Paper Hand Pandemonium

While market conditions were extremely tough, with bearish sentiment gripping the wider crypto community, last week was even more painful for some. The cataclysmic crash of LUNA and UST sent shockwaves throughout the crypto space, and NFT traders were not spared, as the crypto sell-off has also significantly impacted their beloved JPEGs. Read on as we dissect how the recent market dip has affected the general NFT market. 

Paper Hand Pandemonium

Source: CryptoSlam

NFTs across various networks were evidently hit hard by the recent price slump of Bitcoin and, more importantly, Ethereum. NFT Sales volumes were down across the board, with Ethereum recording a 60% drop over the past week. This is no surprise given that most of the biggest NFTs that we know of, such as Bored Apes and Azuki NFTs, are based on Ethereum. 

More notably, the top 3 networks with the largest dips in volume, which include Solana and Polygon, are supported by OpenSea. We believe this level of accessibility for NFT liquidity has somewhat contributed to the diminishing volume. It is hard to deny that OpenSea has become the de facto gateway for newcomers to jump into the rabbit hole of NFTs, and ironically, they are usually the ones most prone to hitting the panic button when things start to go south. As activity ramps up on OpenSea at an exponential level, it can go down just as fast, leading to much wider drops compared to other networks. 

Magic Eden and OpenSea on-chain statistics (Source: DappRadar)

Interestingly enough, one of Solana’s top marketplaces, Magic Eden, actually had 10% more active users in the past week compared to OpenSea. Additionally, the room for arbitrage on popular Solana NFTs that have been listed on both platforms is much smaller than before, thanks to NFT enthusiasts on Ethereum that are starting to take notice of Solana NFTs. Although the volume on Magic Eden is less than half of OpenSea’s, perhaps we may see a narrowing of the gap as Solana NFTs continue to gain even more traction within the wider NFT community.

As we zoom back onto OpenSea’s volume from just Ethereum, trading volumes were already tapering off within a day of the Otherdeeds land sale by Yuga Labs. By May 3, daily volumes have returned to fairly normal figures for 2022, ranging from $100 to $150 million, almost as if the Otherdeeds sale was a complete non-factor. While many may have expected the Otherdeeds to perform well (which it did, from a price perspective), perhaps they shot a little too close to the sun. 

OpenSea Daily Volume (Source: Adapted from rchen8)

Due in part to unoptimized code, the launch was marred with costly gas wars thanks to excessive demand and minting, which ultimately rendered the network unusable for smaller and retail users alike. Even after deducting the ridiculously high transaction fees and the initial mint cost of 305 ApeCoin (~2 ETH), initial listings were priced as low as 9 to 10 ETH, as demand from the secondary market seemed to agree.

Like a shell of its former self, trading volumes started to slow down on May 3, with only half as many secondary sales of Otherdeeds compared to the day before. Even as prices remained relatively stable for a few days, the sharp drop in volume was a precursor of unfavorable things to come.

As Bitcoin suffered a 10% drop on May 5, demand for NFTs quickly sank by 30% the next day and would continue to grind lower as Bitcoin stabilized around the $36,000 region. By May 8th, daily volumes had dropped to just over $50 million before activity started to pick up again, though not for the right reasons.

As the price of Bitcoin sank to $30,000 on May 8, and went even lower to $27,000 on May 11, we noticed an uptick in transaction volume, thanks to a wave of panic selling across various collections. Bearish market conditions induced fear in NFT holders to liquidate their current holdings, often at an immense loss, in an attempt to salvage their portfolios. 

Source: Twitter

On the flip side, specific NFT collections seem to have developed a certain level of resilience against the backdrop of the crypto downturn. Touted as being stable ‘blue-chip’ assets, NFTs such as Cryptopunks, Bored Apes, and Cool Cats managed to live up to that claim and weather the storm, only dipping by 7%, 9.5%, and 9.5%, respectively. While the price of ETH has certainly impacted their value in USD, ETH floor prices for these collections held much stronger compared to less popular collections. 

Doodles, despite the previous runup built by the anticipation for The Dooplicator drop on May 12, registered a 24% drop in floor price within the same period of time. Unsurprisingly, Azuki was the biggest loser of them all in the wake of recent controversies, with its floor price plunging by 66% within the same stretch. However, the downfall was brief, and Azuki’s floor price quickly rebounded after (more on this later).

Unexpected events regularly afflict the NFT space. These, along with bleak macroeconomic conditions, act as a litmus test for NFT projects. A strong community with diamond hands’, paired with a highly committed team that keeps its cool in the face of public scrutiny, will lend credibility to a particular collection to be considered as a blue-chip NFT.

