Cipholio Research | Changes of NFT in the public chain ecosystem

Cipholio Ventures
9 min readJun 7, 2022

Author: Kevin Hao (Investment Analyst) from Cipholio Ventures

I. Changes in NFT data

Since 2021, NFT has gradually picked up the heat of DeFi and entered a rapid growth phase, becoming the most talked about segment in the cryptocurrency market. With the rise of a number of head NFT projects and the participation of celebrities, more and more investors are attracted to this market and the trading scale of NFT continues to expand. Especially after the second half of 2021, NFT’s trading volume and the number of participants have risen dramatically. As shown in the chart below, the trading volume of NFTs on Ethereum in OpenSea has been at a high level in the recent months.

Figure 1: Trading volume of NFTs on Ethereum in OpenSea (Source: dune/rchen8)

During the NFT boom, NFTs of the Ethereum ecosystem have dominated the entire market in terms of market cap and trading volume for a long time. This phenomenon makes sense as it has the most projects, sufficient funds and tons of developers. Regardless of which dimension is being evaluated, Ethereum’s position is unshakeable and with all the above-mentioned advantages it is able to be ahead of other ecosystems.

However, judging from the last 30 days trading volume and the last 7 days trading volume (short-term figures), Solana’s NFT is growing rapidly, and more and more NFT projects in its ecosystem are among the top trading volume, becoming the second largest NFT ecosystem after Ethereum.

Table 1: Number of Top 100 project traded in different ecosystems (Source: cryptoslam, 28 May 2022)

Looking at the marketplace, the market share held by Magic Eden (i.e. the NFT exchange in the Solana ecosystem) also made significant growth. As you can see from the chart below, both OpenSea and LooksRare have seen their market shares decline to varying degrees, while Magic Eden has increased significantly. Even after OpenSea supported the Solana ecosystem, Magic Eden’s market share is still increasing.

Figure 2: Share of several NFT exchanges (Source: The Block)

II. The development of NFT in the Solana ecosystem

The spillover of NFT projects from the Ethereum ecosystem to other public chain ecosystems is a recent phenomenon worthy of attention. Ethereum’s performance bottlenecks and high usage fees are the conventional rhetoric to explain this phenomenon, a logic very similar to that of DeFi at the time.

However, there is a clear difference between NFT and DeFi. For DeFi projects, users need to interact with the public chain frequently when using DEX, Lending, or other types of projects. In this process, performance and usage fees can significantly impact the user experience. By that, public chains like Solana with higher performance and lower usage fees have room to grow and attract a large number of potential project parties and user groups.

In contrast, the current NFT projects are more PFP-based and hardly need much interaction with public chains except for minting and basic transactions. Of course, project parties may have ambitious development blueprints and will have frequent interactions with public chains in the future and need high performance for support. However, there aren’t many projects with such needs at present.

Now, look at the actual usage of Ethereum. As the chart below shows, the use of Ethereum Gas has been declining since March. Combined with the fact that the large-scale development of NFT projects in the Solana ecosystem began in April, it seems that the factors of performance and usage cost alone are not enough to explain the spillover of NFT projects from Ethereum, the inner logic of which needs to be explored further.

Figure 2: Ethereum Gas fee usage (Source: glassnode)

Over time, NFT projects in the Ethereum ecosystem have gradually formed into top groups. The Otherside project received a substantial amount of funding from NFT investors, especially following the Otherside auction. Apart from that, the Ethereum ecosystem did not come out with any popular NFT projects in the short term. At this time, there is a window period for the NFT market in the Ethereum ecosystem, so this gives other public chain ecosystems the opportunity to grow. OpenSea’s support for Solana is an important piece of good news, as OpenSea’s large user group can more easily participate in NFT trading in the Solana ecosystem. Furthermore, the Solana ecosystem’s internal accumulation is equally significant.

Firstly, there is a positive correlation between the number of developers in a public chain ecosystem and the number of projects, which will attract more users and funding, which are regarded as complementary.

The growing developer community in the Solana ecosystem in 2021 is a great boost for the entire ecosystem to move forward. The x axis in the graph below represents the number of developers in 2020, while the y axis represents the number of developers in 2021. In other words, the larger the vertical coordinate of a particular public chain ecosystem, the more developers there are in absolute terms; Similarly, the larger the slope of the line, the greater the growth in the number of developers for that public chain ecosystem in 2021. Certainly, the number of developers and the growth rate in the Solana ecosystem are both very high.

Figure 2: Developers in different ecosystems (Source: Electric)

Secondly, the Solana ecosystem already has a well-developed NFT development basis, including project development tools and marketplaces. Magic Eden, for example, is a Solana-based NFT trading platform that now supports most mainstream Solana wallets and can let investors trade conveniently, which provides a great user experience.

Thirdly, the wealth effect and FOMO sentiment are crucial for attracting early investors, and Okay Bears is the first Solana ecosystem NFT project that most investors are aware of. The floor price of Okay Bears has increased by a couple hundred times within a short period since the end of April. With this in mind, the enormous wealth effect successfully encouraged additional investors to participate.

Figure 2: Okay Bears’ floor price and trading volume (Source: Magic Eden)

III. Development opportunities of other public chain ecosystems

In DeFi Summer, nearly all major public chains benefited from it and made significant progress. Hence, apart from Solana, will NFT projects in other public chain ecosystems have the chance to be benefited and develop in the current NFT Summer?

