Data suggests mass adoption of NFTs is still a long way off

Quick Take

After the success of CryptoKitties, NFTs were lauded as the first mainstream consumer use case for blockchain
Now, more than a year later, it’s evident that NFTs have yet to even approach the success that CryptoKitties once had
While the number of users is growing, both the number of transactions and total traded volume are declining in 2019
Japanese multiplayer RPG My Crypto Heroes had overtaken CryptoKitties as the NFT platform with the most transacting users

Non-fungible tokens (NFTs) are tokenized, blockchain-based provably scarce, non-divisible collectible items. The first well-received game utilizing NFTs, CryptoKitties, boomed in popularity at the end of 2017. At its (short-lived) peak, CryptoKitties consumed around 15% of Ethereum and drove the median transaction fees to upwards of $3 — more than 20 times the current median fee.

Source: DappRadar

In March 2018, while already experiencing a massive decline in interest (see chart above), CryptoKitties raised $12 million from Andreessen Horowitz, Union Square Ventures and others. Following the raise, Fred Wilson, the co-founder of Union Square Ventures, said: “We think digital collectibles, and all of the games they enable, will be one of the, if not the first, big consumer use cases for blockchain technologies.”

The nature of permissionless blockchains allows NFTs users to actually own the digital assets as opposed to them being owned by the company that created them. Theoretically, even if the company were to shut down, the users would still own their collectibles and could use them in any other way without being dependent on the company.

Now, more than a year later, it’s evident that digital collectibles are not yet a big consumer use case for ‘blockchain technologies’. In fact, all the other competing projects that utilize digital collectibles have yet to even approach the success CryptoKitties once had.

Source: NonFungible.com, DappRadar

Transacting users

Transacting users, perhaps the most meaningful metric while evaluating NFT platforms and the closest proxy to real users, are calculated as unique addresses that interact with the platform’s smart contracts. This metric is impractical to fake because users actually have to pay the fees themselves. It’s technically possible (but not very likely) that one user owns multiple addresses, which would further push down the number of real users. Users not transacting on-chain, but either transacting off-chain or not actively participating, are not included in this metric.

Source: DappRadar

It’s apparent from the chart above that the number of total transacting users has yet to come close to December 2017 when CryptoKitties recorded more than 6,000 average daily users and controlled 99.3% of the market share. Last month, there were about 3,000 daily average users of all NFT platforms combined.

In February 2019, a Japanese multiplayer RPG, ‘My Crypto Heroes,’ had overtaken CryptoKitties as the NFT platform with the most transacting users. My Crypto Heroes currently dominates the market with about 83% of the NFT market share while CryptoKitties is now third (4.9%) behind Axie Infinity (5.0%). Ethermon, one of the countless CryptoKitties clones, was also quite popular from August to January but the enthusiasm has since died down.

SuperRare and KnownOrigin, two largest marketplaces for digital art, recorded just 35 average daily users combined in August.

Source: DappRadar

Other metrics worth evaluating when looking at NFTs are:

the number of transactions that interact with the smart contracts
the volume (in USD) transferred through the smart contracts

Number of transactions

Source: NonFungible.com

By looking at the number of average daily transactions, the same trend can be observed as with the number of users. According to the data by NonFungible.com, the number of transactions peaked in early December 2017 with 128,000 per day on average; nearly all coming from CryptoKitties.

Currently, there are less than 10,000 daily transactions across all NFT platforms combined. If we look at the data without the initial CryptoKitties peak, we get a much clearer picture of the overall trend. The number of transactions has actually been decreasing in 2019 despite the number of users growing.

Source: NonFungible.com

The number of transactions is likely decreasing because although CryptoKitties' prominence has taken a nosedive, it still generates the most NFT transactions per user in spite of that precipitous slide. Each NFT game or platform has a different smart contract structure and different gameplay, which affects how often each user transacts.

Source: NonFungible.com, DappRadar

CryptoKitties currently still has the most transactions, but it's about to be overtaken by ‘My Crypto Heroes’. Axie Infinity ranks third with about 16% of all transactions. None of the other platforms that utilize NFTs come close to the top 3.

Source: NonFungible.com

USD volume

Volume is perhaps the easiest metric to fake because a small number of extraordinarily high transactions sent between just two affiliated parties can drive up the total figure significantly. There were multiple ‘sales’ of CryptoKitties for more than $100,000. Someone also allegedly bought a racing car in ‘F1 Delta Time’ for $113,000. At least some of these transactions were definitely ‘fake’ to gin up news coverage.

In 2019, the total traded volume of all NFTs has so far been $14.8 million. In 2018, it was much higher - $45.9 million.

Source: NonFungible.com

Average daily volume for a week in December 2017 was $3.7 million. The daily volume is currently more than 100 times lower — only about $30,000 every week. The one outlier in December 2018 was caused by Decentraland’s LAND auction. To get a better idea of the overall trend, the first two months, as well as the outlier week, are removed.

Source: NonFungible.com

Similar to the number of transactions, the daily volume is also declining. What’s vastly different from the number of users and transactions is the prominence of Decentraland. Decentraland seems to have the most vibrant economy; followed by the usual suspects in ‘My Crypto Heroes’ and CryptoKitties. The volume of Axie Infinity seems to spike in spurts.

Source: NonFungible.com

Conclusion

The mainstream adoption of NFTs is still but a distant dream. There are now less than 5,000 users interacting with NFTs every day. And while the number of users has seen growth in 2019, that was only because one game (My Crypto Heroes) boomed in popularity in Japan.

The number of transactions, as well as the traded volume, have both been decreasing in 2019. The total number of users, transactions or the total traded volume still hasn’t even reached CryptoKitties' 2017 peak. Meanwhile, the prominence of CryptoKitties continues decreasing while My Crypto Heroes is becoming the new sheriff in town.

NFTs are still just a gimmick but there is clearly no shortage of enthusiasm as new developers and projects pop up frequently. In games, NFTs are becoming a more significant part of the gameplay, which could help reach a much wider user base and sustain value.

Moreover, because of the deficient market structure and exclusive nature of each NFT, the range of willing buyers and sellers is naturally limited, which causes most of the markets to be quite illiquid. This could perhaps be solved by implementing a different allocation mechanism that would guarantee more efficient price discovery.

While progress is being made, there is still a long way to go.

Disclaimer: This report was based on data from NonFungible.com and DappRadar and it is possible that some smaller NFT platforms might be missing. Gods Unchained was not included because they are not yet tradable with only primary sales.