NFTs, are the utilities here yet?
We explore if the hype for Profile Picture NFTs are truly over, and if there are other use cases besides digital art.
This article was written by Justin from UOB Venture, with inputs from the Mimic Labs team. This document goes hand in hand with our dataset that can be accessed here.
1. Current NFT Market Condition
NFT summer has come and gone. Profile Picture (PFP) NFTs no longer command the high valuation and demand as once were.
Blue chip collections such as BAYC have had their floor price drop steeply since April, from over US$400,000 to US$80,000.
Decline in NFT trading is not unique to blue chip; across the market, daily transaction volumes have fallen from an average of US$300 million between Jan-Feb 2022 to US$50 million in recent months.
2. Developments in the NFT Market
To better understand the market, we used NFTGo to survey the top 50 collections. The results were surprising.
In October 2022, 17 out of the top 20 were still PFP projects.
6 of them were NFT image alteration projects. This goes to show that your AI generative NFT projects like Art Blocks are not so unique after all.
Most common form of utility across the top 50 projects are either token-gated communities or the introduction of metaverses.
Most projects touting a metaverse or game NFT usage are still under development, with no active game in sight. Do these projects have true utility or are they trying to find a utility?
3. What gives such results?
Despite the large emphasis from the investment community towards GameFi or other utilities, the narrative has yet to be executed.
Bulk of the transactions still belong to PFPs, with most expensive transactions persisting towards BAYC and CryptoPunks.
Projects are hardly differentiate from each other besides their art. The “utility” provided seems almost synchronous.
True NFT utility projects, such as music ownership or domain name sales, are rare.
A plausible explanation for such a result - NFTs attract a specific audience with a certain liking and risk appetite. These individuals are either traders or digital art connoisseur.
4. So who are those truly trading NFTs today?
Using 0xScope, we found that the entities trading NFTs can be divided into 2 broad categories: Traders and NFT Collectors.
Traders refer to entities that trade NFTs for pure gains.
Collectors refer to entities that collect and hoard NFTs.
Note: we use the term “entities” as an address can belong to an individual, group or organization. USD figures are as of 28 November 2022.
Address: 0xe4207f944FF4b7151586a14193753203d6119c8a
We classify this entity as a Collector.
Whale with a total balance value (excluding NFT valuations) of over US$700,000 across 17 addresses.
The address was mainly used for NFT collection. Across the 4 listed Externally Owned Addresses (EOA), NFTs are bought and held since July 2022. As these NFTs are not typically sold on a frequent basis, we classify the entity as a collector.
Fund flows mainly from CEX addresses, resulting in opacity of transactions.
Address: 0x0ad61c6c1152bcc7a4ed1e7fa62156e1860a2b63
We classify this entity as a Trader.
Trader with a total balance value (excluding NFT valuation) of US$33,500 across 34 addresses.
The entity transacted on an almost daily basis, with multiple receive and deposit transactions conducted throughout the day. Over 480 ETH was spent on NFTs with 221 ETH collected from sale.
Azuki, BEANZ, SpaceCraftX and Udra. These collections were traded on a very frequent basis as compared to a collector.
Fund flows mainly came from Coinbase.com.
Address: 0xAd9C302e3CA74E6E9ecF64529011D11A6D3A8EdB
We classify this entity as a Collector.
Collector with a total balance value (excluding NFT valuation) of US$865 across 3 addresses.
While the entity transacted on a frequent basis, majority of the transactions relate to minting of NFTs. The entity has spent only 10.8 ETH on NFTs despite holding Moonbirds.
The collector is most likely an individual seeking alfa through airdrops and mints.
5. Ok great investigation - so now what?
NFT having a next narrative is false - evidence demonstrates digital art is a use case here to stay. We should therefore think in parallel.
Based off a wider survey, collectors out number the traders. This could be due to higher difficulties in trading NFTs speculatively.
Collectors tend to focus into one specific NFT project rather than accumulating a diverse set of NFTs. This shows intangible value and stickiness within projects.
The notion that NFT has a next narrative should be eliminated. Digital arts is THE narrative of NFT. However, it does not mean the technology is unable to have multiple narratives running in parallel.
6. Market Development & Conclusion
We anticipate the NFT market having a second bullrun. This can be driven by either the other narratives (besides digital art) developing or speculative capital returning.
The current end 2022 market conditions has stripped away market liquidity. As speculative capital draws back, NFTs are hit the hardest as they tend to be one of the most illiquid and speculative alternative asset classes.
This leaves only the residual users of NFTs. Our research demonstrates these users are largely still digital art collectors with a high degree of stickiness to their selected projects. GameFi and NFTs of other utilities have yet to demonstrate comparable strength in terms of market size, floor prices and trading volume.
We therefore anticipate a second NFT bullrun through either 2 means:
GameFi or other utility drives a new narrative for NFTs.
Market conditions improve and speculative capital returns, resulting in NFT prices surging.
While the prolonged bear market has stripped NFT to its bones, it has helped demonstrate that digital art is indeed here to stay. Through our research, we remain confident NFTs will rise again.