Category: Ethereum

Where would you mint an NFT?

On By mehranmuslimiblogIn Ethereum, NFTs, SolanaLeave a comment

Ethereum is the largest ecosystem of the DeFi (decentralized finance) sector, so it’s no surprise that this is where you’ll find the majority of NFTs being minted. Ethereum also takes the lead with a much bigger pool of buyers and sellers, which is why Ethereum-based OpenSea, a very popular NFT marketplace, is often the first stop for many NFT producers, because that’s where they potentially get more exposure and people willing to buy or place bids on their NFTs. 

Ethereum’s data architecture and security components are the reason why so many developers are building on top of its blockchain. But there are some ‘cons’ to the network. Rather frequently, the network suffers a major transaction backlog, which leads to an enormous spike in transaction fees, and this limits the number of users who can afford to mint NFTs. On the other hand, whilst paying elevated gas fees can be a crippling experience sometimes, the upside is there’s more money flowing in Ethereum, so the flipping ceiling is way higher.

The move to Solana

In response to this, NFT creators and collectors look to alternative blockchains with higher throughput, scalability, and lower gas fees. So far, Solana seems to be Ethereum’s most serious competitor, due to the fact that it’s a high-performance blockchain that leverages different cryptographic mechanisms to scale its network.

But it is still chasing Ethereum. Data from CryptoSlam shows that Ethereum has had a whopping selling volume of over $1.8 billion in the last 30 days, compared to $120 million from Solana-based marketplaces. Plus, the most popular NFT collections in the market exist on the Ethereum blockchain, i.e. Bored Apes and CryptoPunks.

But Solana takes the lead in terms of technology, functionality, and versatility. It uses a consensus mechanism called Proof-of-History, which leverages a set of protocols to execute transactions with high throughput. Its transaction fees are less than one dollar, and there appears to be some migration to Solana amongst NFT projects and collectors in order to benefit from the scalability and cheap transaction fees. It also appears that Solana is becoming the preferred blockchain for more general and utility-focused NFTs.

In conclusion, whilst Ethereum still has the major market share, Solana’s share is growing. In fact, Solana’s user base has been growing at a much faster pace since the beginning of 2022, and even JP Morgan believes it could overtake Ethereum in the long term.

Layer 1s versus Ethereum

On By mehranmuslimiblogIn apps, DeFi, Ethereum, Solana, UncategorizedLeave a comment

Last year, the networks that set out to compete with Ethereum for a slice of decentralized applications proved to be profitable. These blockchain networks, also known as ‘Layer 1s’, include Solana, Polygon, Avalanche, Polkadot and Cosmos amongst others.

These protocols are masters of decentralized computation, something that can power any type of software, but is “particularly apt for digital scarcity, property rights and provenance,” writes Lex Sokolin at Coindesk. And as last year showed, they proved to be increasingly profitable for investors. However, they only remain valuable if they are used by the developers who make apps.

They also require users. As Sokolin says, “if there are users in your platform, developers value that as a distribution channel in addition to a technology enabler.” He refers to this creating a viral loop “that can create positive network effects, which allow certain equilibria to hold, and others to collapse.” He adds, “So layer 1s do both – they provide the computational unit as well as the market context in which that computational unit is generated and executed.”

Yet Ethereum is still holding the biggest slice of the market. It is true that its dominance has declined. For example, in September 2020, Ethereum had 90% of the assets on the market, and today it has about 50%. How and why has that happened?

Let’s take Avalanche as an example. It is launching a $290 million incentive program to grow the applications built on its technology. Its market cap is around $30 billion, so this expenditure on platform growth and customer acquisition is only one percent of its cap. And last year, Polygon, targeted DeFi growth with a $100 million ecosystem fund, which worked for it, as you will find quite a number of DeFi projects on its blockchain.

Ethereum by contrast was boosted by Consensys, which “played the role of ecosystem fund in the early days, eventually generating sufficient building and adoption by the community.”

