Like the art market, the NFT market is a living thing, changing and reacting to new trends, technologies and ideas. In the past few weeks, this changed dramatically, with Ethereum reclaiming its dominance over Polygon, as measured by NFT sales volume. Here’s a breakdown of what has driven Ethereum’s recent resurgence and Polygon’s fall from grace, as well as what it means for NFT investors and creators.

Ethereum's Resurgence in the NFT Market

Ethereum’s market dominance has slightly decreased overall, Ethereum still dominates the NFT market. Last week, trading sales volume on Ethereum-based NFTs reached an extraordinary $29 million+. This represents a jump of 6.69%, just showing the robust market with a volume of $31.5 million. This figure is more than triple the estimated $20 million in sales volume tracked by NFT collections that are hosted on the Polygon blockchain over the same timeframe. This shift indicates a renewed confidence in the Ethereum network, driven by its established ecosystem and the perceived value of NFTs minted on its blockchain.

Ethereum still has a powerful ecosystem with tens of thousands of dapps. Its robust developer resources and bustling community are BIG reasons for pulling creators and collectors alike. According to the network effect, the value of a platform increases with each additional user. Ethereum’s enduring influence is the most vivid example of this amazing phenomenon. The perceived security and future-proof nature of the Ethereum blockchain add to its attractiveness for high-value NFT projects.

The higher transaction fees on Ethereum, which typically average $15 as opposed to Polygon’s $0.01, may look like a downside. Most users are more than willing to pay these increased fees. They further tie the Ethereum network to increased security and cachet. This acceptance of higher prices indicates that, for some of these NFT projects, the value proposition certainly surpasses the price.

Polygon's NFT Market Decline

Polygon, an Ethereum Layer 2 Polygon, stormed to prominence as the L2 of choice because of its faster and cheaper transactions. Its seamless compatibility with the wider Ethereum ecosystem further enhances its appeal as a superior platform. Its low transaction costs have drawn high-volume NFT transactions. Polygon’s zkEVM (zero-knowledge Ethereum Virtual Machine) had provided them with safe and private transactions, which had attracted creators who wanted more privacy.

Yet, despite these benefits, Polygon has seen a recent drop as NFT sales volume goes bust. A second possible explanation is wash trading has decreased. This practice creates an artificial price increase by allowing the same wallet to constantly be selling and buying from themself. The given context does not discuss the reduction of wash trading on the Polygon network. Nonetheless, we need to take this into account.

By limiting wash trading, NFT platforms would obtain a more accurate depiction of true market demand. This amendment would dramatically impact the value, and thus sales volume, of NFTs minted on that platform. Beyond the clear intent behind wash trading, its effects are damaging. In fact, one profitable wash trader reported earning over $17 million alongside other profitable wash traders. Trade manipulation through NFT wash trading is a key area of risk to consumer trust in the NFT space. This risk is particularly acute where such transfers involve sanctioned counterparties.

Actionable Advice for NFT Investors and Creators

Given the shifting dynamics between Ethereum and Polygon in the NFT market, here is some actionable advice for investors and creators:

NFT creators can experiment with different types of NFTs, such as:

  • Diversify Your Investments: Spreading capital across multiple NFT projects mitigates risk.
  • Analyze Market Capitalization: Evaluate the market capitalization of an NFT project to gauge its potential.
  • Consider the Age of the NFT: Look into the history of the NFT project to assess its track record.
  • Evaluate Unique Holders: Verify the number of unique holders to gauge community support and avoid projects with concentrated ownership.
  • Combine Multiple Trading Strategies: Employing a mix of trading strategies can increase the chances of success.

Whether you’re an NFT investor or creator, staying ahead of these trends will help you successfully navigate the evolving landscape. Then, they can shift their strategies to take advantage of these new opportunities.

  • Understand NFT Uniqueness: Recognize that NFTs are one-of-a-kind digital assets, unlike fungible cryptocurrencies. This uniqueness can be leveraged to create exclusive and desirable digital items.
  • Experiment with Different Types of NFTs: Explore various NFT formats to cater to different audiences.
  • Adapt to Blockchain Preference: Creators should consider listing their NFTs on blockchains preferred by their audiences.
  • Offer Unique Digital Assets: Provide unique digital assets to their fans.

NFT creators can experiment with different types of NFTs, such as:

  • 1-of-1 NFT Art
  • Generative NFT Art

By understanding these trends and adapting their strategies accordingly, NFT investors and creators can navigate the evolving landscape and capitalize on emerging opportunities.