Research: In-depth Analysis of the NFT Market and Centralized Exchange NFT Business

Authors: Tillock, Oscar, Kyle, Bing Ventures

In recent years, the NFT sector has attracted significant attention from investors. In 2021, the explosive user growth of Opensea and the sharp rise in the total market value of NFTs brought the entire NFT sector to a new height. Leading centralized exchanges (CEX) such as Binance, Coinbase, OKX, and Kraken have also announced their entry into the NFT space. In the past, DeFi formed a complete ecosystem of DEX, lending, stablecoins, oracle, derivatives, and cross-chain bridges within just one year, continuously moving towards energy aggregation based on traffic. In 2022, NFTs further accelerated the speed of ecological aggregation, with the entire sector trending towards maturity, making multidimensional efforts to expand the ecosystem from review updates to zero royalty reforms, brand collaborations, and mergers. Now, the NFT ecosystem is basically complete.

Against the backdrop of the bear market in 2022, relevant data for NFTs experienced significant fluctuations, with overall market data continuing to decline, and the total market value dropping to just 7.4B. This has led to voices suggesting that NFTs are about to enter a period of decline. Currently, the NFT market has entered a phase of stability and transformation, requiring time to continue rooting itself.

What is the current market situation, including the competitive landscape among market participants such as centralized exchanges, and what are their future development bottlenecks and prospects? This issue of Bing Ventures' industry research provides an in-depth analysis of the NFT market and the NFT business of centralized exchanges.

Industry Status

Basic Introduction to NFTs:

NFT stands for non-fungible token, and non-fungibility is a significant characteristic of NFTs. Unlike fungible tokens, NFTs cannot be exchanged for one another; they are a unit of data stored on the blockchain that can represent unique digital assets such as artwork. Each NFT has a unique identifier that distinguishes it from other NFTs, serving as proof of authenticity and ownership in the digital realm.

Here are a few well-known NFT series:

Basic Introduction to the NFT Market

The role of NFT MarketPlaces is to enable buyers and sellers to complete transactions on their platforms. Currently, the market features diverse trading forms, including centralized and decentralized MarketPlaces.

For example, the leading Opensea is a comprehensive NFT trading platform, akin to an NFT "Taobao," where users can buy and sell crypto artworks, game items, virtual real estate, domain names, financial products, and various NFT goods. It supports ERC721 and ERC1155 assets.

Market Environment and User Demand:

Currently, mainstream traded NFTs can be divided into blue-chip and non-blue-chip categories, roughly classified into three types: PFP, functional, and other special types. (Some blue-chip NFTs also belong to functional or special categories.)

NFT Sector Classification:

If we classify the NFT market based on protocol functions, NFT platforms can be divided into five major categories: trading, aggregation, lending, data tracking, and social.

Introduction to the NFT Market Situation:

1. According to data from CoinMarketCap, the total trading volume of 14 NFT trading platforms increased from $85.7 million in 2020 to $19.6 billion in 2021, a growth rate of nearly 23,000%. 2021 was undoubtedly a year of unimaginable growth in the NFT sector. These platforms have also been favored by NFT users, with the total trading volume of NFTs rising along with the number of users.

2. However, 2022 was a challenging year for the NFT sector, marked by the early-year collapse of Luna and the late-year FTX bankruptcy, which dealt a significant blow to the entire crypto ecosystem. Although NFTs maintained their popularity with the birth and exploration of new projects, the overall market downturn dragged the NFT market into a bear market. The total market value of NFTs dropped from a peak of $21 billion in 2021 to $7 billion now, with trading volume significantly shrinking.

The Opportunities and Changes in the NFT Exchange Landscape:

