_iant Fund: A sign of new life for NFTs on ETH and L2

Original Title: “New Signs of Life in the Ethereum & L2 NFT Eco”

Original by Jack Gorman

Original compilation: Kate, Mars Finance

On-chain data shows new entrants and new use cases for NFTs

In the eyes of the outside world, NFTs are dead.

When you look at the sales figures in the second-hand market – the most frequently cited metric – you can see that this is irrefutable. From the peak of the NFT market in January 2022 to November 2023, the secondary trading volume of ETH Fang decreased by about 90%, and the number of different addresses that purchased NFTs on the secondary platform decreased by about 82%. September 2023 was the year with the lowest number of NFT trading volumes and buyers in ETH Fang since June 2021.

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But the secondary market, which has been picking up in recent weeks, only paints part of the picture. When you look elsewhere, you’ll see new signs of life for NFTs.

An encouraging indicator of NFT adoption is that ETH Fang is growing, as well as the creation and collection of second-tier chains such as Base, Zora, and Optimism. As far as collectibles are concerned, the number of paid NFTs from different addresses has grown over time, suggesting that there are new participants minting on the chain.

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The growth in collecting activity has been accompanied by an increase in new NFT contracts on chains such as Zora and Base, which is driven by a range of creation tools that make it easier to create NFTs.

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While it is true that there is some spam and airdrops in this data, the data is still encouraging.

One possible explanation for the growth of different addresses and new contracts is a simple Occam’s Razor view: as more projects, use cases, and art are created, more and more cryptocurrencies are participating in NFTs. By reducing the overall financial cost of NFTs, more non-cryptocurrencies will join the coming wave.

We may also be witnessing a shift in perceptions and use cases for NFTs. In the past, rarity, exclusivity, and superuser trading were decisive factors in the NFT market, making it more difficult for more users to join cryptocurrency. Now, in addition to high-end collectibles, the proliferation of NFTs in various forms and use cases offers new opportunities to engage users and promote widespread adoption.

Hurdles before NFT adoption

During the last bull run, NFTs became ETH new asset class. In January 2022, NFT trading volume reached $16 billion ($5.2 billion excluding wash trades). However, despite the high trading volume, only 447, 260 different addresses actively purchased NFTs on the secondary market during the month. This suggests that even at the peak of the market, NFT adoption has been relatively small overall, largely dominated by a core group of active collectors and collectors.

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Why is the adoption rate lower than many people think? High costs, limited use cases, and whale-led speculative trading could keep people away from NFTs.

Take a look at the table below, and you can see how expensive it is to mint, trade, or create NFTs on-chain: The average deployment cost of an NFT contract in 2021 was $812, and the minting cost was $115.

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The high cost of gas becomes a barrier, limiting the ability of new entrants to use NFTs, as well as what artists and builders can create on the blockchain.

This has hindered early NFT adoption, favoring higher-priced assets such as artwork or PFPs, which have the potential to appreciate in value and justify on-chain costs.

Further analysis shows that NFT market activity is concentrated among a small number of collectors and traders. In 2021, only 10,000 different addresses (0.73% of all buyers) accounted for 69% of total transactions, and the top 100 collections accounted for 64% of all royalty projects.

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Of course, these hurdles – high costs and limited use cases – are not unique to NFT adoption.

New technologies often follow a similar adoption pattern, with early adopters typically wealthy individuals, niche groups, and speculators. In the early days of the internet, usage was limited due to the challenges of building and interacting on the web. As with NFTs, speculative investments poured into internet companies, pushing valuations to unsustainable levels until the bubble burst. But the potential of the internet remains intact, and with improved infrastructure and enhanced user experience, the internet has transformed society.

I believe that the same shift is starting on NFTs. The focus is shifting from investment and luxury to a technology that is revolutionizing digital ownership for the masses. As the saying goes, yesterday’s luxuries become necessities today.

