Galaxy: Solana vs. Ethereum in the NFT Arena
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Galaxy: Solana vs. Ethereum in the NFT Arena
Solana leads the NFT market recovery, with Ethereum's NFT market expected to follow in 2024.
Navigating Web3 tides with focused insightsAuthor: Gabe Parker, Galaxy Research
Translation: Luccy, BlockBeats
Editor's Note: As the crypto market continues to evolve, Solana and Ethereum are engaged in an intense competition as leading NFT ecosystems. Galaxy Research analyst Gabe Parker provides a detailed analysis of Solana and Ethereum NFT performance in 2023, highlighting Solana’s rapid recovery in NFT trading activity and the challenges facing Ethereum.
Gabe Parker points out that driven by Blur and Tensor, Solana’s NFT market has excelled in both active user count and trading volume. While Ethereum still dominates the market, it faces the challenge of declining NFT user engagement. As the NFT market evolves, the rivalry between Solana and Ethereum will intensify throughout 2024. BlockBeats translates the original article as follows:
Key Takeaways
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NFT trading activity on Solana recovered 2.6 times faster than on Ethereum.
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In 2023, Ethereum accounted for over 90% of weekly NFT trading volume for 67% of the year.
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As of January 8, 2024, Solana accounted for 25% of total weekly NFT trading volume.
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In 2023, the number of active NFT users on Ethereum declined by 73%, while Solana saw an increase of more than 80%. An NFT user is defined as a unique address that mints, buys, sells, or transfers an NFT within a single day.
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The concentration of the NFT market shifted significantly in 2023 due to the growing popularity of advanced NFT marketplaces like Blur. Unlike established platforms such as OpenSea, Blur heavily relies on incentive programs like token airdrops to attract users.
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In 2023, Blur captured 67% of total NFT trading volume on Ethereum. Prior to Blur’s launch, OpenSea held over 80% of NFT trading volume but accounted for only 29% of Ethereum’s total NFT trading volume that same year.
Introduction
In Q4 2023, the NFT market witnessed a meaningful recovery. As of January 16, 2024, Ethereum NFT trading volume has grown fourfold from its respective 2023 lows, while Solana NFT trading volume has increased by over tenfold. As NFT trading volumes rebound from historic lows, floor prices of top NFT projects on both Ethereum and Solana are rising. This research report focuses on the recovery of NFTs within the Solana and Ethereum ecosystems and offers insights into their growth potential in 2024. The report also analyzes incentive-driven NFT marketplaces such as Blur and Tensor, which have been consolidating significant market share from established players like OpenSea.
Ethereum NFT Market
Ethereum NFT trading volume hit rock bottom in September 2023, reaching a monthly low of $143 million. The week of October 9–16, 2023, was particularly challenging, with Ethereum NFT volume plummeting to just $40 million. However, a notable shift occurred after October 9, 2023, when weekly Ethereum NFT trading volume surged by 380%. This sharp rise was primarily driven by Blur’s Season 2 airdrop on November 20, 2023. Blur incentivizes NFT bidding, listing, and lending on its platform using $BLUR tokens. Notably, NFT traders actively engage in trading weeks before such airdrops—an identical trend was observed during Blur’s Season 1 airdrop on February 14, 2023. Additionally, the airdrop created a wealth effect, prompting NFT traders to reinvest their airdrop proceeds back into NFTs to maintain their points farming activities.
Although weekly Ethereum NFT trading volume has risen 380% from its 2023 lows, it remains 89% below its all-time high in March 2022. Ethereum’s NFT market still has a long way to recover. Heading into 2024, the next cycle of the Ethereum NFT ecosystem may be driven by advanced NFT marketplaces such as Blur and Blast, which use airdrops to incentivize trading activity.
