NFTs on Solana, the "sinking market" in the red sea

Written by: 0xLaughing, Rhythm BlockBeats

"SOL Community > ETH Community."

Orangie posted this tweet. Orangie is an NFT KOL on Twitter with over 160k followers. Although he still uses MAYC as his avatar, it is clear that he has shifted his focus to Solana NFTs. With the explosive popularity of Okay Bears, more and more NFT players are paying attention to the Solana blockchain.

Solana NFTs are emerging on OpenSea

In the NFT market, Solana supporters have traditionally promoted it with advantages such as "fast transaction speed," "almost no fees," and "low barriers to entry." However, at the same time, there are many criticisms of Solana NFTs: "there are rug pulls everywhere," "frequent outages," "not as decentralized as Ethereum," etc., even mocking it as the "poor man's blockchain" chosen by NFT players who cannot afford gas fees.

So what is the real Solana NFT market like? This article will explore the potential and prospects of the Solana NFT market by examining the changes in the NFT market over the past few months and comparing it with the Ethereum NFT market.

NFT Market: "The Cliff is Visible"

The popularity of NFTs has skyrocketed since 2020, from the emergence of Cryptopunk and BAYC to the continuous rise of PFP NFT projects like Doodles, Azuki, and Moonbirds. Many celebrities, including Neymar, Jay Chou, and Eminem, have entered the space, gradually bringing NFTs into the public eye and making them widely known at a rapid pace.

NFT projects have also attempted innovation from multiple aspects. From the initial creation of avatar NFT projects that foster social scenarios, with different art styles catering to different investors' preferences; to later Pass NFTs that provide analytical tools or Alpha community benefits; various new gameplay designs, such as issuing tokens, creating IP, and continuously generating revenue, have emerged.

Changes in total market capitalization and trading volume in the NFT market (Source: NFTGO)

During the nearly year-long "NFT Summer," the total market capitalization of NFTs once exceeded $38.6 billion, with new social narratives and a strong wealth creation effect attracting various capital to enter the market. The NFT market was unprecedentedly hot, and investors wanted to share in the "turning pixels into gold" story.

The trading volume of ETH-based NFTs on OpenSea continues to decline (Source: Dune)

As we reached April and May of this year, the entire crypto market showed signs of fatigue under the expectation of interest rate hikes by the Federal Reserve. At the beginning of May, the launch of Yuga Labs' "Otherdeed for Otherside" series drained the last bit of liquidity from the NFT market. The Luna/UST crash caused investors to panic and sell off various investment assets, and NFTs were no exception. On-chain data from Dune shows that the trading volume of ETH-based NFTs on OpenSea has continued to decline, with recent daily trading volumes even less than one-tenth of the peak.

"The bear market is really coming."

In the process of entering the bear market, asset shrinkage is just one aspect; NFT investors are more afraid of a sudden drop in liquidity.

Indeed, compared to FT (Fungible Token), liquidity is the most critical topic for NFTs (Non-Fungible Token). "Tokens can at least be sold on the market with one click to recover some costs, but if NFTs can't be sold, they really go to zero." The sharp decline in liquidity is reflected in the current NFT trading market: almost all NFT trading volumes have decreased, with unknown NFT projects having only a few transactions a day or even none. Investors eager to cash out are competing to lower prices, further damaging the price trends, and the early consensus is collapsing, leaving project teams helpless.

In such a dramatically changing environment, optimistic investors are betting on the future of the NFT market, eagerly awaiting potential incremental funds. However, the danger lies in the fact that although the NFT market is highly anticipated, its user and capital growth rates have significantly slowed.

Compared to the enthusiasm of investors, the icy growth data of the NFT market is like a cliff standing in front of all NFT projects.

Solana NFT Market: "Stepping on the Gas"

The lack of incremental funds in the NFT market makes it difficult for most NFT projects to escape the "red sea" of fighting over existing funds. Leading blue-chip projects can still breathe after reaping market dividends due to their first-mover advantage and top-tier status, while new projects recently launched on the ETH chain face the dilemma of being born only to die. Non-top NFT projects that have existed in the market will also face collapse.

Even so, facing the cliff of the NFT market, NFT projects on the Solana chain have not slowed down; instead, they have stepped on the gas.

The trading volume of Solana-based NFTs on Magic Eden significantly increased in April and May (Source: Dune)

The total floor price of Solana NFTs has continued to rise over the past few months (Source: SolanaFloor)

Data from Dune analysis shows that the number of NFT transactions on Magic Eden, the largest NFT trading platform on the Solana chain, significantly increased in April and May. Data from SolanaFloor also indicates that the total floor price of Solana-based NFTs has been continuously rising over the past few months. With the ongoing heat of Solana NFTs, the daily trading volume on Magic Eden even surpassed that of OpenSea at one point.