1. In the summer of 2021, the NFT market experienced rapid growth and popularity. During this period, both NFT trading volume and prices reached historical highs. Opensea rapidly developed during the NFT boom, becoming one of the largest NFT trading platforms. The trading volume and user numbers on OpenSea increased significantly during this time.
2. The total NFT trading volume in 2021 reached approximately $20 billion, setting a historical record. This figure was about ten times higher than in 2020. Major platforms in the NFT market included OpenSea, Nifty Gateway, Super Rare, Foundation, etc. During NFT Summer, some NFT projects were particularly popular, such as CryptoPunks, Bored Ape Yacht Club, and Art Blocks.
3. Behind the sustained high popularity, NFT MarketPlaces played a crucial role. Opensea, established in 2017, received support from notable capital and achieved a high valuation of $13 billion in early 2022. This allowed Opensea to build a large user base and collector audience before the NFT craze began, enabling the platform to quickly attract more sellers and buyers. Opensea offers the widest variety of NFTs, including collectibles, PFPs, virtual real estate, game items, music, movies, and other collectibles. This allows the platform to attract users with diverse needs and facilitate transactions on a single platform.
4. Following Opensea's popularity, LooksRare and X2Y2 launched their NFT MarketPlaces, adopting strategies to gain initial traffic by airdropping tokens to Opensea users. They later introduced their mining rewards in an attempt to capture market share. Initially, they did attract a large number of users, but due to the decreasing reward mechanisms, the actual trading volume eventually declined. a) LooksRare was launched in January 2022. The plan was simple: to provide the native token of the LooksRare protocol (LOOKS), allowing token holders to stake their LOOKS tokens for earnings and incentivizing users to trade on LooksRare. X2Y2 also used a similar approach to incentivize users to use its platform. b) Overall, LooksRare and X2Y2 did not differentiate themselves through functional aspects but approached from the perspective of token economics, capitalizing on Opensea's lack of a platform token, implementing a more Crypto Native strategy. However, as marginal rewards decreased, the business became unsustainable. This also set the stage for Blur's success.
5. LooksRare's UI interface
6. While different types of NFT MarketPlaces compete for market share, the creation of NFT aggregators has been widely adopted by users. Similar to other aggregators in cryptocurrency, such as those aggregating decentralized exchange (DEX) liquidity to provide users with the best trading prices when swapping tokens, like 1inch. a) Gem is a typical NFT aggregator project, being the largest aggregator before Blur's launch. It provides a platform for users to easily discover and purchase NFTs across different markets and platforms. Gem aggregates traffic from multiple mainstream NFT markets and enables bulk purchases of NFTs at lower costs. This helps users obtain the best deals across different MarketPlaces while also bringing more traffic and revenue to Gem itself. b) The following chart (data from Dune) shows the market share of various NFT aggregators, with Blur and Gem occupying most of the chart, representing the majority of user transactions.
7. 
8. As the first centralized exchange to enter the NFT platform space, Binance, while its entry did not significantly change the NFT market landscape, sparked a trend among centralized exchanges to layout NFT offerings. On September 2, 2021, OKEx's NFT platform OKExNFT officially launched, followed by announcements from Coinbase and FTX regarding their NFT platforms. Thus, the NFT market landscape began to heat up rapidly, with decentralized NFT exchanges competing on-chain while various leading centralized exchanges sought to become major NFT trading venues.
9. Compared to decentralized NFT exchanges, centralized NFT exchanges have advantages: a) Custody: Asset custody is a major advantage of centralized exchanges. For example, Coinbase can ensure that users do not misplace assets or get locked out of accounts due to forgotten passwords. Essentially, centralized trading helps prevent user errors when transferring cryptocurrencies, significantly lowering the entry barrier for users into NFTs. b) Large User Base: Large CEXs like Coinbase and Binance already have substantial traffic, with the potential to convert a small portion of their existing customer base into NFT traders through their NFT platforms. c) Low Operational Difficulty: Centralized platforms focus on user experience, making the purchasing process on centralized exchanges much simpler than on decentralized ones. For instance, OKX can provide a complete process from deposit to NFT purchase to NFT sale, offering a better user experience, which is crucial for first-time NFT traders.
10. 11. Competitive Comparison
11. 13. Currently, the main centralized NFT exchanges include OKX, Binance, Coinbase, and Bybit. Below, we will compare these exchanges from different angles, including user numbers, platform features, user education, and platform data.
12. Platform Introduction:
13. Bybit NFT Marketplace:
14. Launched on January 20, 2022, users can purchase their desired NFTs on the Bybit NFT platform, priced in various tokens such as ETH, USDT, and BIT.
15. 
16. Platform Features:

• Simplified purchasing and trading process: Users do not need to create or import any digital wallets and can directly use assets in their Bybit Spot accounts to buy and trade NFTs.
• Transparent ownership history and authenticity verification: Buyers can easily view the ownership history of NFTs and verify their authenticity by clicking on the NFT profile page on Bybit to find all important information.
• NFT resale and withdrawal features: NFT owners can resell their NFTs to other Bybit users and will soon be able to withdraw them to their personal wallets.
• Low transaction fees: Bybit currently charges zero transaction fees to buyers, while sellers are charged a 1% transaction fee for each transaction.
• Secondary market royalty fees: The cryptocurrency exchange pays the original owner 1% for each secondary NFT sale as a royalty fee.
• Mystery box sales option: Sellers can choose to sell their NFTs as mystery boxes containing random items from their collections, with varying degrees of rarity.
• Self-minting and listing of NFTs: While Bybit currently assists NFT projects with minting, it will soon allow creators and rights holders to mint and list NFTs themselves.
• Support for NFT auctions: The market supports sales through NFT auctions.

