Galaxy: Solana and Ethereum's NFT Competition

Introduction

In the fourth quarter of 2023, the NFT market saw a meaningful recovery. As of January 16, 2024, the NFT trading volume on Ethereum has increased fourfold since its respective low in 2023, while Solana NFT trading volume has increased by over ten times. As NFT trading volume recovers from historical lows, the floor prices of top NFT projects on Ethereum and Solana are increasing. This research report focuses on the recovery of NFTs in the Solana and Ethereum ecosystems and provides insights into their growth in 2024. The report also analyzes the characteristics of incentive-driven NFT markets, such as Blur and Tensor, which have been consolidating significant market share in existing NFT markets like OpenSea.

Ethereum NFT Market

The NFT trading volume on Ethereum hit a low in September 2023, reaching a monthly low of $143 million. The week of October 9, 2023, to October 16, 2023, was particularly challenging, with NFT trading volume on Ethereum plummeting to just $40 million. However, there was a significant turnaround after October 9, 2023, and the weekly NFT trading volume on Ethereum surged by a staggering 380%. This sharp increase can be attributed to the second-season airdrop of Blur that took place on November 20, 2023. Blur incentivizes NFT bidding, listing, and lending on its platform with the $BLUR token. It is worth noting that NFT traders were actively participating in trading weeks before such airdrops, as demonstrated during the first-season airdrop of Blur on February 14, 2023. Additionally, the consequences of the airdrop created a wealth effect, prompting NFT traders to reinvest funds into NFTs to maintain their farming scores.


Although the weekly NFT trading volume on Ethereum increased by 380% from its low point in 2023, it is still down by 89% compared to the historical high in March 2022. The Ethereum NFT market still has a long way to go for recovery. In 2024, the next cycle of the Ethereum NFT ecosystem may be driven by advanced NFT trading platforms, such as Blur and Blast, through incentive-driven trading activities like airdrops.


OpenSea launched its professional trading platform in April 2023 to compete with Blur; however, since September 2023, OpenSea Pro accounted for only 9% of the NFT trading volume on Ethereum. Blur still maintains its dominant position in professional NFT trading, thanks to its first-mover advantage and UX/UI design. For example, Blur’s leverage of order book systems enables NFT traders to better assess the depth of floor prices for projects compared to any other marketplace. This, combined with Blur’s native NFT lending platform Blend, provides tools for NFT traders to build complex trading strategies.
Looking into 2024, Blur’s position will be solidified through the third-season airdrop expected in May 2024. This event is expected to further incentivize NFT traders who have previously used Blur, as 50% of the next airdrop will be allocated to existing $BLUR token holders. Blur’s strategic advantage extends beyond its first-mover status to the comprehensive ecosystem it has developed.
Blur’s proactive approach to token economics was reflected in its recent governance proposal. The proposal advocates for the conversion of community activation fees to buy 1% of market fees generated for burning $BLUR tokens, reducing the supply. While this governance proposal is still pending, it demonstrates Blur’s continued focus on improving platform token economics and positioning itself as a significant participant in the evolving NFT market landscape.
While the recent surge in NFT trading volume can be attributed to native cryptocurrency users reengaging with NFT markets like Blur, there are still many NFT traders on the sidelines. It is worth noting that OpenSea’s weekly trader count has decreased by 86% from its historical high in January 2022, indicating that many retail users have yet to reenter the market. Although Blur is the preferred NFT marketplace in the cryptocurrency community, it primarily caters to a more mature and affluent group of NFT traders. In this context, monitoring OpenSea’s trading volume share is crucial to assess the recovery of retail interest in NFTs.

Solana NFT Market

Solana’s NFT trading volume also hit a low point in September 2023, with a monthly trading volume of $30 million. The week of October 9, 2023, to October 16, 2023, was the worst week for Solana NFT trading, generating just $4.3 million in trading volume. Since October 16, 2023, the weekly NFT trading volume on Solana has increased by over ten times. The significant growth in Solana’s weekly NFT trading volume can be attributed to two main factors:
· The announcement of the upcoming airdrop of Tensor, Solana’s advanced NFT trading platform.
· Significant repricing and additional attention to all Solana NFTs due to the substantial increase in the price of SOL tokens.
Tensor, Solana’s version of Blur, was launched in 2022, allowing NFT traders to formulate complex trading strategies. The second-season airdrop of Tensor ended in August 2023, and the next airdrop is expected at some point in January 2024, so Solana NFT collectors are engaging in farming activities. A more critical influence driving the Solana NFT ecosystem is the wealth effect experienced by Solana holders. With SOL rising 615% throughout 2023 and generous airdrops from other Solana applications to the community, activity across various application types (including NFTs) on Solana is increasing.