Undoubtedly, these data points are rare positive signals in the NFT winter, at least proving to some extent that the NFT market on the Solana chain still has a certain level of heat, and this heat is continuing to rise. Among them, an NFT project called Okay Bears has performed exceptionally well.

The floor price of Okay Bears skyrocketed after its launch (Source: Sol Sniper)

On April 27, Okay Bears was publicly launched on the Solana NFT market Magic Eden at a price of 1.5 SOL, and thereafter the price soared, with the floor price at one point exceeding 260 SOL. In less than a month, Okay Bears generated astonishing trading data: over 20,000 cumulative transactions and a total trading volume exceeding 1.4 million SOL, ranking second in total market capitalization among Solana NFTs.

The immense wealth effect generated by Okay Bears in a very short time has made it explode in popularity, adding fuel to the rising temperature of the Solana NFT market and proving that there is indeed a "wealth creation machine" here.

Solana vs Ethereum: "The Public Chain War"

As one of the earliest public chains, Ethereum has been crowned the "King of Public Chains," with a flourishing ecosystem and a variety of DAPPs. Among other public chains, there are many challengers, and Solana is one of them.

Transaction Speed and Transaction Fees

From the very beginning, Solana has aimed to become the "fastest high-performance public chain."

It has built a completely different system architecture using technologies such as Proof of History (PoH), Tower BFT algorithm, Turbine propagation protocol, and Sealevel engine, which gives it higher speed and lower costs compared to other blockchains.

Bitcoin can process about 7 transactions per second (7 TPS), Ethereum can process 30 transactions per second, while Solana can currently process 65,000 transactions per second, making its TPS comparable to Visa and Mastercard, quickly establishing it as an industry leader in speed and global scalability. Although Eth 2.0 may significantly improve performance in the future, its launch schedule has been repeatedly delayed.

Average transaction fees across various chains (Source: A16Z)

In addition to transaction speed, Solana's transaction fees are also much lower than Ethereum's. A transaction on Ethereum typically costs over $10 in gas fees, while a transaction on Solana only costs $0.00001.

On May 1, over 70,000 ETH were burned (Source: glassnode)

Taking the launch of Yuga Labs' Otherside project as an example, data from Glassnode and Data Always shows that on May 1, during the Otherside launch, approximately $227 million in fees were spent on Ethereum, with over 70,000 ETH burned, and the average fee per user was $197.

Yuga Labs stated it would refund users for gas fees spent due to transaction failures

After the Otherside launch, Yuga Labs posted a tweet stating that it would refund users for gas fees spent due to transaction failures. "It is clear that ApeCoin needs to migrate to its own chain to scale properly." This shows that even leading projects like Yuga Labs cannot bear the high fees on Ethereum, and NFT players are even more troubled by it.

Degree of Decentralization

The "Trilemma" of blockchain

Ethereum founder Vitalik Buterin once proposed that the development of blockchain faces a "trilemma," which refers to the difficulty of ensuring decentralization, security, and scalability simultaneously. Compared to Ethereum, Solana sacrifices some decentralization while ensuring security and high performance.

From the perspective of validator node development, Solana can currently process up to 65,000 transactions per second. High throughput means that the hardware requirements for running validators are extremely high. This high barrier means that the Solana Foundation is the only entity developing core nodes on the Solana blockchain, which allows it to control the network and reduces the degree of decentralization. The Solana network has experienced multiple outages, and top-down solutions have drawn many critical voices: it appears to be a "centralized bank with a more advanced database" rather than a so-called decentralized blockchain.

Initial token distribution of public chains published by Messari

On different blockchains, delegating tokens to validators is the intrinsic driving force for protecting network security. Therefore, when comparing the degree of decentralization between Solana and Ethereum, it is also important to compare their token distributions.

Compared to Ethereum, Solana has a high proportion of tokens held by insiders. According to Messari's data, about 48% of Solana's tokens are held by insiders, including members of the Solana Labs team and venture capital firms. Additionally, another third of the supply has been allocated to ecosystem development, with only a relatively small amount of tokens allocated in Solana's public sale. In contrast, Ethereum distributed about 80% of its tokens through public sales, with insiders holding only 15% of the total supply.

The Future of Solana NFTs: "Overtaking on the Curve"

Nobel Prize winner Herbert Alexander Simon once pointed out: "In today's fast-paced information age, the value of attention will surpass that of information."

Indeed, with new NFT projects emerging every day, those who attract capital's attention will gain the upper hand.