Top Collections of the Week

Source: OpenSea; Snapshot taken 13 May 2022

ZAGABOND, the co-founder of Azuki, revealed himself to be the founder of Phunks, Zunks, and Tendies, projects that have allegedly been rugged. Despite this act of Seppuku (with rumors circulating of ZAGABOND being blackmailed into it), Azuki has rebounded with a vengeance, topping OpenSea’s charts as the most traded collection in the past week with >36,000 ETH in volume. The floor price of Azuki plunged to ~7 ETH after ZAGABOND outed himself, down from the previous floor of ~16 ETH. Since then, the floor has cautiously crept back up to ~13 ETH, with many Azuki loyalists declaring their faith and opportunistic traders punting on a revival to its former glory. At the same time, ZAGABOND has also vowed to hand over the contracts of Phunks, Zunks, and Tendies to their respective communities. Azuki’s derivative project, BEANZ, has also fared well in terms of floor price despite its drop in volume. Within the span of just a day from 12-13 May, its floor price doubled from ~1 ETH to ~2 ETH. 

Other than Azuki and Art Blocks Curated, the trading volume of the overall NFT market has plummeted across the top collections, with Otherdeed, BAYC, and MAYC being 3 of the most heavily affected. Despite this, they are still heavily entrenched within the Top 5 projects. Like Azuki, their floor prices have also recovered slightly from their intraweek low on 12 May. MAYC however, is still mired in the after-effects of AIP-21 and trading at a fifth of BAYC - a far cry from the days when BAYC was only 3x that of an equivalent MAYC.

Source: CryptoSlam (16 May 2022)

Okay Bears, the shining beacon of Solana NFTs, kept its place in the Top 10 despite its drop in volume traded. In fact, just earlier this week, it dominated the 24h sales charts with over $13m in volume, more than 2x of the next closest project (CryptoPunks) and 6x more than NFT darling BAYC. As mentioned, this reads like a precursor to the rise of Solana NFTs. With interesting developments such as the enigmatic xNFT, as well as the imminent launch of high-profile games such as Aurory and Genopets on the horizon, it is definitely worth keeping an eye out on the Solana NFT-verse.

What else are we paying attention to

1. Art Blocks back on the menu - AGAIN

Interestingly, The Great PFP Migration was upon us again as Art Blocks Curated saw another massive influx of volume. This was the second time within a week where the blue-chip generative art project’s volume shot up, again during a period of time when most of the other PFP projects were bleeding in volume. PFP projects in general are seen as the fast fashion of NFTs, with a de rigueur art style that is designed to appeal to the masses. During a market downturn, traders usually seek solace in more timeless pieces that traditionally hold value better (think classic Chanel bag designs). We believe the same phenomenon is being observed in this curious case of Art Blocks. In fact, the floors of most Art Block collections, including the usual suspects of Fidenza, Ringers, and Archetype, are also all up over the past few days.

2. Can Solana NFTs eventually become bluechip?

The ascent of Solana NFTs has been a refreshing change to a market that was once solely dominated by Ethereum projects. However, one major aspect that separates the two (and all other altchain NFTs) is the lack of a ‘bluechip’ project like BAYC, Cryptopunks, Meebits, and more. Previously, Degenerate Ape Academy, one of the very first high-quality NFT launches on Solana was perceived as the figurehead of Solana NFTs, but has since faded from the top. Other PFP projects such as OkayBear and DeGods are now leading the charge for Solana, but they have yet to withstand the test of time that Ethereum bluechip projects have. Bluechip NFTs confer a certain degree of prestige in association - projects that have withstood the test of time; projects that are now viewed as the quintessence of NFTs; projects that have revolutionized the space by spearheading partnerships with megabrands such as Nike or Adidas. Funnily enough, the prohibitive costs of the Ethereum network have also helped in crafting the exclusivity and prestige of these NFTs. So far, altchain NFTs (especially PFPs), including Solana’s, have yet to accomplish as much to transcend into the ‘bluechip’ tier. 

Conversely, Solana, with its fast transactions and low network fees, has an advantage in utility NFTs, especially those that are capable of generating potential returns through their usage, such as STEPN shoes. Evaluating this type of NFTs is easier as there is a baseline of reference in terms of expected returns, whereas punting on PFPs requires monitoring of more intangible factors (e.g. social media sentiments). 

3. Soulbound NFTs

In one of Vitalik’s older blog posts, he floats the idea of a soulbound NFT, which is non-transferable and, in essence, ‘bound’ to a specific wallet address. This idea has recently gained traction among the wider crypto community, owing to the publishing of an academic paper co-authored by Vitalik, Puja Ohlhaver, and Glen Weyl exploring the concept of a “decentralized society”. Predictably, there has been a mini-explosion of soulbound NFT projects such as Soulminter and MetaAstro. As the main feature of these NFTs is their non-transferable nature, it remains to be seen whether these types of NFTs will gain primary attention and not just based on profitability since they cannot be sold on the secondary market. Central to the investment thesis will likely be the utility these NFTs carry instead of being purely a status symbol.

This article was produced in collaboration with Dillon Yap. You can follow him on Twitter here.