Despite Solana’s NFT ecosystem recovering faster than Ethereum, the weekly NFT trading volume on Solana is still down over 60% from its historical high in May 2022. Like Ethereum, Solana has a robust NFT ecosystem that offers economically efficient and user-friendly experiences for trading NFTs. Additionally, Solana’s NFT infrastructure is rapidly maturing, as wallets and other NFT applications have features such as displaying NFTs alongside fungible tokens to better support the growth of the digital collectibles ecosystem. Overall, the next market cycle for Solana’s NFT market, like Ethereum, may be driven by trading activity on advanced platforms like Tensor.

Market Concentration

Advanced trading platforms such as Blur and Tensor have rapidly gained traction and captured a significant portion of the NFT trading volume on their respective chains. Market concentration of NFTs is a mutually beneficial outcome for active NFT traders who rely on sufficient 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 for a specific NFT. Traditional NFT markets like OpenSea, before the advent of Blur and Tensor, used a non-incentivized bidding system. Buyers lacked incentives to submit competitive bids, resulting in scattered and significantly lower bid prices compared to the asking prices for NFTs.
In 2023, Blur accounted for 67% of the total NFT trading volume on Ethereum. Before the launch of Blur, OpenSea held over 80% of the NFT trading volume but currently accounts for only 29% of the total NFT trading volume on Ethereum.


Magic Eden dominated the Solana NFT trading space in 2023, accounting for 51% of the total trading volume, which is impressive. However, Tensor, which held the second position, accounted for 41% of the Solana NFT trading volume in the same year.
Although Magic Eden was ahead of Tensor in 2023, there were several days in which Tensor’s trading volume exceeded that of Magic Eden, especially during the period of NFT market recovery in October 2023. From October 1, 2023, to January 1, 2024, Tensor consistently outperformed, with trading volume surpassing Magic Eden by 50%.

With advanced trading platforms preparing for the third season airdrop and other incentive-driven plans to attract liquidity, Tensor is expected to surpass Magic Eden’s market share in the NFT market in 2024.
The impact of Blur and Tensor on NFT market concentration indicates that advanced trading platforms are finding clear product-market fit. Although Blur and Tensor launched during a bear market, these platforms successfully seized market share from prominent traditional markets like OpenSea and Magic Eden.


In 2023, Ethereum dominated the NFT space, accounting for over 90% of the weekly NFT trading volume for more than 60% of the year. This metric does not include Ordinals and BRC-20 trading volume on Bitcoin. It is worth noting that Ordinals and BRC-20 generated $1.8 billion in trading volume in 2023, making Bitcoin the second most popular digital collectibles network during this period. This report focuses solely on the NFT markets of Solana and Ethereum. For more information on Ordinals, please refer to the Galaxy Research report.
From May 2023 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 the total NFT trading volume (including both Ethereum and Solana) each week. However, Solana NFTs finally made significant strides in November 2023 and quickly gained market share in NFT trading volume. In December 2023, the weekly NFT trading volume on Solana accounted for at least 22% to 37% of the total NFT trading volume.

In 2024, the NFT trading volume on Solana will continue to compete with Ethereum. Since December 1, 2023, there has been a $50.5 million influx from Avalanche, BNB Smart Chain, Arbitrum, and Ethereum bridged to Solana. While some of the new capital flowing into Solana might be driven by airdrops and yields offered by Solana’s decentralized finance (DeFi) applications, which can exit the ecosystem immediately after entering if incentives change, we can anticipate that some of the new capital will flow into Solana NFTs. Based on the pace of Ethereum NFT recovery and the amount of new capital flowing into Solana as of December 2023, Solana NFT trading volume could reach 30%-50% of the total NFT trading volume in 2024.


By observing the on-chain activity of wallets that buy, sell, or mint NFTs in a single day, it is evident that the Ethereum NFT market lacks new users. In 2023, the number of active NFT users on Ethereum decreased by 73%, while the number of active NFT users on Solana increased by over 200%. Solana’s active NFT user count surged on December 19, 2023, surpassing the number of active NFT users on Ethereum. By applying a 30-day moving average to the active NFT user count on Ethereum and Solana, we can see that Solana now has more daily active NFT users than Ethereum.


It is important to note that the data in the above graph identifies active NFT users as the unique address that mints, purchases, sells, or transfers NFTs in a day. Unique addresses may be owned by individual or entities, and due to the lower cost of transactions on the network compared to Ethereum, the number on Solana may be larger.