These ecosystem funds are a really important element in the rise of Layer 1 solutions. Success and sustainability comes from spending on marketing, growing your adoption against others, building in profitability and using profitability to grow your market share. Ultimately, it should have been easy for Ethereum to hold onto the lion’s share of the market, but it didn’t factor in investors’ appetite for. As Sokolin says, “there’s a lot more risk capital out there wanting to recreate a layer 1 investment return profile,” which is good news for those protocols.

NFTs escape the crypto crash

On By mehranmuslimiblogIn Bitcoin, Ethereum, NFTsLeave a comment

DappRadar has published an interesting report on how NFTs appear to have escaped the current crypto market crash relatively unscathed. It points out that while ‘fear’ is the sentiment dominating the crypto market, the very opposite appears to be true of NFTs, or non-fungible tokens.

So, what is happening on the NFT scene that is contributing to this growth. The report first points to the celebrities and big brands that are joining it daily. Some of the celebrities have an enormous social media reach, such as Kevin Hart with +192 million followers on Twitter and Instagram. Hart and footballer Neymar Jr (+200 million followers) have publiicised their entry into the Bored Ape Yacht Club (BAYC), one of the prime NFT projects right now.

Furthermore, Twitter, perhaps the most popular social media platform across crypto and NFT enthusiasts, enabled its first web3 functionality inside the social platform a few days ago. The other social media platforms are expected to follow, and even Walmart has filed several trademarks for NFT use.

Google has also revealed that searches for ‘NFTs” have now outstripped those for ‘crypto’, another telling sign that NFTs are in the ascendance, and there is increased interest from Asia. Prior to this the market was dominated by North America and Europe, but an Asian fan club could make a massive difference.

Some NFT metrics

On their own, NFTs “produced one of the most impressive metrics we saw in the blockchain industry last year,” DappRadar says. “In total, $25B was generated by this type of asset in 2021 alone. That’s a whopping 18,414% more than the four previous years combined.”

And whilst most cryptocurrencies are struggling at the moment, it is necessary to look at Ethereum, the blockchain used by the majority of NFT projects. ETH may be facing challenges, but Ethereum was responsible for 75% of last year’s volume. For example, since December 2021, more than 53,300 UAW have connected to Ethereum NFT dapps on average per day. That’s 43% higher than the numbers seen during Q3 of last year. Furthermore, before the end of January 2022, a record 1.6M unique traders propelled Ethereum NFTs to generate more than $3.7B in sales, and were on track to break the record set in August 2021 of $4.5B.

A store of value?

According to the report, a recent floor price analysis for some essential Ethereum collections signals that NFTs behave like assets that store value. The floor of an NFT collection is the minimum asking price and represents the lowest entry barrier. According to the floor price market cap for the top 100 NFT collections, the value of NFTs has decreased by $2.4B from November and is currently estimated at $14.8B. On the other hand, despite the 50% hit to ETH, the value of the most traded collections only experience a 15% dip, showing that the category resisted the crash. 

There is a lot of positive sentiments around NFTs, much of it down to the growing fame of BAYC. In November, when BTC and ETH were showing all-time highs, the floor price at BAYC was 30 ETH. One week later the BAYC floor increased over 60% to surpass 50 ETH despite a 15% drop in ETH’s price. By the end of December, the cheapest BAYC could be purchased for 60 ETH, and it has now passed 90 ETH. By the report’s calculations, you need more than $225,000 at current ETH prices to buy the most affordable Bored Ape.

Essentially, NFTs have gradually become an asset class of their own. Although they remain tied to cryptocurrencies, NFTs are slowly creating an economy for themselves. What we are seeing now is the proverbial tip of the iceberg, but perhaps most importantly, NFTs are proving themselves as digital assets capable of storing value.

You can read the DappRadar report at https://thedefiant.io/dappradar-nft-report/