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NFT sales and active wallets have dropped by more than 40% in the last month, while new layer-2 infrastructure is prepping the industry for the next rush.
Nonfungible tokens (NFTs) dominated the mainstream media in March and April of this year, with an explosion of daily stories about record-breaking sales and big-name firms unveiling their own one-of-a-kind digital art pieces.
After a few months, the narrative has turned to the bursting of the ‘NFT bubble,’ with doomsayers claiming that NFT investors are on the approach of losing all of their money.
Despite the well-known cyclical nature of the crypto market, which may spring back to life at the drop of a hat, the quickly decreasing prices and activity on the biggest NFT markets have lead many to speculate on the demise of the nonfungible token space.
You knew this was coming, right?
🎵 NFTs Are Dead🎵
— Jonathan Mann (@songadaymann) June 4, 2021
Active users jump ship
Active users are the lifeblood of NFT marketplaces, but the choppy nature of the cryptocurrency markets over the past two months, including the May 19 sell-off which saw $1.2 trillion in value wiped from the crypto market cap has led to a precipitous decline in user activity.
According to the graph above, the number of active wallets on NFT markets peaked at the end of March and has since decreased by more than 40% as decreasing prices and hefty transaction fees on the Ethereum (ETH) network drove traders out of the market.
The reduction in active wallets coincided with a reduction in sales across the sector, as rapidly declining token prices exacerbated the losses of holders and collectors who saw their expensive art pieces lose up to 90% of their value overnight.
The drop in active users has resulted in a 60% drop in total daily revenue, which has dropped from a peak of $325 million on May 7 to its current level of $110 million.
NFTs are in decline but not out.
However, not all is lost because there are so many compelling value propositions and use cases for NFTs that entrepreneurs and established businesses have taken note and embraced the industry.
The blockchain ecosystem has already proposed some feasible solutions to the NFT sector’s difficulties, such as the development of Enjin’s Efinity and JumpNet protocols, which help to cut costs and enable for interoperability across different networks.
Polygon, an Etheruem sidechain that allows projects to continue on Ethereum while still having access to a fast, low-fee environment, is another popular choice. A huge number of NFT-oriented and gaming projects have relocated to Polygon in the last three months, and as the crypto and NFT markets strengthen, these low cost conditions could assist to drive network activity.
While the present data may appear to be depressing when compared to recent all-time highs, when considered over a longer time period, the average number of NFT sales increased approximately 300 percent between January and the end of May. Despite the market drop that began on May 12, this demonstrates the sector’s strength.
Although the NFT ecosystem has experienced a dramatic reduction in activity and token values over the last month, it is much too early to declare NFTs dead, since the world has just scratched the surface of what is possible with this young smart contract technology.