OpenSea launched its professional trading platform in April 2023 to compete with Blur; however, since September 2023, OpenSea Pro has accounted for only 9% of Ethereum NFT trading volume. Blur maintains dominance in professional NFT trading, largely due to its first-mover advantage and UX/UI design. For instance, Blur’s use of an order book system allows NFT traders to better assess the depth of floor prices for any project compared to other marketplaces. Combined with Blur’s native NFT lending platform, Blend, this equips NFT traders with tools to build complex trading strategies.
Looking ahead to 2024, Blur’s position is further solidified by the upcoming Season 3 airdrop scheduled for May 2024. The event is expected to further incentivize previous Blur users, as 50% of the next airdrop will be allocated to existing $BLUR token holders. Blur’s strategic advantages extend beyond its early mover status to the comprehensive ecosystem it has developed.
Blur’s proactive approach to tokenomics is evident in its recent governance proposal. The proposal advocates for a community activation fee conversion, introducing a 1% marketplace fee on buy-generated revenue, with proceeds used to buy back and burn $BLUR tokens, thereby reducing $BLUR supply. Although this governance proposal is currently pending, it underscores Blur’s continued focus on refining platform tokenomics to position itself as a key player in the evolving NFT landscape.
While the recent surge in NFT trading volume can be attributed to renewed participation from crypto-native users on NFT marketplaces like Blur, a large segment of NFT traders remains on the sidelines. Notably, OpenSea’s weekly trader count has declined by 86% from its all-time high in January 2022, indicating that a significant number of retail users have yet to re-enter the market. Although Blur is the preferred NFT marketplace among the crypto community, it primarily caters to a more sophisticated and affluent group of NFT traders. In this context, monitoring OpenSea’s share of trading volume is crucial for gauging the revival of retail interest in NFTs.
Solana NFT Market
Solana’s NFT trading volume also bottomed out in September 2023, hitting $30 million for the month. The week of October 9–16, 2023, marked Solana’s worst week, generating only $4.3 million in trading volume. Since October 16, 2023, Solana’s weekly NFT trading volume has increased by over tenfold. This dramatic growth in Solana’s weekly NFT trading volume is primarily attributable to two major factors:
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The announcement of an impending airdrop from Tensor, Solana’s advanced NFT marketplace.
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Significant repricing and increased attention across all Solana NFTs due to the substantial rise in the SOL token price.
Tensor, Solana’s equivalent to Blur, launched in 2022 and enables NFT traders to execute complex trading strategies. Its Season 2 airdrop concluded in August 2023, and the next airdrop is expected sometime in January 2024. As a result, Solana NFT collectors are ramping up trading activity to farm points. A more critical driver behind the Solana NFT ecosystem is the wealth effect experienced by Solana holders. With SOL surging 615% throughout 2023 and generous airdrops distributed by other Solana applications to their communities, activity across various Solana application types—including NFTs—is increasing.
Despite Solana’s NFT ecosystem recovering faster than Ethereum’s, weekly Solana NFT trading volume remains over 60% below its all-time high in May 2022. Like Ethereum, Solana offers a robust NFT ecosystem that delivers a cost-efficient and user-friendly experience for trading NFTs. Moreover, Solana’s NFT infrastructure is rapidly maturing, with wallets and other NFT applications now featuring functionalities such as displaying NFTs alongside fungible tokens to better support the growth of the digital collectibles ecosystem. Overall, much like Ethereum, Solana’s next NFT market cycle may be driven by trading activity on advanced marketplaces such as Tensor.
Market Concentration
Advanced marketplaces like Blur and Tensor have rapidly grown and captured a significant portion of NFT trading volume on their respective chains. High market concentration benefits active NFT traders who rely on ample liquidity to enter and exit highly volatile assets. Blur and Tensor incentivize users to provide liquidity to their markets through airdrops, allowing sellers to gauge the market depth of a given NFT based on airdrop eligibility. Before Blur and Tensor, traditional NFT marketplaces like OpenSea used quote systems without incentives. Buyers lacked motivation to submit competitive bids, resulting in scattered and significantly lower offers relative to NFT asking prices.
