The world of non-fungible tokens (NFTs) has expanded rapidly, encompassing various categories such as gaming, collectibles, digital art, music, and more. However, as the NFT space matures, it is becoming evident that different types of NFTs may require specialized marketplaces to cater to their unique characteristics. While aggregators like OpenSea currently host a wide range of NFT types, it is likely that we will see the emergence of niche marketplaces dedicated to specific categories, such as real estate NFTs. Let’s explore the world of NFTs and NFT Marketplaces in this blog post.

NFTs: The Context

Throughout the history of innovation in computing, there have been two distinct eras: the skeuomorphic era and the native era. During the skeuomorphic phase, design concepts were largely borrowed from older domains. For instance, early use cases of web pages revolved around blogs, newspapers, and online shopping, among others. At that time, it was challenging to envision the full potential of the internet, as people questioned the necessity of reading news on a computer.

Truly groundbreaking innovations like SaaS companies, e-commerce platforms, and social media emerged when websites evolved into interactive platforms with web2, enabling users to not only read but also create content.

A similar pattern is unfolding today with NFTs. Many NFT projects simply replicate the offline world of art and collectibles on the blockchain. This limited perspective leads some individuals to believe that NFTs are confined to these specific domains, akin to how skeptics of the early internet believed that blogs and newspapers represented its entirety.

However, upon closer examination, it becomes evident that NFTs are digital primitives, representing digital property. Consequently, their potential use cases are extensive, similar to how websites can be employed to represent almost anything.

In this blog post, I tried to provide a comprehensive update on the NFT space, offering a high-level overview. The topics covered include:

• The Value of NFTS
• Top blockchains for NFT volumes and users
• Leading blockchains for gaming applications
• NFT marketplaces, collections, and use cases
• How investors can participate in NFT growth
• Key considerations as the infrastructure surrounding NFTs matures

The Value of NFTS

When we think of NFTs, don’t limit your imagination to trading pictures of monkeys. There’s a whole world of possibilities waiting to be explored! Let’s dive into the reasons why NFTs (Non-Fungible Tokens on a Blockchain) are valuable and how they can revolutionize various industries:

1️⃣ Tokenization of Assets: The Boston Consulting Group estimates a staggering $17 trillion opportunity in asset tokenization. Whether it’s digitizing physical assets or creating new digital assets, NFTs can enhance business processes, attract capital, and automate tasks in 24/7 markets.

2️⃣ Intellectual Property (IP) Rights: NFTs offer an innovative way to represent ownership of intellectual property. Artists, creators, and innovators can protect their work, establish ownership rights, and ensure proper compensation for their creations.

3️⃣ Rarity of Content: NFTs enable the representation of unique and scarce digital content. Whether it’s a limited edition artwork, a rare collectible, or an exclusive piece of music, NFTs provide a verifiable proof of ownership and authenticity.

4️⃣ Underwriting: NFTs can facilitate new forms of insurance and underwriting. By tokenizing assets and associated risks, insurance companies can streamline processes, enhance transparency, and offer tailored coverage to protect valuable assets.

5️⃣ Utility: NFTs can serve as access keys or licenses for specific services, platforms, or experiences. They can unlock exclusive content, grant special privileges, or enable participation in unique events, fostering engagement and loyalty within communities.

6️⃣ Community and Income Generation: NFTs empower creators and communities by providing direct monetization opportunities. Through tokenization, artists can sell their work directly to collectors, creators can earn royalties on secondary sales, and communities can support their favorite projects through token-based incentives.

While these are just some examples, the potential applications of NFTs are vast and ever-expanding. We’re witnessing the early stages of a groundbreaking technology that will redefine ownership, value exchange, and digital experiences. 

Top Blockchains For NFTs

The following table summarizes the top blockchains for NFTs based on data at CryptoSlam.

Bitcoin NFTs

Since the introduction of Ordinals, Bitcoin has experienced a remarkable surge, securing the second position in terms of trading volumes over the past 30 days, accounting for 18.6% of the market.

In a relatively short period, Bitcoin NFTs have generated trading volume exceeding $388 million, attracting 116,000 unique buyers, representing 8% of the market in the last 30 days. It is worth noting that Bitcoin NFTs, also known as inscriptions, are still in their early stages, making it challenging to access marketplaces, mint NFTs, and engage in trading activities. Considering these limitations, it is truly impressive to witness such high levels of activity within a short timeframe.

Here are some statistics on Bitcoin ordinals inscriptions trading volumes in 2023:

• The total number of inscriptions on the Bitcoin blockchain reached 10 million in May 2023.
• The total trading volume of inscriptions reached $433 million in May 2023.
• The most popular type of inscription is the ORDI token, which has a market capitalization of $217 million.
• Other popular types of inscriptions include meme tokens, artwork, and applications.
• The majority of inscriptions are text-based, but there is also a growing number of image-based and application-based inscriptions.
• The trading volume of inscriptions has been increasing steadily since the introduction of the Ordinals Protocol in January 2023.

