With July now behind us, we have a full month of trading data from the NFT market to digest. The numbers are mixed. While there are some positive signals from the non-fungible token market that matter, others are decidedly negative. Trading continues, but at what appears to be a far slower pace.
For companies in the NFT space, the news is likely unwelcome. The larger blockchain world is in a period of correction, but to see key NFT market metrics fall as quickly as we have makes us wonder what could reignite demand. It seemed doubtful that the period of hype that gave us endless Bored Ape derivatives would last forever. But what’s next?
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Let’s peek at the July data and then dive into what could return NFTs to prominence. After all, NFT trading has risen a few times during the first decade-plus of the blockchain era — such as it is — so surely it can rise again?
To start, we’ll check in on the market-leading OpenSea, and then we’ll add in other NFT marketplaces to get a good vibe for the non-fungible token market. After that, we’ll theorize some ideas that could make NFTs less uncool again. To work!
A lackluster July
The overall direction of NFT trading volume has been negative for some time, as the following chart from The Block and CryptoSlam makes clear:
But we care a bit more about aggregate July results compared to recent periods because we want to get a good feel for how the NFT market is handling the start of Q3. So, let’s turn to Dune data (hat tip to Richard Chen, who made most of the dashboards we’re leveraging today) to get started.
First, OpenSea July NFT trading volume on the Ethereum chain totaled $528.3 million, down from $695.4 million in June and $2.60 billion in May. Recall that the peak value of NFTs traded on the Ethereum chain on OpenSea peaked in dollar terms at $4.86 billion in January of this year.
While the value of NFTs sold has fallen sharply in recent months, a trend that slowed but continued in July, the number of NFTs sold is actually holding up well. January 2022 NFT sales on the Ethereum chain came to 2.29 million; in July, the total was 1.70 million.
OpenSea NFT transaction volume on the Polygon and Solana chains has shown related declines in dollar-value terms but with less good news in volume terms; Polygon NFT trading volume in units has declined from nearly 2.7 million in January to 105,324 in July, again per Dune data.
The number of active NFT traders has also maintained some strength this year, despite the falling dollar value of NFT trades more generally. A separate Dune dashboard indicates that after peaking at around 270,000 unique wallets trading NFTs in the final week of January; the number declined to a little over 161,000 in the final week of July. (Note that unique wallets do not 1:1 correspond to unique traders, though they are related.)
Looking elsewhere in the NFT market, Coinbase NFT sales remain de minimis while LooksRare holds onto second place in the NFT marketplace game. That said, wash-trading on LooksRare may still be material, indicating that its volume numbers could be inflated somewhat. So when we really think about the NFT market, we’re considering OpenSea as the leading data point, and the rest of the market as incredibly secondary.
As OpenSea goes, so too goes the NFT market. And OpenSea data shows that while trading is still happening, the resulting value of trades is trending sharply negative as other indicators fall more slowly. So, what will it take to get things back to form?
NFT use cases
I do not want to wade into the “what’s the use case for crypto?” conversation — it’s too big a topic for this space. At a minimum, crypto has shown that it has a use case in that its fans will use, trade, hoard and generally muck around with its various tokens and chains. One use case for crypto is that it’s a hobby for crypto fans. And during periods of lessened speculation, that appears to be enough of a driver to keep the game afoot.
But for NFTs to rise once again — recall that CryptoPunks and CryptoKitties came out in 2017, the first NFT cycle — it doesn’t seem likely that profile picture sets will be enough. What could be? I’ve been thinking about this over the weekend and have some ideas of things that could prove cool if implemented well:
- NFTs as quasi-ownership: I watch a lot of the National Women’s Soccer League, a small-but-growing U.S. sporting league. (The team I support, Gotham FC, has a partnership with Algorand, and you can spot Crypto.com ads at some women’s soccer games, for what it’s worth.) I don’t really need any crypto in my life, per se, but if an NFT was a way that I could “buy” a “share” of my team, I would probably do so. Why? Because I want to support the group, and the chance of my being invited to the ownership team is zero. If you are curious why anyone would buy into a team and receive effectively no equity or real stake, keep in mind that the Green Bay Packers sell stock to their fans, which offers very little in the way of control rights. Why not use crypto enthusiasm for a similar cause in other sports and teams?
- NFTs as a music-supporting channel: Similarly, I love a number of lesser-known bands thanks to my interest in more niche regions of heavy metal. While deathcore is a genre that I adore, I also respect the fact that most folks cannot stand it. All good! But it would be satisfying to be able to directly “invest” in bands that I live on, groups that won’t ever make that much money from their tunes. I would buy an Orbit Culture NFT for a decent dollar amount, if it would grant me, say, early entry to shows and perhaps other small benefits. Mostly I want to give these bands money in addition to streaming income, attending shows and buying the odd vinyl. Perhaps NFTs would fit well here, apart from the model we’ve seen in which music incomes are apportioned to NFT owners. I don’t want to make money here — I just want to funnel cash to heavy metal.
- NFTs as a way to support smaller authors: Much like the music world, most authors do not make much money. But that doesn’t mean that some don’t have dedicated fan bases with extra money to spend. So why not create author-specific clubs where I can buy a token and get early access to books and the like?
I can hear your complaint. Why do the above things need NFTs? Well, they don’t, not really. But what we have seen is that there is a huge demand in the crypto space to, you know, use crypto. And in each of the above cases, thanks to the speculative nature of crypto-backed assets, folks might be able to not only buy into their favorite art and artists but also perhaps see some appreciation in their investment over time. Not that I think that buying a Brand of Sacrifice NFT is going to put my future kids through college, but if I made a few dollars while also supporting a band I like, well, that’s a win?
And all that really matters when it comes to supporting someone or something is the support. The channel is whatever, so long as it works.
I recognize that the above examples are all about leveraging dedicated but modest fan bases to better support creatives. That won’t be enough to reignite the NFT market, perhaps, but it could go a long way toward making the model useful apart from rank speculation that tends to benefit the already wealthy. Here’s to the third NFT wave, whenever it comes, and whatever ignites it.