Web3 & NFT Q2'21 Report

Bubbles, NFT Avatars, & Web3 Adoption

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If someone walked up to me and said at the beginning of the year, NFTs will easily surpass $1 billion in sales, GaryVee will launch an NFT project, and Axie Infinity becomes one of the top five NFT marketplaces, I would have replied, “I’ll believe one of three”. But, the past quarter (Q2’21’) witnessed over $750 million across the top five collectibles, Axie’s Marketplace generated $7.7 million in fees, and GaryVee has already earned over one million in royalties from his NFT project. Let’s break it down.

NFT Bubbles It’s Bubble

The media narrative that the NFT market is dead or that the bubble has popped is objectively mistaken. The media largely focused on crypto art and collectibles (e.g. NBA Top Shot), but the broad NFT ecosystem continues to grow. In fact, OpenSea recorded its best month ever in June in terms of NFT sales volume. Rarible’s poor performance (relative to OpenSea) can largely be attributed to the marketplace not providing access to some NFT categories that boomed over the past few months including NFT avatars, Art Blocks, sports collectibles, and virtual worlds.

OpenSea is telling a canary in the coalmine for NFT growth. In June, OpenSea facilitated over 211,000 NFT sales across nearly 40,000 active traders.

Overall, June marked OpenSea’s best month ever for NFT volume, a record number of NFT sales, and its second-best month of active traders.

While OpenSea remains the overall marketplace leader, Axie Infinity surged throughout the quarter becoming the four largest NFT marketplace. Notably, Atomic Market – the go-to marketplace for NFTs on WAX – now ranks 8th in NFT marketplaces.

Axie Infinity’s growth followed the Phase 2 migration of Ronin, its Ethereum-linked sidechain which provides reduced gas fees and a more seamless user experience. While Axie’s can be exchanged on other platforms, 97% of Axie volume occurs on the Axie Marketplace which passes fees (in AXS and ETH) to the Axie Treasury.

The Axie Treasury is now valued at over $21 million, with 85% of it having been ($18 million) accrued in the past quarter through breeding and marketplace fees. Axie Infinity has set itself apart from the rest of the pack – crypto games – and continues to rise. The next major milestone will be the launch of AXS staking in Q3, and the alpha of its virtual world, Lunacia in Q4.

Avatars: Not The Last NFTs

Perhaps one of the most significant trends throughout the past quarter was the continuation of NFT avatar projects. NFT Avatars – collectibles specifically designed for individuals to represent themselves across the internet (e.g. CryptoPunks) – continued to grow in popularity as the emerging sector generated nearly $350 million in secondary sales throughout Q2’21 and nearly $600 million in the first half of 2021.

The Magic Number: 10,000ish

Just as DeFi’s summer witnessed a food-based fork of every successful DeFi protocol, NFT blue-chip projects like CryptoPunks are undergoing a similar fork-apalooza.

Most of these new projects launched with CryptoPunk-esque traits include a limited number of around 10,000 NFTs, unique attributes across each NFT with different rarity levels, and a community focused on advocacy regarding the future value of its avatar project.

Some of the launches include:

  • Meebits – 20,000 unique 3D characters by Larva Labs (creators of CryptoPunks) designed to be avatars for virtual worlds. Existing CryptoPunks and Autoglyphs owners were also able to claim a free Meebit.

  • Bored Ape Yacht Club – Bored Ape Yacht Club (BYAC) is a collection of 10,000 unique Bored Ape NFTs with access to the “Swap Club”, a Bored Ape members only group.

  • Bored Ape Kennel Club – Man’s Ape’s best friend. Similar to Meebits, every BAYC was offered a free dog for “adoption”, because every ape needs a dog, I guess.

  • Wicked Craniums – A collection of 10,762 NFTs where each Cranium is your ticket to “The Cradle”, a Cranium members-only group.

  • Bulls on The Block – early community members of BAYC that wanted to create a wallet for secondary sales to accrue for the community. There are 10,000 unique bulls similar to BAYC.

  • My Fking Pickle – 10,000 self fking explanatory pickles

  • Slumdog Billionaires – because every facet of crypto needs 10,000 more doge dogs.

The Larva Labs team was quite intentional with their Meebits project. Since Meebits were claimable by Punks or Glyph holders, Meebits provided added value to the existing Larva Labs community. This creates the perception of Meebits as connected to CryptoPunks – and the punk value narrative – as opposed to the perception of devaluing their existing collectible from a newer, unrelated NFT. Moreover, Bored Apes have notably generated over $60 million in sales in Q2’21 and currently rank 3rd on the NFT avatars list by volume (behind Punks and Meebits).