1. Binance NFT Marketplace:
2. Launched in the first half of 2021, it brings together artists, creators, and cryptocurrency enthusiasts on the same platform to create and trade NFTs.
3. 
4. Platform Features:

• High liquidity centralized trading platform: Based on Binance's blockchain infrastructure and community support, the Binance NFT market provides users with a high liquidity trading platform.
• Three product lines: --- Trading market: Provides basic functions for minting, buying, and selling NFTs (minting functions are not yet open to regular users). --- Events: For exhibitions and unique collectibles, etc. --- Mystery boxes: Participants randomly draw NFTs with different rare attributes.
• Supports BEP-721 and BEP-1155 NFT standards: The Binance NFT market supports the creation of individual NFTs (BEP-721) and series (BEP-1155).
• Supports BTC NFT trading: Launched an NFT trading market on the BTC chain, simplifying the cumbersome purchasing process.
• Excellent creator support: Minting functions are open to authorized creators, along with relevant technical support.
• Integrated wallet function: Users can view and manage their NFT collections on the "Collection" page under "NFTAsset."
• Historical record inquiry: The "History" tab is divided into three parts: bid orders, sales history, and purchase history, making it convenient for users to query transaction and bidding records.
• NFT lending: Launched NFT lending services to enhance its platform competitiveness from different angles.
• Convenient trading experience: Users can directly buy and sell Bitcoin NFTs (Ordinals) on the platform without using a separate Bitcoin wallet.

1. Coinbase NFT Marketplace:
2. Launched in the second half of 2021, it differs from other platforms in that its goal is to achieve a "web3 social marketplace." The market will allow users to buy, sell, and interact with creators, collectors, and the community regarding their owned NFTs.
3. 
4. Platform Features:

• Profile pictures: Users can create their profile pictures to showcase their personal creations.
• Follow, like, and comment features: Users can follow other users, like and comment on NFTs, and interact with other community members.
• Discovery feature: Users can easily browse and find NFTs they like on the platform.
• Personalized recommendations: Based on user interactions, followed users, and purchased NFTs, the platform will recommend NFT works to users.
• Support for self-custody wallets: Users can trade on Coinbase NFT using the Coinbase wallet or any self-custody wallet.
• Future feature expansions: Coinbase NFT is expected to add auction, minting, token management community features, and options to purchase NFTs using Coinbase accounts or credit cards.

1. OKX NFT Marketplace:
2. Launched in the second half of 2021, it is a one-stop decentralized NFT trading platform that supports multi-chain NFT creation and cross-platform trading, providing real-time on-chain data.
3. 
4. Platform Features:

• Cross-market liquidity aggregation: Real-time access to NFT orders from mainstream platforms such as OpenSea, LooksRare, Magic Eden, IMX Official, supporting one-click listing across multiple platforms to aggregate trading liquidity across the network.
• Cross-chain support: Supports nine mainstream chains, including Ethereum, OKC, BSC, and Polygon, facilitating NFT trading across different blockchains. It features high security and no purchase fees, with centralized characteristics.
• Hotspot section: Displays platform activities, selected 24-hour popular collections, floor price trends, popular NFTs, and all collection categories.
• Market section: Provides functions for selling, bidding, and purchasing NFTs launched by global creators.
• Issuance section: OKEx NFT is an exclusive primary issuance platform, providing creators with a way to release NFTs.
• Data section: Provides real-time, comprehensive on-chain data to help users gain insights into market trends.

