NFT trading on Ethereum heading into 2022
By Vanessa Malone
In 2021 we saw a wave of mainstream acceptance towards blockchain technology with the rise of non-fungible tokens “NFTs.” NFT was even slated as Collins Dictionary’s word of the year award for 2021!
The appeal and level of familiarity that digital collectibles offer the general public continues to transcend typical blockchain education hurdles and expand the NFT community.
Ethereum, where the majority of NFTs and NFT platforms transact on, hit a new record at the end of 2021 with 71 million addresses.¹
DappRadar estimates more than $23 billion worth of NFT trading volume across 2021, $100 million more than 2020.² The most popular NFT platform, OpenSea, recorded nearly $243 million worth of trading on January 2, 2022.³
The rapid growth is thrilling to witness but a closer look reveals some growing pains and scrutiny.
There are bigger questions NFT buyers and sellers should consider as they jump into the new digital realm. Who is winning, and who is losing through it all? Further, how do you position yourself to be in the winner’s circle.
First, who is winning?
According to Chainalysis’s 2021 NFT Market Report, a mere 20% of user addresses on OpenSea account for 80% of secondary NFT sales, while just 5% of all addresses account for 80% of profits made on secondary sales.⁴
With 334,337 OpenSea users⁵ trading in the last 30 days, this statistic points to an elite group of NFT traders raking in the benefits. The data also shows that the winners are dishing out a lot of money to purchase NFTs from popular collections.
Chainalysis's report found that more upfront capital resulted in more NFT resale success. For the everyday fan who wants to connect with an artist, celebrity, athlete or project in a unique way; this capital requirement can create a high barrier of entry.
To put it more in perspective, if fans wanted to purchase an NFT from two of the most popular NFT collections, Bored Ape Yacht Club (BAYC) or CryptoPunks, they’d need to dish out more than $200,000!⁶ This isn’t including high gas fees on Ethereum-based NFT platforms.
This paints a disheartening picture for the everyday fan aiming to participate in a blockchain ecosystem designed to be inclusive and accessible.
Who is losing?
We’d argue that everyone not in the 20% contributing to most of the transactions or the 5% making profits are the ones losing out on the potential benefits that NFTs offer.
As reported above, high purchase prices are correlated with higher resell success for the top NFT collectors. While great for those select few, this strategy could prove catastrophic for the everyday NFT collector.
One critical reason for this is the high gas fees associated with NFTs. Buying NFTs, especially from a highly anticipated collection, is extremely competitive. Thousands of users could be rushing to purchase at the same time. Those who aren’t lucky enough to secure the NFT are still on the hook for the gas fees on those failed bid attempts. There’s even speculation that experienced NFT traders are employing bots to help purchase NFTs when minting begins which would add to the failed transactions and make profitable trading more difficult for average users.
According to analysis done by Investor Place, a typical OpenSea transaction has an estimated cost of $151.93 on each side of the buy and sell. Plus, the cost of the wallet fee for transferring Ether to OpenSea to pay for the NFT which could easily add in another $30 to $40. This brings the total fees close to $180 to $190 per transaction, even if the purchase or sale isn’t successful.⁷
Below is an example of gas fees paid during The Sevens minting event which took place September, 2021. Within just an hour after minting began, users had attempted over 26,000 failed transactions, resulting in over $4 million in fees.
Average NFT traders also have to be worried about authenticity, as some people have started to make NFTs for art they don’t own or create. On NFT platforms where identity verification and other investor protections aren’t prioritized (the majority of today’s NFT platforms), this could create a lot of issues concerning brand image and fan trust.
Where are we heading to create a fairer and more accessible NFT market?
Hollywood, athletes, musicians, major auction houses and brands are flooding into the space to claim their stake in NFTs. These famous names are introducing an entirely new fan base to blockchain and digital merchandise.
But as we covered above, the current NFT marketplace isn’t necessarily set up to protect brands and their fans from fraud or hold the hand of users unfamiliar with the intricacies of blockchain trading.
