Non-fungible tokens (NFTs) have burst into the mainstream in 2021. First going through a hype cycle in February — March, the NFT space drew the attention of many upon Beeple’s $69 million sale for Everydays: The First 5000 Days. Since then, the NFT market cooled down and surged back to new highs in what many are referring to as “NFT Summer”. Analyzing on-chain and market data obtained by IntoTheBlock, we obtain five fascinating insights behind the remarkable rise of NFTs and their impact on the Ethereum blockchain.
1. The NFT Market has grown over 3,000x year over year
OpenSea has quickly become the largest marketplace for NFTs. Aggregating all public ERC-721 and ERC-1155 tokens on Ethereum and Polygon, OpenSea is the entry point for the vast world of NFTs.
As demand for NFTs has rocketed, OpenSea has benefited tremendously. In 2021 alone they raised $123 million between their series A and series B financing rounds, giving the marketplace a most recent valuation of $1.5 billion. Both rounds were led by renown venture capital firm a16z and also counts with reputable investors such as Founders Fund, Coinbase Ventures and individual investors like Mark Cuban and Kevin Durant.
The concentration of noteworthy investors in OpenSea is understandable based on the sheer growth it has seen, with monthly volumes in its marketplace blowing past $3 billion.
August 2021 has so far been the month with the highest activity in NFTs. As such, OpenSea recorded a whopping 3,600x increase year over year from under $1 million in August 2020 to over $3.4 billion this past month.
2. Investors are flooding in and spending more
Although it is unclear if demand is coming from people looking to collect NFTs or simply from speculation on JPEGs (and even .txt files!?), it is evident that investors cannot get enough.
Over 200,000 addresses bought at least one NFT on OpenSea in August 2021, growing 100x year over year. On average each address bought 7.6 NFTs the past month, another record high.
The volume spent per address has also grown exponentially. The average address spent over $15,000 in NFTs on OpenSea throughout August, increasing 35x.
3. Prices of “blue-chip” NFTs have skyrocketed
Though it is debatable which NFT collections have achieved “blue-chip” status, some of the most known ones include CryptoPunks, Bored Apes Yacht Club, Meebits and Art Block’s squiggles. There is relevance behind each of these collections.
CryptoPunks was arguably the first collection of NFTs, launching as free to claim in June 2017. CryptoPunks creator Larva Labs then launched Meebits as a 3D avatar thought out for the metaverse. Bored Apes Yacht Club (BAYC) have achieved a substantially large community, including Golden State Warrior’s Steph Curry, and experimented with innovative features such as providing owners a serum to create mutant versions of their apes. Finally, Art Blocks has led the movement in generative art — algorithm-made pieces with provably randomized and unique features — and as such its first collection the squiggles has accrued a significant amount of value.
Like previous charts, the one above also uses a logarithmic axis to be able to capture the rapid increase in values. Though CryptoPunks are known to have increased significantly in 2021, its 700% year-to-date return lags behind other notable collections.
Art Blocks’ squiggles lead the pack with over 48,000% increase in ETH terms, while BAYC achieved an equally impressive 22,000% since its inception. Only Meebits appear to be lagging behind out of these four collections.
4. Gas prices spike consistently during NFT drops
The increasing NFT prices have likely led interest into the space. Along with it, gas prices on Ethereum have spiked significantly.
More and more NFT releases are leading to sudden spikes in gas prices. This is the case as projects releasing NFTs typically charge a relatively low fee for users to mint a fixed number of pieces that can then be resold. As prices of NFTs have increased, many appear to be looking to mint these NFTs hoping to sell them at a higher price, increasing the willingness to spend for higher gas fees.
5. NFTs are leading Ether to become deflationary
Even though NFTs may be pricing out usage of Ethereum, it is arguably benefitting Ethereum holders. This is the case not only because it drives demand for ETH to pay for NFTs, but also because following the implementation of EIP-1559, part of transaction fees are burned, effectively reducing ETH’s net issuance.
The high amount of transaction activity surrounding NFTs has led the amount of ETH being burned to surpass the total amount issued in two days, and largely decreased Ether’s issuance rate.
Overall, the NFT space has recorded a breakout year with increases in multiples that may be hard to fathom. While a significant portion of the activity appears to be speculative following price increases, it is likely that there is substance behind the space as it drives more users and savvy investors into crypto. Finally, it is worth considering both the positive and negative outcomes arising from the recent NFT mania. Ultimately, time will tell if the reduced ETH issuance led by NFTs will make up for the incredibly high gas costs they spur.
P.S. keep an eye out for metrics like these to be released on IntoTheBlock 👀