It is still too early to say whether Bitcoin ordinals will become a mainstream form of NFT, but the early signs are promising. The high trading volume and the growing number of inscriptions suggest that there is a significant demand for this type of NFT.

Here we go on the trading volumes of Bitcoin ordinals inscriptions in 2023:

Month	Trading Volume (USD)
January	$137 million
February	$163 million
March	$190 million
April	$217 million
May	$433 million

As you can see, the trading volume of Bitcoin ordinals inscriptions has been increasing steadily throughout 2023. It will be interesting to see how the market for this type of NFT develops in the coming months and years.

As the most decentralized and secure Layer 1 blockchain in the ecosystem, we recently explored the potential use cases for Bitcoin NFTs in a previous report. If you’re interested, you can find the report here.

Ethereum NFTs

Unsurprisingly, Ethereum continues to dominate the NFT market in terms of trading volume, total transactions, and unique buyers across both Layer 1 (L1) and Layer 2 (L2) solutions.

In the past 30 days, Ethereum accounted for 57% of NFT sales volume, 16% of transactions, and had 25% of NFT buyers on its L1 network. This highlights that high-value NFT transactions primarily occur on Ethereum, while lower-value transactions with higher volume take place on alternative L1s and L2s. We attribute this trend to the superior security and settlement guarantees offered by Ethereum, thanks to its decentralized nature.

Currently, NFTs drive the highest demand for block space on the Ethereum network compared to other activities such as DeFi, payments, and bridges. Over time, NFTs have captured approximately 33% of the block space demand, surpassing other sectors. DeFi represents around 10%, ERC-20 contract interactions account for 7.5%, stablecoins contribute 6%, ETH transfers make up about 5%, bridging activities represent approximately 1%, while other on-chain activities constitute roughly 40% of the current block space demand on Ethereum.

To put things into perspective, Ethereum has facilitated over $43 billion in NFT sales volume throughout its history, with the majority occurring within the past two years. In comparison, when eBay went public, its annualized volume was around $340 million ($580 million adjusted for inflation). Last year, eBay achieved a gross volume of $74 billion. Considering these figures, NFTs may well be one of the most popular consumer goods since the advent of the iPhone.

Ethereum NFT Marketplaces

Regarding NFT trading platforms, the current landscape shows a competition between two primary players: OpenSea (blue) and Blur (orange).

In terms of weekly trading volume, Blur, which launched in October of the previous year, quickly gained a significant market share. LooksRare (green) ranks as a distant third with less than a 10% market share.

When considering the number of trades per week, OpenSea (blue) maintains its lead, while Gem (pink) lags behind with approximately 12% of the market.

Future of NFT Marketplaces

Presently, NFT marketplaces host a wide array of NFT categories, including gaming, collectibles, ENS domains, music NFTs, digital art, and more. As the NFT space matures, we anticipate the emergence of numerous specialized marketplaces for specific NFT types. For instance, we expect dedicated markets for real estate NFTs to arise, separate from digital art listings on platforms like OpenSea.

It is worth noting that Coinbase and Uniswap are notably absent from the NFT marketplace conversation. Although Coinbase launched its NFT platform in April of the previous year to compete with OpenSea, it has struggled to make a significant impact. Currently, Coinbase averages around five NFT sales per day. Similarly, Uniswap, which acquired Genie about a year ago, has had limited traction in the NFT space.

Ethereum Collections

Presently, digital art, collectibles, and profile pictures are the primary use cases for NFTs on Ethereum. This is evident when examining the top collections based on all-time trading volume:

1. Bored Ape Yacht Club – $2.8 billion
2. CryptoPunks – $2.5 billion
3. Mutant Ape Yacht Club – $2.1 billion
4. Otherdeed for Otherside – $1.4 billion
5. Azuki – $1.2 billion
6. Art Blocks Curated – $1.2 billion
7. CloneX – $940 million
8. Moonbirds – $750 million
9. Doodles – $690 million
10. Bored Ape Kennel Club – $540 million

Notable mentions:

• Sandbox Digital Land – $390 million
• Adidas Originals – $150 million
• Decentraland – $58 million

Wash Trades & Illicit Activity

It is important to acknowledge that a significant portion, 42%, of all NFT trades on Ethereum are classified as “wash trades.” Wash trades are a strategy used to manipulate the market price of an asset. These trades can be identified on-chain when the same wallet address engages in buying and selling the same NFT or when two addresses swap the same NFT more than three times. It is crucial to note that the volume and trade data mentioned above do not include wash trades.

Regarding marketplaces, LooksRare and X2Y2 have the highest occurrence of wash trading by far, with 94% and 84% of their trading volume labeled as such, respectively. Poor token incentive design may have incentivized undesirable behaviors among users, leading to a high volume of wash trades. Blur, currently the second-largest marketplace, has a staggering 24% of its all-time volume classified as wash trades. OpenSea, on the other hand, accounts for just 2.38% of all-time wash trades.

Regarding illicit activity and money laundering, while physical art has often been associated with facilitating money laundering, on-chain monitoring by Chainalysis suggests that the flow of illicit value through NFT marketplaces on Ethereum remains relatively low. During the peak of the bull market in 2021, Chainalysis identified only $1.5 million of illicit activity.

