With special thanks to Daryl Lau from Mechanism Capital for his comments. Art Blocks and Cryptopunks are not included in this study due to smart contract differences.
Secondary Market Metrics
Half a year back, no one would have ever expected OpenSea to eventually top the Gas Tracker list and compete with Uniswap. Today, OpenSea is the second largest gas consumer entity and regularly takes up 10-20% of the gas market. It is currently the largest secondary market for NFTs. After the NFTs of an art project are minted, they begin trading on OpenSea as other collectors pick and bid for NFTs they like.
Plotting historical trading volume alongside the number of unique buyers since July, we can tell that secondary buyer interest in NFTs has begun to dampen in August. Dips in Ethereum trading volume which might be indicative of lower sales prices, while the decrease in number of unique NFT buyers might point to a lack of new participants entering the NFT space.
Nevertheless, there has been a strong rebound in NFT trading since its low on the 19th of August. This has been matched by a spike in average NFT trading prices on OpenSea.
What’s interesting is that the average ETH price of NFT sales have remained relatively constant since July, and this represents an increase in dollar value of each NFT. The daily maximum price fetched by secondary NFT sales has also been on a general uptrend.
Surveying the NFT project landscape
Now, we move on from the secondary NFT market to the primary NFT market. We obtain a Universe of 645 NFT projects. It is estimated that around 84,000 Ether has been deposited into ERC-721 NFT contracts since June. This constitutes the primary “sales revenue” accumulated from addresses that are first to mint these NFTs. Around 75,000 Ether has been transferred out of such contracts. 573 projects have transferred Ether out, while 72 projects still have not touched the Ether in their treasury.
Distribution of projects by primary sales revenue
Only 80 projects that achieved a primary sales revenue of 300 Ether and above. The median Ether revenue is 10.2 Ether.
Project sales revenue aggregated till 16th August
Mint participation by address
From June to mid August, an estimated 75682 addresses have minted NFTs, making 3.16 unique mints on average (mean). Interestingly, a majority of addresses mint only one unique NFT project.
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What happens to Ether revenue — or Do Projects Dump Your Ether?
What do projects do with all the Ether they receive? Now, we only study projects with primary sales revenue of more than 20 Ether total, and analyze Ether transfers out of the project’s treasury since June. This is usually a contract call that is recorded as an internal transaction on Etherscan.
We take the list of recipients, and find out which addresses they have sent Ether to after they have received Ethereum from their respective projects.
Further take this list of addresses and check if they are entity addresses, or if they are contract addresses. If they are, we do not track any further transactions from these addresses, and remove them from the senders’ list in the next step. If they are not, find out which addresses they have sent Ether to after they have received Ethereum from the previous source.
Repeat the above step 2 more times. Hence, a total of 4 levels of transfers are found.
Because each subsequent recipient address could be spending more Ethereum than it received from the NFT sale, there is no clear way to absolutely qualify whether the Ethereum they spend is “derived from” that extra NFT income or not. We can assume, however, that the percentage spending on each type of entity should be a representative measure of how they chose to spend their income. Results below.
Approximately 52.3% of the Ethereum from primary NFT sales is still circulating among non-entity wallets. 10.4% have been used on a DEX, either as liquidity or for swaps. 3.6% have been deposited on a Centralized Exchange, while 17.7% is poured back into NFT projects. This includes NFT mints and marketplaces like OpenSea or Rarible.
We remove the ETH flow to non-entities and examine the Ethereum flow into the entity segment more specifically.
Almost 22% of this flow is returned to OpenSea, presumably to purchase more NFTs. Binance tops the list in terms of CEX deposits, capturing 13.75% of the Ethereum flow to entities. Uniswap trails close behind with 9%. Around 6% is also used for CryptoPunk related activity, possibly as capital to make a purchase.
Conclusion
NFTs are a bright new vertical catching product-market-fit. The industry, however, remains spotted by certain profit-seeking practices. There is also some on-chain indication of founders buying up the floor for certain projects, and such behaviour may indicate ongoing wash-trading. Nevertheless, the healthy distribution of NFT minters and rising number of unique buyers points to genuine, organic growth of the NFT community. Certain projects also stand out by reinvesting primary sales revenue into NFTs, under the governance of their own community.
