Introduction

In the fourth quarter of 2023, the NFT market saw a significant recovery. As of January 16, 2024, Ethereum NFT trading volume has increased fourfold since their respective lows in 2023, while Solana NFT trading volume has increased by more than 10 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 will focus on the recovery of NFTs in the Solana and Ethereum ecosystems and provide insights into their growth in 2024. The report will also analyze the characteristics of incentive-driven NFT markets such as Blur and Tensor, which have been consolidating important market share in existing NFT markets such as OpenSea.

Ethereum NFT Market

The trading volume of Ethereum NFT hit a monthly low of 143 million US dollars in September 2023. The week of October 9th to October 16th of the same year was particularly challenging, with Ethereum NFT trading volume plummeting to only 40 million US dollars. However, there was a significant shift after October 9th, 2023, with Ethereum NFT weekly trading volume skyrocketing by 380%. This sharp rise is mainly attributed to the Blur Season 2 airdrop that occurred on November 20th, 2023. Blur incentivizes NFT bidding, listing, and lending on its platform through the $BLUR token. It is worth noting that NFT traders actively participated in trading weeks before such airdrops, as evidenced by a similar trend during the Blur Season 1 airdrop on February 14th, 2023. In addition, the consequences of the airdrop triggered a wealth effect, prompting NFT traders to reinvest funds into NFTs to maintain their point farming.

Despite a 380% increase in weekly NFT transactions on Ethereum from its low point in 2023, the weekly transaction volume is still down 89% compared to the historical high in March 2022. The NFT market on Ethereum still has a long road to recovery. Moving into 2024, the next cycle of the Ethereum NFT ecosystem may be driven by advanced NFT trading platforms such as Blur and Blast, incentivizing transaction activity through airdrops.

OpenSea launched a professional trading platform in April 2023 to compete with Blur; however, since September 2023, OpenSea Pro has only accounted for 9% of the Ethereum NFT trading volume. Blur's dominant position in professional NFT trading still exists, mainly due to its first-mover advantage and UX/UI design. For example, Blur's use of the order book system allows NFT traders to better assess the depth of a project's bottom price than any other market. This, combined with Blur's native NFT lending platform Blend, provides NFT traders with tools to build complex trading strategies.

Looking ahead to 2024, the position of Blur will be consolidated due to the upcoming third season airdrop planned for May 2024. It is expected that this event will 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 is not only limited to its first-mover position, but also extends to the comprehensive ecosystem it has developed.

Blur's proactive attitude towards token economics was reflected in its recent governance proposal. The proposal advocates for community activation fees to be converted into purchasing market fees of 1% on generated funds, which will be used to buy back and burn $BLUR tokens, thereby reducing the supply of $BLUR. Although this governance proposal is still pending, it demonstrates Blur's continued focus on improving its platform's token economics, positioning itself as an important player in the evolving NFT market landscape.

Although the recent surge in NFT trading volume is attributed to native crypto users re-engaging in NFT markets such as Blur, there are still many NFT traders who remain on the sidelines. It is worth noting that the number of weekly traders on OpenSea has dropped 86% from its historical high in January 2022, indicating that there are still many retail users who have not re-entered the market. Despite Blur being the most popular NFT market in the crypto community, it primarily caters to a more mature and affluent group of NFT traders. In this context, monitoring OpenSea's share of trading volume is crucial for measuring the recovery of retail interest in NFTs.

Solana NFT Market

The NFT trading volume of Solana also hit bottom in September 2023, with a trading volume of 30 million US dollars that month. From October 9th to October 16th, 2023, the Solana NFT trading volume hit its worst week, generating only 4.3 million US dollars in trading volume. Since October 16th, 2023, the weekly NFT trading volume of Solana has increased by more than 10 times. The significant increase in Solana's weekly NFT trading volume is mainly attributed to two main factors:

· Announcement of the upcoming airdrop of Tensor, an advanced NFT trading platform on Solana.

· Due to the significant increase in SOL tokens, there has been a major repricing and additional attention given to all Solana NFTs.

Tensor is the Blur version of Solana, launched in 2022. NFT traders can develop complex trading strategies on it. The second season of Tensor airdrop ended in August 2023, and the next airdrop is expected to take place in January 2024. As a result, Solana NFT collectors are increasing their trading activities on farm points. A more critical impact driving the Solana NFT ecosystem is the wealth effect experienced by Solana holders. With SOL rising 615% throughout 2023, and generous airdrops distributed by other Solana applications to the community, activities for various types of Solana applications (including NFTs) are increasing.

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

Market Concentration

Advanced trading platforms such as Blur and Tensor have rapidly developed and captured a significant portion of NFT trading volume on their respective chains. The concentration of the NFT market is a mutually beneficial result 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 reward airdrops, allowing sellers to gauge the market depth for a given NFT. Prior to Blur and Tensor, traditional NFT markets such as OpenSea used a quote system without incentive measures. Buyers lacked the incentive to submit competitive quotes, resulting in scattered quotes that were significantly lower than the asking price of the NFT.

By 2023, Blur has captured 67% of the total NFT transactions on Ethereum. Prior to the launch of Blur, OpenSea held over 80% of the NFT transaction volume, but currently only accounts for 29% of the total NFT transactions on Ethereum.

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