I can’t predict what will happen next for the NFT market. However, three on-chain trends show us where NFTs are headed in the future:

1. Infrastructure and tools have been improved, reducing minting costs and increasing potential use cases for NFTs (minting, collections, and collectibles) embedded in applications

2. New models of community engagement, more than just holding NFTs, provide opportunities to sustain community engagement, such as on-chain governance, governance, and protocol rewards

3. In addition to PFP and art, new forms of NFTs are gaining traction, including games, real-world assets, and token-bound accounts

The cost of minting is decreasing

As any technology advances, costs will fall and new areas of demand will be unleashed. We’re now seeing this at play in NFTs, as the second layer, improved tools, and better infrastructure are reducing the overall cost of minting NFTs.

The recent cost of 1 million NFT transactions on ETH Square was $2.5 million, but only $629,200 on Base and $75,990 on Zora. At the same time, the number of free mints is also rising: about 62% of ETH and L2-based NFTs can be minted for free.

Cheap NFTs are a feature, not a flaw. Reducing cost barriers can lead to more collections, more experimentation, and more construction. More affordable NFTs will also offer new use cases where NFTs are the “how” rather than the “why.”

For example, Blackbird uses NFTs to track restaurant visits as part of a loyalty program that rewards diners for dining at their favorite restaurants. This app is implemented by Base, which allows NFTs to be minted in cents and improves tools like Privy for a better user experience.

Many users of Blackbird may not even realize that they are holding NFTs. Going forward, I hope that more apps will be able to leverage NFTs to engage with consumers in innovative ways.

Empowering the community

While the previous bull market was mostly focused on selling NFTs, we are now seeing a return to the importance of the holder community.

Companies like Botto and Basepaint are collaborating and voting to guide which themes or artworks should be chosen. Others offer new ideas on NFT governance. For example, K-pop group TripleS uses NFTs called “Objekts” as a way for fans to vote on the band’s future (e.g., choosing a song title or choosing a subunit of the 24-girl group to record their own songs). So far, the results have been positive, with over 1 million mints and 87,000 collectors, with millions of views on Spotify and YouTube.

Source: Hashed

Initiatives such as Zora’s protocol rewards have demonstrated ways to incentivize users to create and participate on-chain. The project has already seen early success, with more than 1,130 ETH (approximately $2.5 million at the time of writing) distributed to thousands of collectors, creators, and builders on the web.

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What makes these initiatives so exciting is that they allow community members to take a more active role in the community while growing their network.

NFTs are taking new forms

In the last market, the dominant type of collection was PFP, which is a public display that indicates that you own a rare or high-priced image. While some of the most well-known collections may always be valuable, NFTs may come in a variety of formats, such as game-related, musical, or even tokenized versions of real-world assets. Courtyard recently began tokenizing Pokémon cards, with more than 9.7 billion cards sold in 2022, opening up a more liquid market for the asset.

Even in addition to ERC-721 and ERC-1151, new standards have emerged, such as ERC-6551, which is a non-fungible token bonding account. Token-bound accounts convert NFTs into separate wallets capable of holding assets. While the total number of NFTs is still small at only about 52, 000, the number of token-bound accounts has been growing at a compound monthly growth rate of around 90% since June 4.

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Token-bound accounts offer more than just NFT ownership, they can create profiles with embedded social graphs and inventory systems. This concept has been applied by Lens to social media profiles and expanded to future possibilities, such as the account becoming an avatar in a video game, or a particular Bored Ape becoming a personality with its own fans.

We’re still in the early stages of NFTs as an asset class, and it’s hard to predict how everything will play out. After all, CryptoPunks were initially free and had little activity in the years following their debut in June 2021 until the punk price exploded during the NFT boom. In 2017, few could have foreseen that in 2021, some punks would change hands for $10 million to $20 million.

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I’m excited to see the growing growth of NFTs. There is a lot of experimentation going on in this area, which is encouraging. As NFT use cases increase, NFT minting will become more common. Internet users may have hundreds, if not thousands, of NFTs in their wallets for a variety of applications.

If you’re like us at iant and are excited to help grow existing NFTs, you can collect and mint this article as an NFT on Mirror.