Messari: Ten charts tell you the Q2 focus of Web3 and DeFi

Original title: 《 Web3 & NFT Q2'21 Report 》

Original source: Mason Nystrom, Messari analyst

Original translation: Yangz, Babbitt

If someone had walked up to me at the beginning of this year and said that NFT sales would easily exceed $1 billion, GaryVee would launch an NFT project, and Axie Infinity would become one of the top five NFT markets, I would have answered: "I would believe in one of them." However, the past quarter has witnessed sales of more than $750 million for the top five collectibles, Axie's market has generated $7.7 million in fees, and GaryVee has earned more than $1 million in royalties from his NFT project.

NFT Ecosystem Still Growing

Media claims that the NFT market is dead or that the bubble has burst are objectively false. While the media has focused primarily on crypto art and collectibles (like NBA Top Shot), the broad NFT ecosystem continues to grow. In fact, OpenSea recorded its best month ever for NFT sales in June. While Rarible underperformed (relative to OpenSea) because the marketplace does not provide access to some of the NFT categories that have flourished over the past few months, including NFT avatars, art blocks, sports collectibles, and virtual worlds.

OpenSea shows us the growth of the NFT ecosystem. In June, OpenSea facilitated over 211,000 NFT sales to nearly 40,000 active traders.

Overall, June was OpenSea’s best month ever for NFT volume, with a new high for the number of NFTs sold and the second-best month for active traders.

While OpenSea remains the overall market leader, Axie Infinity surged throughout the quarter to become the fourth-largest NFT marketplace. Notably, Atomic Market — the premier marketplace for NFTs on WAX — is now ranked eighth among NFT markets.

Axie Infinity’s growth follows the Phase 2 migration to Ronin, its Ethereum-pegged sidechain, which offers reduced gas fees and a more seamless user experience. While Axie’s can be redeemed on other platforms, 97% of Axie volume occurs on the Axie Market, and fees from that market (in AXS and ETH) are submitted to the Axie Treasury.

The Axie Treasury is now valued at over $21M, 85% of which was accumulated in the past quarter ($18M) through breeding and market fees. Axie Infinity is already on a par with other crypto games, and it will continue to rise. The next major milestones for Axie Infinity will be the launch of AXS staking in Q3, and the alpha release of its virtual world Lunacia in Q4.

Avatars Are Not the End of NFTs

Perhaps, one of the most significant trends of the past quarter was the continuation of NFT avatar projects. NFT avatars, collectibles designed specifically for individuals to represent themselves on the internet (like CryptoPunks), continue to trend in popularity. This emerging industry generated nearly $350 million in secondary sales throughout Q2 21, and nearly $600 million throughout the first half of 2021.

The Magic Number: 10,000

Just as the summer of DeFi saw every successful DeFi protocol fork based on food, NFT blue chip projects like CryptoPunks are also experiencing a similar fork drama.

Most of these new projects have CryptoPunk-like features, including a cap of around 10,000 NFTs, each with unique properties and varying degrees of rarity, and a community focused on educating people about the future value of their avatar projects.

These projects include:

• Meebits - 20,000 unique 3D characters designed by Larva Labs (the creators of CryptoPunks) to serve as avatars for the virtual world. Existing CryptoPunks and Autoglyphs owners will also be able to claim a free Meebit.

• Bored Ape Yacht Club - BYAC is a collection of 10,000 unique Bored Ape NFTs that give access to "The Swap Club", a group exclusive to Bored Ape members.

• Bored Ape Kennel Club - An ape's best friend. Similar to Meebits, each BAYC has a free dog available for "adoption". I guess, because every ape needs a dog.

• Wicked Craniums - A collection of 10,762 NFTs, each skull is your ticket to "The Cradle", a group exclusive to Cranium members.

• Bulls on The Block - Early community members of BAYC looking to create a wallet for the community to accumulate for secondary sales. There are 10,000 unique bulls similar to BAYC.  

• My Fking Pickle - 10,000 Pickled Cucumbers

• Slumdog Billionaires - Because every aspect of crypto needs 10,000 dogs.

The team at Larva Labs has big ideas for their Meebits project. Since Meebits can be claimed by either Punks or Glyph holders, Meebits provide added value to the existing Larva Labs community. This creates the perception that Meebits are associated with CryptoPunks, and the punk value narrative, rather than devaluing their existing collectibles from a newer, unrelated NFT. Additionally, Bored Apes has apparently generated over $60 million in sales in Q2’21, and currently ranks third by volume in the NFT avatar list (behind Punks and Meebits).

However, most of these NFT avatar projects may suffer the same fate as Hashmasks. Note, Hashmasks is a once-prominent NFT project that has been quiet since its launch in February, generating only $2 million in secondary sales in the past quarter.