However, most of these NFT avatar projects might be relegated to the same fate of Hashmasks, a once-prominent NFT project that has since lulled since its February launch, only generating $2 million in secondary sales over the past quarter.

A larger point with NFT avatars is that most of these communities are relatively small and owned by a small number of individuals. Meebits have the largest owner base, although they do have twice as many NFTs (20,000 vs ~10,000) compared to most of the other NFT avatar projects. Still, there is a strong concentration in all of these projects, with wealthier individuals like Gary Vaynerchuk who revealed that he owns 52 Punks and 54 Meebits.

Ultimately the concentrated ownership helps drive the scarcity narrative, but reduces the growth of the community unless individuals sell. Similar to the luxury goods industry, there’s 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 established partnerships with various celebrities including Rihanna, Shawn Mendes, and Cardi B. It’s likely that these types of NFTs will draw significant attention as the respective stars sell their NFTs to their loyal fans.

Avatar NFTs are an emerging sector that will ultimately face power law distributions, some will be worthwhile while most will be worth much less. Among crypto native avatar projects, CryptoPunks are established and will likely remain the standard for NFT blue-chips within crypto while other crypto-native avatar projects find themselves struggling to grow adoption due to an influx of celebrity and IP style avatar projects.

Web3 Adoption Hits Tipping Point

The proliferation of Web3 has been long awaited, but failed to manifest fully because of a need for infrastructure across computation, indexing, data management, hosting, storage, and other vital services. However, after many years of building and continued growth, many Web3 protocols are starting to hit their stride.

Middleware layers that have been continuously building for years are now experiencing the on-set of product-market fit. Livepeer a marketplace for video infrastructure providers and streaming applications is processing millions of videos per week and generating several thousands in protocol fee revenue.

The Graph officially migrated to its mainnet where it has deployed subgraphs of several protocols and is now generating several thousand dollars per week in fees.

Source: Web3Index

Ocean Protocol’s data marketplace – which lets individuals issue data sets as balancer liquidity pools – possesses a TVL of over $3.3 million across 419 data set pools.

File and data storage networks also continue to gain adoption:

  • Data stored on Arweave grew another 1.8 terabytes (1,800 gigabytes)

  • Storage capacity utilized on Sia has reached an all-time high of 1.09 PB (1 petabyte = 1,000 terabytes) with a capacity of 3.25 PB.

  • The total data stored on Filecoin now exceeds 23 petabytes.

Elsewhere, Web3 protocols like Handshake are experiencing increased usage with nearly 1.5 million registered Namebase domains and over 100,000 Handshake domains in use today. Helium’s network adds thousands of nodes per week, resulting in 147 billion data credits spent (equivalent to ~3,500 GBs) for total net revenue of just over $1.4 million (mostly used to add new hotspots).

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

Celebrity, Influencer, and Brand NFTs

Dread it. Run from it. Destiny arrives all the same.

As celebrities like GaryVee dive deeper into the water of crypto, the risk of entry for other celebrities and influencers decreases.

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

Moreover, renowned artists like Jay-Z are entering crypto, using a CryptoPunk as his Twitter avatar image. More importantly, the Rap Mogul conducted a Sotheby’s auction of “Heir to the Throne”, an NFT collection based on his debut album which ultimately fetched $139,000.

Musicians which have historically had trouble monetizing their work (except through concerts) have become first movers in NFT experimentation. Yellow Heart – an NFT ticketing marketplace – has already developed and issued NFT collections with Maroon 5 and The Kings of Leon which come with additional perks like front row seats, access to a listening party, portraits that accompany the albums, and more.

And if individuals are capitalizing on brand monetization via NFTs, large established brands aren’t going to lag for long. Twitter recently launched the “Twitter 140 collection” on Rarible, a set of NFTs that encompass Twitter’s history and pop culture.

Share Advancing Web 3.0

Closing Out Q2

Sometimes a quarter passes by mostly unnoticed. Other times, a quarter experiences breakout trends. For Web3 the quarter fell somewhere in the middle. The Web3 sector experienced some jolts growth and reached some milestones, but overall trended steadily upwards.

Among NFTs the quarter was quieter from a mass consumer perspective, but not from an analytical reference. Art sales declined, but NFT speculators moved to greener pastures (as all speculators do). Still, the NFT landscape continues to expand, branching out into various new fields that have yet to be explored, albeit even if that means we have to let celebrities through the OpenSea gates. What next quarter holds is anyone’s guess, but if these trends continue the second half of the year is setting up to be spectacular for those who care about Web3 and NFT adoption.