and UX/UI design. For example, Blur's use of an order book system allows NFT traders to better assess the depth of floor prices for projects than any other market. This, combined with Blur's native NFT lending platform Blend, provides tools for NFT traders to build complex trading strategies.

Looking ahead to 2024, Blur's position will be further consolidated with the upcoming third-season airdrop planned for May 2024. It is expected that this event will further incentivize NFT traders who have previously used Blur, as 50% of the next airdrop will be allocated to existing $BLUR token holders. Blur's strategic advantage extends not only to its first-mover position but also to the comprehensive ecosystem it has developed.

Blur's proactive approach to token economics has been reflected in its recent governance proposal. The proposal advocates for the conversion of community activation fees to purchase market fees at a rate of 1% on generated funds, which is intended to be used for the repurchase and burning of $BLUR tokens, thereby reducing the supply of $BLUR. Although this governance proposal is still pending, it demonstrates Blur's continued focus on improving platform token economics to position itself as a significant participant in the evolving NFT market landscape.

While the recent surge in NFT trading volume is attributed to the re-engagement of native cryptocurrency users in NFT markets such as Blur, there are still many NFT traders who are holding back. It is worth noting that the number of weekly traders on OpenSea has decreased by 86% from its historical high in January 2022, indicating that there are still many retail users who have not re-entered the market. Although Blur is the most favored NFT market in the cryptocurrency community, it mainly caters to a more mature and affluent group of NFT traders. In this context, monitoring the trading volume share of OpenSea is crucial for assessing the recovery of retail interest in NFTs.

Solana NFT Market

Solana's NFT trading volume also hit a low point in September 2023, with a monthly volume of $30 million. The week of October 9 to October 16, 2023, marked the worst week for Solana NFT trading, generating only $4.3 million in trading volume. Since October 16, 2023, the weekly NFT trading volume on Solana has increased by over 10 times. The significant growth in weekly Solana NFT trading volume is mainly attributed to two major factors:

• The announcement of an upcoming airdrop for Tensor, an advanced NFT trading platform on Solana.
• Significant repricing and additional attention to all Solana NFTs due to the substantial increase in the SOL token.

Tensor is the Solana version of Blur, launched in 2022, where NFT traders can devise complex trading strategies. The second-season airdrop of Tensor ended in August 2023, and the next airdrop is expected at some point in January 2024, so Solana NFT collectors are increasing their trading activity to farm points. A more critical impact driving the Solana NFT ecosystem is the wealth effect experienced by Solana holders. With SOL rising by 615% throughout 2023, and the generous airdrops distributed by other Solana applications to the community, activity across various types of Solana applications (including NFTs) has increased.

Despite the faster recovery of Solana's NFT ecosystem compared to Ethereum, the weekly Solana NFT trading volume has still decreased by over 60% from its historical high in May 2022. Like Ethereum, Solana has a robust NFT ecosystem that provides users with an economically efficient and user-friendly experience for trading NFTs. Additionally, Solana's NFT infrastructure is rapidly maturing, as wallets and other NFT applications have some features, such as displaying NFTs alongside fungible tokens, to better support the growth of the digital collectibles ecosystem. Overall, the next NFT market cycle for Solana, like Ethereum, may be driven by trading activity on advanced platforms such as Tensor.

Market Concentration

Advanced trading platforms such as Blur and Tensor have rapidly developed and captured a significant portion of NFT trading volume on their respective chains. Market concentration in the NFT market is a mutually beneficial result for active NFT traders who rely on ample liquidity to enter and exit highly volatile assets. Blur and Tensor incentivize users to provide liquidity to their markets through reward airdrops, allowing sellers to gauge the market depth for a given NFT through airdrops. Prior to Blur and Tensor, traditional NFT markets such as OpenSea used a quote system without incentive measures. Buyers lacked incentives to submit competitive quotes, resulting in dispersed quotes that were significantly below the asking price for NFTs.

In 2023, Blur accounted for 67% of the total Ethereum NFT trading volume. Prior to the launch of Blur, OpenSea had accounted for over 80% of the NFT trading volume, but currently only accounts for 29% of the total Ethereum NFT trading volume.