A bigger problem with NFT avatars is that most of these communities are relatively small and owned by a few individuals. Meebits has the largest owner base, despite them having twice as many NFTs as most other NFT avatar projects (20,000 vs ~10,000). Despite this, all of these projects have strong concentration, with wealthy individuals like Gary Vaynerchuk revealing that he owns 52 Punks and 54 Meebits.

Ultimately, concentrated ownership helps drive the narrative of scarcity but will stunt community growth unless individuals sell. Similar to the luxury goods industry, there is a limited number of buyers. Additionally, as other types of intellectual property launch NFT avatars (think Batman NFTs), then the demand for crypto-native avatars may decrease. Genies — avatar NFTs on Flow — recently raised a $65 million Series B in May and has partnered with various celebrities including Rihanna, Shawn Mendes, and Cardi B. These types of NFTs are likely to attract a lot of attention as the respective stars sell the NFTs to their loyal fans.

Avatar NFTs are an emerging space, but will ultimately face a power law distribution where some will have a high value and most will be worth much less. Among crypto-native avatar projects, CryptoPunks has established itself and will likely continue to become the standard for NFT blue chips in crypto, while other crypto-native avatar projects will find themselves struggling to expand adoption due to the influx of celebrity and IP-style avatar projects.

Web3 Adoption Has Reached Criticality

The popularity of Web3 has been long anticipated, but has not been fully realized due to the need for infrastructure for computing, indexing, data management, hosting, storage, and other important services. However, after years of construction and continued growth, many Web3 protocols are beginning to enter their development stage.

The middleware layer that has been continuously built for many years is now experiencing the beginning of product-market fit. Livepeer is a video infrastructure provider and streaming application marketplace that processes millions of videos per week and generates thousands in protocol fee revenue.

The Graph has officially migrated to the mainnet and deployed several subgraphs of the protocol, now generating several thousand dollars in fees per week.

Ocean Protocol's data market (which allows individuals to issue datasets as balancer liquidity pools) has more than $3.3 million in TVL across 419 dataset pools.

File and data storage networks also continue to gain adoption:

• Data stored on Arweave grew by another 1.8TB (1800 gigabytes).

• Storage utilized on Sia reached an all-time high of 1.09PB (1PB = 1000TB), for a total capacity of 3.25PB.

• Total data stored on Filecoin now exceeds 23PB.

• Elsewhere, Web3 protocols like Handshake are experiencing growing usage, with nearly 1.5 million registered Namebase domains and over 100,000 Handshake domains in use. Helium s network is adding thousands of nodes per week, resulting in 147 billion data points spent (equivalent to ~3,500GB) and total net revenue of just over $1.4 million (mostly for adding new hotspots).

Still, while many of the individual components of Web3 are ready for their breakout moments, the stack as a whole has yet to find a way to interoperate with DeFi, NFTs, or other Web3 protocols. Web3 is no longer an unreachable star. The stack is coming together, and the stars are aligning quickly.

Celebrities, Influencers, and Branded NFTs

Fear it, run away, but destiny will come.

As celebrities like GaryVee get deeper into the cryptosphere, it becomes less risky for other celebrities and influencers to enter.

Gary Vaynerchuk, more commonly known as GaryVee, is now entering the cryptocurrency industry with his new NFT project VeeFriends. Since launching in early May, this dual NFT project and brand monetization experiment has been quite successful, generating over $11 million in secondary sales this quarter.

In addition, well-known artists like Jay-Z are also entering the cryptocurrency space, and he has set CryptoPunk as his Twitter avatar. What's more, the rap mogul held an auction at Sotheby's for "Heir to the Throne", an NFT collectible based on his debut album, which eventually sold for $139,000.

Musicians who have historically struggled to monetize their work (except through concerts) have been pioneers in NFT experiments. Yellow Heart (an NFT ticketing marketplace) has developed and issued NFT collections from Maroon 5 and The Kings of Leon, which include perks like front row seats, access to listening sessions, and portraits to go with the albums.

If individuals are monetizing their brands through NFTs, large, established brands won’t be far behind. Twitter recently launched the Twitter 140 Series on Rarible, a set of NFTs that encompass Twitter history and pop culture.

Q2 Ends

Sometimes, a quarter flies by without you noticing. Other times, a quarter sees a breakthrough trend. For Web3, this quarter fell in the middle. The Web3 industry experienced some bumpy growth and milestones, but overall it has been on a steady upward trend.

In NFTs, this quarter was quiet from a mass consumer perspective, but not from an analytical perspective. Art sales were down, but NFT speculators moved to greener pastures (as all speculators do). The NFT landscape continues to expand and is beginning to explore all kinds of new areas that have yet to be explored, even if that means we have to let celebrities in through the doors of OpenSea. What will happen in the next quarter is anyone's guess, but if these trends continue, the second half of the year will be something to look forward to for those who care about Web3 and NFT adoption.

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