In 2023, Blur accounted for 67% of total NFT trading volume on Ethereum. Prior to Blur’s launch, OpenSea held over 80% of NFT trading volume but now accounts for only 29% of total Ethereum NFT trading volume.
In 2023, Magic Eden dominated Solana NFT trading, capturing an impressive 51% of total trading volume. However, Tensor ranked a strong second, accounting for 41% of Solana NFT trading volume that year.
Although Magic Eden led Tensor in 2023, there were several days—particularly during the NFT market recovery in October 2023—when Tensor surpassed Magic Eden in trading volume. From October 1, 2023, to January 1, 2024, Tensor surged ahead, recording 50% higher trading volume than Magic Eden.
With advanced marketplaces preparing for Season 3 airdrops and other incentive-driven programs to attract liquidity, Tensor is poised to surpass Magic Eden’s market share in the Solana NFT space in 2024.
The impact of Blur and Tensor on NFT market concentration indicates that advanced marketplaces have found a clear product-market fit. Despite launching during a bear market, these platforms successfully captured market share from well-known traditional marketplaces like OpenSea and Magic Eden.
Ethereum vs Solana: Weekly NFT Trading Volume and Active Users
In 2023, Ethereum dominated the NFT space, contributing over 90% of weekly NFT trading volume for 60% of the year. This metric excludes Ordinals and BRC-20 trading volume on Bitcoin. Notably, Ordinals and BRC-20 generated $1.8 billion in trading volume in 2023, making Bitcoin the second most popular network for digital collectibles during that period. This report focuses solely on the NFT markets of Solana and Ethereum. For more information on Ordinals, please refer to this Galaxy Research report.
From May to September 2023, Solana NFTs faced fierce competition with Ethereum NFTs for market dominance. During this period, Solana NFTs accounted for less than 10% of total NFT trading volume (including both Ethereum and Solana). However, Solana NFTs made significant strides in November 2023 and rapidly gained market share thereafter. In December 2023, Solana NFTs accounted for 22% to 37% of weekly NFT trading volume.
In 2024, Solana NFT trading volume will continue to compete with Ethereum’s. Since December 1, 2023, $50.5 million has been bridged to Solana from other blockchains including Avalanche, BNB Smart Chain, Arbitrum, and Ethereum. Although inflows into Solana may be driven by airdrops and yields offered by Solana’s decentralized finance (DeFi) applications—which could lead to quick exits once incentives change—some of this new capital is expected to flow into Solana NFTs. Depending on the pace of Ethereum’s NFT recovery and the volume of capital entering Solana by the end of 2023, Solana NFT trading volume could reach 30%-50% of total NFT trading volume in 2024.
A lack of new users in the Ethereum NFT market is evident when analyzing on-chain activity of wallets purchasing, selling, or minting NFTs on a given day. In 2023, the number of active NFT users on Ethereum declined by 73%, while Solana’s active NFT user count grew by over 200% during the same period. Solana’s active NFT user count spiked on December 19, 2023, surpassing Ethereum’s. Applying a 30-day moving average to active NFT user counts on both Ethereum and Solana reveals that Solana now has more daily active NFT users than Ethereum.
It should be noted that active NFT users are identified as unique addresses that mint, purchase, sell, or transfer an NFT within a single day. A unique address may be controlled by a single individual or entity, and due to lower transaction costs compared to Ethereum, the number of addresses on Solana may be larger.
Conclusion
The upcoming NFT cycle will be driven by advanced NFT marketplaces, novel airdrop incentives targeting NFT holders, and the wealth effect stemming from a broader crypto market recovery. Advanced NFT marketplaces have already solidified their positions in the market, and as liquidity consolidates onto these platforms, their market dominance is expected to remain between 50% and 60%. Overall, as Solana’s NFT ecosystem experiences its first repricing moment, one of the most significant developments to watch in 2024 will be the repricing of Ethereum NFTs—if ETH price also sees a substantial rise.
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