NFT dominance on Ethereum climbs 22%, indicating incoming rebound

New data shows that the NFT dominance on the Ethereum blockchain has climbed up to 22 percent, indicating that the digital asset may rebound soon.

The dominance ratio is based on the percentage of the total gas consumption on the Ethereum blockchain for a particular type of transaction. When this metric shows an upward trend, it indicates a higher usage of gas by holders in that specific transaction type.

As a diverse blockchain ecosystem, Ethereum hosts various transaction types. Each of these transactions corresponds to a particular Ethereum-based application. Among the most popular applications built on the network are NFTs, DeFi, MEV bots and ERC20 tokens.

Several weeks ago, a weekly report from Glassnode showed that the NFT dominance on the blockchain had dropped to 13 percent. The data indicated a decline in interest in NFTs among investors despite the dominance had remained at high levels in the past two years.

“By and large, the leading NFT markets and projects have maintained a primary foothold on the Ethereum main-chain, and as yet, there has not been a notable migration of existing NFTs towards bridges and other chains,” Glassnode’s report said.

“Bridges” discussed in the report are applications that link two blockchains and accommodate transfers between them. Data revealed that bridges’ dominance has gone down drastically for the past year and a half. It peaked at eight percent in August 2021 and went down to below one percent these days.

Analysts said the decline in bridge use among blockchain actors might have been caused by numerous high-profile bridge hacks last year. Additionally, gas fees on the Ethereum mainnet have lowered significantly, causing people to prefer transactions within the blockchain.

Across all networks, the weekly average trading volume of NFTs nearly tripled in recent weeks. The pure trading volume hit its lows last November. An increase in trading volume suggests renewed interest in the collectibles.

NFTs in 2023

Although NFTs endured a bearish trend throughout most of 2022, analysts have predicted that the sector will see a bullish market in 2023. They added that NFTs would play an important role in brand engagement, especially in the metaverse.

Business consulting firm Forrester said the corporate metaverse would progress “steadily” this year, with large brands such as Starbucks, Nike, Samsung and Gucci using the space to open new revenue streams.

Mekanism director Jeff MacDonald explained that these brands would accelerate the transition to Web3 by offering exclusive benefits to their customers, including financial incentives. Starbucks, for example, has introduced an NFT-based loyalty program that allows customers to collect coffee-based NFTs on its Web3 platform and exchange them for physical rewards.

Meanwhile, Nike established a Web3 platform where physical sneaker owners can dress their avatars in the same gear. The new business model — called phygital, which combines physical and digital tokens — is expected to gain traction in the coming years. Blockchain firms like Polygon offer attractive solutions for these companies to execute their plans.

The 2022 bear market showed that tokenized art is resilient. British auction house Christie posted $5.9 million in tokenized art sales last year, a 96 percent decrease from 2021. Despite that, the auction house still proceeded with its plan to launch a Web3-focused venture capital branch.

Some NFT artists have started using new strategies to sell their tokens amid the bearish trend. For example, with fractionalized NFT art, buyers can purchase an NFT — which represents a fraction of the stake in the artwork — at a lower price.