In the short term, the current macro environment is unlike the one in the DeFi Summer. The entire financial market, including the cryptocurrency market, is in a downward trend as a result of the Fed’s interest rate rise and quantitative tightening. Combined with the impact of the recent Luna incident, the cryptocurrency market, including NFT, lacks the foundation for rapid growth in the near future. However, in the long run, NFT is still at its nascent stage and the competition in NFT track is just getting started. Thus, in a fast-growing global market, other public chain ecosystems certainly have the opportunity to get a piece of the pie.

(1) Flow

Flow is an underlying blockchain infrastructure developed by Dapper Labs to provide a platform for developers and users to ensure that anyone can create, hold, interact and grow in the Flow ecosystem. Flow’s core products include Flow Chain, Dapper Wallet and other projects in the ecosystem. In terms of technical architecture, Flow improves its efficiency and security through a multi-node division of labor design and a unique data storage approach.

From the perspective of Flow ecology, according to Flowverse data, there are currently 318 projects on the Flow chain, including various types of NFT, data analysis, wallets, NFT marketplaces, etc. the leading projects in the ecosystem are shown in the table below.

Figure 2: Top projects in the Flow ecosystem (Source: Flowverse)

NBA Top Shot is a high-quality project launched by Flow in the early stage, which is far more than other projects in the Flow ecosystem in terms of total trading volume and number of holders. This is also a great advantage of Flow, that is, the team has powerful resources, and can cooperate with well-known companies and powerful IPs to launch products, so as to attract the user groups of these IPs. The following NFL All Day and UFC Strike go along with similar logic.

However, only a few NFT projects have grown up spontaneously in the Flow ecosystem, and most of them are not well-known. To tackle this problem, Flow recently launched an ecosystem fund of US $725 million jointly with a number of investment institutions to support the development of projects in the Flow ecosystem.

(2) Polygon

Polygon is a decentralized Ethereum scaling platform. On the premise of security and low transaction costs, developers can build scalable and user-friendly DApp. Since last year, Polygon has acquired excellent projects such as Hermez and Mir to maintain its competitiveness. Polygon ecosystem has developed rapidly. According to official data, there are 1498 ecological projects, which includes 450 NFT projects.

There are no leading NFT projects in the Polygon ecosystem. In terms of transaction volume, Zed Horse and Zed Run can rank in the Top 100 NFT projects. The transaction volume of Crypto Unicorns, DEFY Genesis Mask and Cyberkongz VX projects grew rapidly in the short term. In general, these projects are lacking in popularity. LUXY is an NFT marketplace built upon Polygon. However, LUXY has only been launched for a short period, the number of users and traffic are not yet high.

Unlike Flow, the Polygon ecosystem has accumulated a decent number of NFT projects, but leading NFT projects don’t exist. In the nascent stage, it may be necessary for Polygon officials to create Star NFT projects themselves, or increase the support of high-quality projects.

(3) Ronin

Axie Infinity pioneered the Play to Earn model. Up to now, Axie Infinity has the highest NFT transaction volume among all projects. For the sustainable development of the project, Axie Infinity officially launched Ronin. This represents a trend. High quality NFT projects, such as Axie Infinity and BAYC, may launch their own NFT infrastructure at some time. This trend deserves attention because these high-quality projects have a great user base, and their NFT infrastructure will continue to scale their ecosystems relying on their own projects. Certainly, the limitation of this model lies in the rapid change of leading NFT projects. Once the NFT project loses its dominating position, the whole ecosystem will become desolate.

(4) Exchange

In the face of the huge NFT market, top exchanges such as Binance and Coinbase are also actively laying out their own NFT ecosystems. Binance launched the NFT market in June, 2021. Relying on Binance’s strong resources and traffic, it promoted the creation and launch of more than 2.5 million NFTs in a few months, and also launched NFT mystery boxes, IGOs and other gameplays. However, there are obvious differences between Binance’s NFT market and other NFT marketplaces like OpenSea in terms of projects and user groups. Popular NFT projects are mainly traded in marketplaces such as OpenSea. On the one hand, this is determined by users’ usage habits. NFT savvy users have little interest in Binance, a centralized deposit and withdrawal mode; On the other hand, mainstream NFT projects have better liquidity in NFT marketplaces such as OpenSea. Similar problems exist in Coinbase’s NFT market.

IV. Conclusion

Ethereum’s NFT project is still in the leading position, and the NFT project of the Solana ecosystem is developing rapidly. Considering the current environment, NFTs in other public chain ecosystems will not develop on a large scale in the short term. NFT is still in the early stage of development. It is an incremental market with great development potential and is very important to all public chain ecosystems. The recent vigorous development of NFT in the Solana ecosystem is a beginning, and other public chain ecosystems will actively follow up, so investors can pay continuous attention. In this process, developers, financial incentives and ecological support are all crucial factors.

Projects in the NFT market change very quickly, and most of the top NFT projects may disappear or depreciate significantly in a short time. NFT’s value support is more fragile than cryptocurrency. It’s more like a sense of community identity and belonging. For investors, most NFTs are not worth holding. This rapid project cycle will also bring new opportunities to different public chain ecosystems.

Disclaimer: This research article is opinion/insights only, it should not be viewed as financial or investment advices in any form. Readers are advised to do their own research and analyse the market on their own.