1. 
2. Platform Data
3. Coinbase
4. 
5. OKX
6. 
7. Bottlenecks
8. Centralized competitors still have disadvantages compared to decentralized NFT markets, including:
9. Regulation: The NFT market involves areas such as digital assets, ownership transfers, and art transactions, which may need to comply with local laws and regulatory requirements. Centralized platforms need to invest more resources and effort to ensure their operations comply with relevant laws and regulations, including KYC and anti-money laundering provisions. For instance, due to the stringent financial regulatory system in the U.S., Coinbase's operations require approval from regulatory authorities, and any misstep can lead to regulatory disputes.
10. Asset Breadth: Decentralized NFT markets can provide trading for newly listed NFTs, and in the NFT space, the iteration speed is very fast. What is popular this week may shift to another category next week. This highlights the importance of permissionless listings for NFTs. In centralized exchanges, the listing process is undoubtedly cumbersome and complex, making it very difficult for users to purchase newly listed NFTs.
11. Integration: One of Ethereum's hallmark features is the composability of smart contracts and software. Just like in DeFi, where different protocols (e.g., Aave to Compound) can be combined to generate yields. These types of integrations and secondary applications drive platform liquidity. Due to the open nature of decentralized markets, it is easier to integrate with other protocols compared to centralized NFT markets like Coinbase, Bybit, or others. Aggregators like Gem can provide the best prices and experiences by integrating with other platforms like LooksRare and OpenSea.
12. It should be noted that these issues are not absolute; some centralized exchanges may attempt to address these challenges to some extent, while others may face these obstacles.
13. Centralized NFT markets have not achieved significant success in data and market response, and the reasons for this difficulty may include the following:
14. Positioning: Due to the inherent properties of NFTs, which are characterized by transparency, exchanges have low control over NFTs. This characteristic means that CEXs have limited operational space in terms of data, and users tend to prefer decentralized trading platforms for NFT transactions to gain greater autonomy.
15. User Profile Mismatch: Users who frequently use CEXs and those who commonly use NFT MarketPlaces are two different groups. The occasional overlap tends to favor the on-chain NFT MarketPlaces, as the CEX NFT market does not offer advantages over on-chain NFT MarketPlaces. One of the main advantages of CEXs, which is low entry barriers, is dim for this group of users.
16. Within this, users can be divided into quality users and non-quality users, with quality users contributing transaction volumes that may be tens or even hundreds of times that of ordinary users, and this group is generally active on-chain.
17. Lack of Distinction: Many centralized NFT markets lack differentiation in functionality and experience. They often provide similar basic functions and lack innovative features and unique value propositions. In contrast, when Opensea established a clear dominant position, platforms like Looks, X2Y2, and Blur entered from different angles, utilizing strategies like "vampire attacks" and "airdrop expectations" to gain traffic.
18. Timing of Entry: The timing of launching new products is crucial for market penetration. Most announcements of NFT markets from the second half of 2021 to public availability in 2022 took six months to a year, and upon formal launch, they faced a cooling NFT market with poor trading volumes.
19. The NFT market remains in a bear market.
20. Since February, NFT prices and trading volumes have declined simultaneously, with trading volume dropping from 36,000 ETH per day to 3,800 ETH. Additionally, due to the decrease in trading frequency, active addresses have also sharply reduced, with a 90% drop in active addresses and about an 80% decline in trading frequency since February.
21. 
22. 
23. Since last April, the ratio of new users has gradually declined. Similarly, the number of financing rounds in the NFT sector has also dropped significantly. Recently, Gryfyn completed a $7.5 million financing round, the largest in the recent NFT market, but still far from the frequent financing rounds exceeding $10 million seen last year.
24. Outlook
25. 26. From the development of the NFT market, mainstream NFT MarketPlaces like Blur are accelerating the liquidity of the NFT market in an invisible way to capture market share. In the short term, this may lead to a correction of overvalued NFTs and gradually move towards a reasonable range. For NFT holders, they may not have yet experienced the darkest moments. However, from a longer-term perspective, healthy competition among NFT MarketPlaces is beneficial for the ecosystem, as it can promote NFT liquidity and ecological development to some extent.
26. As a CEX NFT Marketplace, to advance further, one can consider adopting the model of on-chain NFT exchanges and taking the essence from it.
    a) For example, Blur: Launched in late October 2022, it claims to be the fastest NFT aggregation trading platform (integrating NFTs from OpenSea, LooksRare, and X2Y2), offering real-time price comparisons, portfolio management, bulk listing, and zero transaction fees. It also launched an airdrop plan, determining the number of airdrops based on user trading frequency and volume. After its launch, it garnered significant market attention.
    b) In terms of product features, Blur provides traders with professional tools, good UI/UX, and other auxiliary functions, optimizing the user experience during the process.
27. 
28. A trend in the future development of the NFT market is the emergence of vertically segmented platforms. These platforms will focus on specific types of assets or markets, such as game NFTs, sports NFTs, or music NFTs. By concentrating on specific markets, these platforms can offer more tailored services and attract corresponding user groups.
29. In terms of technological development, there is a need for more efficient and functionally robust NFT MarketPlaces. Due to the network effects and established user base of the Ethereum blockchain, most NFT users are still on-chain. If centralized exchanges want to capture a significant market share, they will need to put in more effort.
30. For NFT exchanges, there is always envy towards their vast markets and the market share of individual exchanges, leading countless people to rise up, each using a facade of pseudo-demand to paint a grand vision. If 2021 was the year of the NFT market boom, then 2022 was a year of tumultuous competition in the NFT market landscape. Only by grasping core demands in the current environment can one swim against the current in a bear market.