NFT market on red alert

 OpenSea, the world's largest NFT trading platform, has lost 99% of its daily trading volume in almost four months.


According to DappRadar, the NFT volume traded on OpenSea on August 28 was nearly $5 million, 99% lower than the record level of $405.75 million on May 1. In addition, the number of participants trading on the platform has also plummeted, showing that the value and interest in NFT collectibles has plunged to unimaginable levels in recent months.

Some NFTs in the Bored Ape Yacht Club collection. Photo: BAYC
Some NFTs in the Bored Ape Yacht Club collection. Photo: BAYC

Reduced volume and traders impacted the NFT floor price - the minimum amount an investor is willing to pay for a product. For example, the floor price of the popular NFT Bored Ape Yacht Club has dropped by 53%, from 153.7 Ethereum on May 1 to 72.5 Ethereum on August 28. Similarly, the floor price of CryptoPunks is also down nearly 20% from its July high of 83.72 Ethereum.

The NFT bubble is about to burst

NFT currently runs mainly on the Ethereum blockchain and uses this cryptocurrency for transactions. This means that the NFT price will drop if the Ethereum market plummets.

According to experts, Ethereum's price volatility is one of the reasons behind the decline of NFT. Last November, the price of this digital currency peaked at $4,950. But this year, the token has dropped below $1,000 and is currently at $1,400. The drop in the price of Ethereum made the market no longer as exciting as before, from which the trading slowed down.

Similar to the cryptocurrency market, NFT is also very "sensitive", easily affected by any company in this field. For example, last week, BendDAO began voting on the issue of changing its protocol code to increase liquidity. BendDAO is a decentralized platform that allows NFT holders to collateralize their collection to borrow money (in Ethereum) worth 30-40% of the floor price of that NFT.

The voting took place in the context of Ethereum's price increase from less than $1,000 to more than $1,400, leading to an increase in Ethereum loans (in USD value). On the contrary, the continuous decline in the NFT price caused the value of the collateral held by BendDAO to be dragged down.

As a result, BendDAO is facing its own debt crisis. At this point, the borrower is unable to repay the loan in USD due to the increase in the price of Ethereum, while the lender has difficulty in collecting the debt due to the falling collateral valuation. With this volatility, the floor price of NFT collections is at risk of falling further, if market liquidity continues to plummet.

NFT could be a fad

NFT (non-fungible token) is a blockchain-based digital asset certificate that is transparently assessed for legitimacy and ownership. In 2021, NFT becomes a phenomenon in the technology world with works selling from a few hundred thousand dollars to tens of millions of dollars. Many celebrities like Paris Hilton, Gwyneth Paltrow or Serena Williams also own NFTs.

According to NonFungible statistics, the total value of NFT transactions last year reached 17.6 billion USD, up 21,350% compared to 82.5 million USD in 2020. However, the NFT sector is showing signs of cooling down, when the number of NFTs traded in the first quarter of the year decreased by nearly 50% compared to the previous quarter. According to a report from crypto market tracking company CryptoSlam in May, only $31 million was traded in the first 15 days of this month, the lowest of the year. In previous months, the total trading volume was always in the hundreds of millions of USD.

In the market, many million USD NFTs are no longer "hot". For example, Twitter founder Jack Dorsey's first tweet was bought for $2.9 million, but now only bid for no more than $20,000. Some of the million USD NFTs in the CryptoPunk collection are also discounted dozens of times.

According to some experts, most NFTs are currently unclear about copyright. In January, OpenSea admitted that up to 80% of the NFTs on the platform were unauthorized copies of other NFTs or famous real-life works of art. LookRare, the NFT exchange that surpassed OpenSea in terms of NFT sales this year, has a similar problem. According to CryptoSlam, up to 95% of works on the platform are found to be fake.

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