Solana NFTs

Solana has found a strong fit with NFTs, positioning itself as the third-ranked network in terms of 30-day trading volume and the second-ranked network in all-time trading volume. Over the past 30 days, approximately 10% of unique NFT buyers have originated from Solana. Similar to Ethereum, the primary use cases on Solana have been digital art, collectibles, and profile pictures. What sets Solana apart is its widespread usage of the native asset, SOL, as a currency within NFT markets. Unlike Ethereum, where users pay for NFTs with ETH, on Solana, they utilize SOL as the payment method.

NFT Marketplaces

Similar to Ethereum, the marketplace competition on Solana is currently a two-horse race. Magic Eden holds the incumbent position, while Tensor represents the upstart challenger.

As depicted in the chart, the market share in terms of volume is currently evenly split, with each marketplace capturing approximately 50%. It is important to note that the trading volumes on Solana marketplaces are currently less than one-tenth of popular Ethereum marketplaces such as OpenSea and Blur.

Polygon NFTs

In the past 30 days, Polygon has achieved the second position in terms of unique NFT buyers and ranks first in the number of NFT transactions. However, when considering dollar volume, Polygon holds the fifth position.

This data reinforces our observations and anecdotal evidence regarding user preferences for high-value NFTs. Ethereum remains the preferred choice due to its settlement guarantees and robust security as a Layer 1 solution. On the other hand, lower-value NFTs, such as consumer brand loyalty programs and gaming use cases, are more likely to thrive on an L2/side-chain like Polygon. According to DappRadar’s Q1 gaming report, Polygon currently stands as the second most popular blockchain for gaming applications.

The Missing Players: Coinbase & Uniswap

In the conversation about NFT marketplaces, two notable names are often absent: Coinbase and Uniswap. Despite launching its NFT markets in April 2022, Coinbase has struggled to compete with industry leader OpenSea. Currently, Coinbase only facilitates around five NFT sales per day. Similarly, Uniswap, which acquired Genie a year ago, has yet to gain significant traction in the NFT space.

The Rise of NFTs in Gaming

Gaming represents a massive growth area for NFTs, with blockchain integration becoming a common trend in the industry. There are three primary reasons for this:

1. Ownership of unique abilities and accomplishments: NFTs enable gamers to own and monetize their unique in-game abilities and achievements, allowing them to showcase their skills with verifiable proof on the blockchain.
2. Ownership and control of in-game assets: NFTs enable the creation of secondary markets for sought-after gaming assets, granting players true ownership and control over their virtual possessions.
3. User-controlled data and new gaming business models: NFTs and user-controlled data within games have the potential to revolutionize gaming business models, rewarding players for their time and abilities in novel ways.

Notable gaming brands, such as Animoca, are already developing multiple blockchain games to capitalize on these opportunities. Promising blockchain gaming platforms include Mythos, Immutable X, and Ronin, each offering unique advantages and use cases.

The Potential for Value Accrual in NFTs

With 853,000 unique NFT buyers and nearly $1 billion in sales volume last month, NFTs have achieved product-market fit. The sales volumes demonstrate the potential for exponential growth in this nascent asset class. However, projecting the value of specific NFT collections or monetizing IP remains challenging.

Investment Opportunities

For investors looking to gain exposure to the NFT market’s growth, several options are available:

1. Acquire NFTs from popular or up-and-coming collections.
2. Invest in the native tokens of popular NFT IP companies.
3. Invest in established NFT marketplaces.
4. Invest in games that utilize NFTs.
5. Invest in social or fan tokens.
6. Invest in business models that transform existing markets.
7. Invest in L2/side-chains focused on gaming infrastructure.
8. Invest in the primary settlement and infrastructure layer, such as Ethereum, Solana, or Polygon.

The Future of NFTs: Moving Beyond the “Skeumorphic Phase”

NFTs are still in their nascent stage, and the majority of their use cases have yet to be explored. The power of NFTs lies in their ability to represent both physical and digital assets on the blockchain. In a world where ownership of digital content is limited, NFTs offer a breakthrough by making intellectual property liquid.

As NFT technology advances and user-controlled data becomes the norm, the transformation of digital content will be profound. New markets for intellectual property and digital content will emerge, accompanied by novel business models and financialization opportunities. Ultimately, even physical assets like real estate could find their way onto the blockchain, unlocking trillions of dollars of previously illiquid value.

Conclusion

The direction of NFT marketplaces is taking shape, with specialized platforms emerging for different categories of NFTs. While Ethereum remains dominant, other blockchains like Solana and Polygon are carving out their niches. The gaming sector is particularly promising, offering significant growth potential for NFTs. As the NFT ecosystem evolves and user-controlled data becomes more prevalent, the financialization and transformation of digital content will revolutionize various industries. For investors, exploring different investment opportunities within the NFT space provides exposure to this groundbreaking asset class and its potential for future value accrual.

Recommended Reading: Grab This “Own To Earn” NFT & Earn Passive Income From NFTs

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