In 2023, Magic Eden dominated the Solana NFT trading space, accounting for 51% of the total trading volume, which is impressive. However, in second place is Tensor, which accounted for 41% of the Solana NFT trading volume in the same year.

Although Magic Eden led Tensor in 2023, there were also several days this year when Tensor's trading volume exceeded that of Magic Eden, especially during the NFT market recovery in October 2023. From October 1, 2023, to January 1, 2024, Tensor surged significantly ahead, with trading volume 50% higher than Magic Eden.

With advanced trading platforms preparing for the third-season airdrop and other incentive-driven plans to attract liquidity, Tensor is expected to surpass Magic Eden in market share in the NFT market in 2024.

The impact of Blur and Tensor on market concentration in the NFT market indicates that advanced trading platforms are seeking clear product-market fit. Although Blur and Tensor are platforms launched in a bear market, they have successfully captured market share from well-known traditional markets such as OpenSea and Magic Eden.

Ethereum vs Solana: Weekly NFT Trading Volume and Active Users

In 2023, Ethereum dominated the NFT space, accounting for over 90% of the weekly NFT trading volume for 60% of the year. This metric does not include the trading volume of Ordinals and BRC-20 on Bitcoin. It is worth noting that Ordinals and BRC-20 generated $1.8 billion in trading volume in 2023, making Bitcoin the second most popular digital collectibles network during this period. This report focuses solely on the NFT markets of Solana and Ethereum. For more information about Ordinals, please refer to this Galaxy Research report.

From May 2023 to September 2023, Solana NFT faced fierce competition with Ethereum NFT for market dominance. During this period, the trading volume of Solana NFT accounted for less than 10% of the total NFT trading volume (including Ethereum and Solana NFT trading volume). However, Solana NFT finally made significant strides in November 2023 and rapidly gained market share in NFT trading volume thereafter. In December 2023, the weekly trading volume of Solana NFT accounted for at least 22% to 37% of the total NFT trading volume.

In 2024, the trading volume of Solana NFT will continue to compete with that of Ethereum's NFT. Since December 1, 2023, a total of $50.5 million has been bridged from Avalanche, Binance Smart Chain, Arbitrum, and Ethereum to Solana. Although the influx of new capital into Solana may be driven by airdrops and yields provided by Solana's decentralized finance (DeFi) applications, if the incentive measures change, these applications can immediately exit the ecosystem. However, it is expected that some of the new capital will flow into Solana NFT. Based on the speed of Ethereum NFT recovery and the amount of new capital flowing into Solana as of December 2023, Solana NFT trading volume may account for 30%-50% of the total NFT trading volume in 2024.

By observing the on-chain activities of wallets that buy, sell, or mint NFTs on a daily basis, it is evident that the Ethereum NFT market lacks new users. In 2023, the number of active users in the Ethereum NFT market decreased by 73%, while during the same period, the number of active users in Solana's NFT market increased by over 200%. The number of active NFT users on Solana surged on December 19, 2023, surpassing the number of active NFT users on Ethereum. By applying a 30-day moving average to the number of active NFT users on Ethereum and Solana, it can be seen that Solana now has more daily active NFT users than Ethereum.

It is important to note that the active NFT users identified in the above data are unique addresses that have minted, purchased, sold, or transferred NFTs within a day. Unique addresses may be owned by individual persons or entities, and due to the lower cost of transactions on the network, the number on Solana may be larger.

Conclusion

The upcoming NFT cycle will be driven by advanced NFT trading platforms, novel airdrop incentives for NFT holders, and the wealth effect from the broader crypto market recovery. Advanced NFT trading platforms have already solidified their positions in the market, and with liquidity being integrated into these types of platforms, their market dominance will continue to be between 50% and 60%. Overall, as Solana's NFT ecosystem experiences its first repricing moment, one of the most noteworthy developments in 2024 will be the repricing of Ethereum NFTs if the price of ETH also rises significantly.

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