Frank, the founder of DeGods, thanks Okay Bears for bringing more attention to Solana NFTs

The explosive popularity of Okay Bears has made more people aware that Solana NFTs also have a strong wealth creation effect. Frank, the founder of DeGods, the top-ranked Solana NFT project by market capitalization, even tweeted his gratitude: "DeGod holders should thank Okay Bears; they brought more attention to Solana."

NFTs on Ethereum have leveraged their first-mover advantage to attract the vast majority of market attention. However, in the face of Ethereum's "winner-takes-all" Matthew effect, Solana NFTs still have the opportunity to achieve "overtaking on the curve."

Magic Eden Supports the Development of Solana NFTs

Magic Eden leads "SOLANA SUMMER"

As the largest NFT exchange on Solana, Magic Eden has extensive interactions with Solana NFTs. Following the "DeFi SUMMER" and "NFT SUMMER," Magic Eden aims to initiate "SOLANA SUMMER" riding the wave of Okay Bears' popularity.

Comparison of trading volumes of the three major ETH NFT exchanges (Source: Dune)

In the article “ETH or Solana NFTs: The Chicken or the Egg Problem”, the author Mr. Fox believes that even though NFT trading platforms like LooksRare and X2Y2 use low fees and token rewards as "vampire attacks" to compete with OpenSea, they still cannot win primarily because the same NFT has higher liquidity on OpenSea. This is indeed the case, as data from Dune shows that OpenSea's market share of ETH NFT trading volume has consistently remained above 50%.

But can OpenSea still win for Solana NFTs? The answer is no.

Comparison of trading volumes of Okay Bears on OpenSea and Magic Eden (Source: Dune)

Starting in April, OpenSea began supporting the trading of NFTs issued on Solana. When Okay Bears exploded in popularity, it even briefly topped the trading volume charts on OpenSea. However, data from Dune shows that the vast majority of Okay Bears transactions occurred on Magic Eden.

Magic Eden's share of trading volume in the Solana NFT market (Source: Dune)

Not only Okay Bears, but Magic Eden accounts for over 95% of the trading volume in the entire Solana NFT market, meaning that for all Solana-based NFTs, Magic Eden has absolute dominance in terms of liquidity.

This shows that in the "chicken or egg problem," the "ETH network effect" has brought many NFT users to Ethereum, while Solana NFTs are temporarily lagging behind simply due to a lack of first-mover advantage compared to Ethereum. In terms of liquidity, the Solana-native NFT trading market Magic Eden focuses solely on the development of Solana NFTs, making it more like a potential "OpenSea killer," and even seems to challenge the entire Ethereum NFT ecosystem.

"Lower-tier Markets" May Be the Mainstream Market

Pinduoduo has brought the concept of "lower-tier markets" into the public eye. Looking back at 2018-2019, Pinduoduo first tore a crack in the e-commerce industry dominated by Alibaba and JD, and then turned this crack into a territory through rapid growth. Today, Pinduoduo has become an undeniable heavyweight player in the e-commerce market.

What exactly did Pinduoduo do right? Clearly, there are multiple reasons, but the lower-tier market played an absolutely crucial role in this.

Similarly, Solana NFTs, with their low launch prices and low transaction fees, seem to be developing a "lower-tier market" for Web 3.0.

More and more NFT KOLs are investing in Solana NFTs (Image Source: Inspect)

Many Ethereum NFT enthusiasts believe that those who go to Solana to invest in NFTs do so because they cannot afford the high fees on Ethereum, even mocking Solana as the "poor man's blockchain." Saving more on fees to invest in their favorite NFTs has instead become a disadvantage, which is indeed puzzling. In reality, many well-known NFT KOLs and whales are also investing in Solana NFTs.

Indeed, NFTs have certain social and luxury attributes. People can guess the wealth of the person on the other side of the screen just by looking at their hexagonal avatar on social media. NFTs are trying to create a new class ladder, but for those peering into the Web 3.0 world, the entry barrier of hundreds or even thousands of dollars is not conducive to NFTs breaking out. If it is believed that NFTs will become standard for every Web 3.0 member in the future, then low-priced NFTs will also be a necessity in the market. NFTs should not just be a game for the rich or capital; their artistic value also needs to be accessible to the public.

The "lower-tier market" represented by Solana NFTs may very well be the mainstream market of future Web 3.0.

Conclusion

The competition among public chains is like "a thousand troops crossing a single-log bridge," and the development of NFTs essentially depends on the development of the public chains they are based on. Compared to Ethereum, Solana is currently not as decentralized as many hope, but over time, this issue is expected to improve. For Solana NFTs, the concept of affordability has taken root, but more "hit products" like Okay Bears are still needed to prove their incredible wealth creation capabilities.

The gathering of consensus still requires time; let the bullets fly for a while.