Again, popular NFTs on OpenSea or other NFT platforms could sell for thousands or even millions of dollars, which greatly excludes the masses.
Most platforms require Ether or other digital currency purchases from a third-party digital currency exchanges. On platforms with no required identity verification, buyers and sellers don’t know who they’re transacting with which also creates risk.
These financial and educational hurdles aren’t even taking into account the reports that only a small sector of the crypto community are transacting or even profiting from NFTs.
An innovative and incredible evolution for fan engagement through digital collectibles could very quickly become a very frustrating and disappointing experience for the average fan as well as a legal, compliance headache for brands aiming to tread safely.
We believe this year will show a general migration towards lower-cost, fair, and secure NFT platforms.
Upstream as the next generation NFT marketplace
Upstream supports the everyday fans and prominent sellers who want to transact in a fair, secure, and affordable NFT ecosystem. Upstream offers a secure one-stop-shop for creating and selling authenticated NFTs to a global fan-investor community.
We’ve announced several key strategic partnerships (Timbaland’s BeatClub, Pitbull, etc.) and have many others being announced in the coming months from groups that wish to join the Upstream community.
With no gas fees for users, NFTs for as low as $10, and a wide range of payment options, Upstream is the go-to NFT market to bring fans closer to your venture through digital merchandise. Interested issuers can reach us at firstname.lastname@example.org for more information.
Few key differentiators:
- Upstream operates a layer-2 Ethereum rollup blockchain and is an “industry standard” ERC-721 NFT platform featuring no gas fees for users.
- Upstream supports accessible NFTs for all fans to participate in for as little as $10 using PayPal, Credit or Debit Card, US Dollars or the USDC cryptocurrency.
- Upstream, a MERJ Exchange Market, is a fully regulated digital stock exchange which means our NFT market inherently meets US-securities and bank-secrecy laws as standard practice.
- With many platforms, the responsibility falls on the buyer to ensure the NFT is truly from the seller. Because Upstream verifies identities, buyers and sellers are protected and assured that users are who they say they are.
- Upstream creates a digital wallet for users directly within the app. We’re also a non-custodial marketplace, which means users hold and control their assets. All US Dollar accounts are also FDIC-insured up to $250,000.
- Upstream only charges creators/sellers a $1 NFT auction fee, and only upon sale will sellers pay a 2% sales commission, constituting some of the lowest creator/seller fees in the NFT space. No account funding fee, no cryptocurrency deposit/withdrawal fees, no NFT bid fee, no NFT transfer fee for winning bids, and no ACH withdrawal fees to a U.S. bank.
- Upstream is 100% carbon neutral with its own solar “field” for ETH mining.
We believe making NFTs accessible and affordable could enable thousands and even millions of fans to enjoy popular NFTs from their favorite athletes, musicians, and entertainers. We’re only at the beginning for NFTs and their potential. Today NFTs are mostly associated with digital art but that’s just the tip of the iceberg. Membership NFTs, Ticket NFTs, Raffle NFTs and other rewards are being attached to NFTs as well as new forms of media, audio, and in some cases physical objects. We look forward to ushering in the new innovative wave on Upstream.
Visit https://upstream.exchange/ or reach our team at email@example.com.
Upstream, a MERJ Exchange Market, is a fully regulated global stock exchange for digital securities. Powered by Horizon’s proprietary matching engine technology, the exchange enables investors to trade shares in IPOs, crowdfunded companies, U.S. and international dual listed equities, SPACs and celebrity ventures directly from the app https://upstream.exchange/. Interested issuers can reach the team at firstname.lastname@example.org.
Horizon is a fintech company that builds and powers global securities exchanges with an integrated suite of software for compliant issuance, management, and secondary trading of securities. Their in-house solutions combine Wall Street and Silicon Valley to power the next generation of securities offerings and trading in the U.S. and globally. Learn more at https://www.horizonfintex.com/.