We are All Going to Die. NFTs are Dead. But that's okay because Death will save us.

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We are All Going to Die. NFTs are Dead. But that's okay because Death will save us. This is the start of a long multi-chapter hyper-thread on the NFT market from 2021 to 2023 Chapter one begins below Come learn about the $6.5B spent on NFT mints 🧵💀↓

Preface: Over the next several days I'll post different chapters as threads in a broad arc on the recent NFT crypto cycle. This started as my own research and expanded into a multi-faceted exploration of NFTs focused on: flows of capital, death, WAGDIE, behavior, and potential

The chapters are as follows: 1) Hallowed Ground - How do 666K people freeze $6.5B? 2) Trapped in the Zombie Crypto Casino - Why do people stay? 3) Mausoleum for a Burned Ape - What was the 2021 narrative? 4) Network, Death, Rebirth - Do NFTs have a line of flight?

⚰️ Chapter One: Hallowed Ground Get ready, this one is mostly data and charts.

Let's get grounded on some key facts. $6.5B was spent on minting ETH NFTs between 2021 to 2023. $1.5B was collected via royalties and marketplace fees. Here's a visual of the breakdown. That's a huge number... How many users participated in NFTs during this time then?

"Users" as a metric in crypto is typically fraught. We know it's easy to spin up new wallets, and metrics can be inflated. The real question, however, is a simple one: Is it like a million people? Five million? Half a million? We can get close to that.

We use a simple segmentation to first see how many individual wallets exist that bought or sold (traded) NFTs 3 or more times from 2021 to 2023. The output of that work is a single number: 2.1M wallets Now we have a cap, there are AT MOST 2.1M users.

How do I know those ~2M wallets are really users though? We can look at Ethereum's monthly average wallets and compare to how many non-zero wallets there are. Over the last 2.5 years, the cumulative number of non-zero wallets doubled while "true users" is likely about flat.

If we apply that logic to the NFT wallets... We should likely cut our 2M NFT wallets number in half to get to a rough sense of "users". So now we have a maximum of 1M NFT users over the last 2.5 years.

Before we move forward, why do we care about how many users there are? We care because having a rough understanding of how many PEOPLE are in the space will help us reason about what is actually occurring. Last question, what is a user? What if someone quits? Who is active?

There are two numbers that are important: 1) Total unique users reached 2) Weekly active usage Let's take a look at weekly active usage of NFTs. Unfortunately, our best "usage" is have bought or sold NFTs in last week... For most of 2022, there were about 250K weekly wallets.

While there is more nuance, I think 250K is a good general "bottom end" of the user number. Alright, so where do we land? There are between 250K to 1.0M unique users who participated in ETH NFTs.

For short hand going forward, we will cut it somewhere in the middle and say there are ~650K users (or 666K for aesthetics). 650K souls trapped in the Crypto Casino of NFTs (to be discussed more deeply in the later chapters).

Now let's pressure test our spend number and see if it makes sense. $6.5B on mint fees across 650K users For a total of ~$10,000 per person. For every user, $10K on mint fees per user. Seems like a ton right? Well maybe. Let's go deep on this.

How do we think about liquidity entering a market? And who GETS the money in the end? Where did the $6.5B of mint fees "go?" And how do we think about the slow illiquid nature of NFTs?

Remember our problem... $10K per person seems like a lot for individuals to spend on minting NFTs. And we know the $6.5B number is a fact. So how do we deal with it?

Let's define WHERE money has the opportunity to leave the market. 1) Minting: theoretically spent on "operating costs" / taken out of market 2) Royalties: same as above 3) Marketplace fees: theoretically spent on operating costs of the marketplace 4) Gas fees 5) Traders who exit

We will take a deeper look at number 5 later. We will also skip gas fees as it's not interesting for our needs. So let's dig into 1-3. Since all of these are based on market conditions, let's start by looking at the timeline of volume for the NFT market...

Dollar value of NFT volume on ETH L1 was $44B over the last 2.5 years: 2021: $17B 2022: $23B 2023: $4B (to date) So, first check... if $6.5B was spent on mint fees alone, does it make sense that the volume could be 6-7x that? Maybe! Let's look at a few other things...

So I go back to our pie chart... $6.5B in mint fees $1.5B in royalties and marketplace fees $8B that was definitely spent. But what if some of the $6.5B in mints are spent back into the market? Really, does that make sense?

Well... Nansen did great work on tracking what happened to NFT mint proceeds both in 2021 and 2022. What we see is actually surprising... And it's a sign of behavioral patterns we will revisit later. Here's where the money went in 2021 (through August)

In H1 2021, 18% of the money definitively went back into NFTs. Okay that's something, but take a look at this... In H2 2022, a full 50% of mint fees were put back into the NFT market DIRECTLY.

Let's pause here for a minute. 50% of the mint funds from projects were used to buy MORE NFTs. Some of that is likely bad behaviors (buying your own NFT etc). However we should really digest this: Over only 6 months of time 50% of project funds got DEGEN'd into the market.

So back to our quest to see how much money was really there to be spent... I'm going to take a leap and assume that this 50% will hold for all project funds and over most of the peak of the NFT boom from the middle of 2021 to end of 2022.

Remember projects took in a total of $7.3B in mint fees and royalties: 2021: $2.1B 2022: $4.4B 2023: $0.8B If 50% is "spent back" into the market... and then marketplaces take $0.7B... Then the true liquidity "leaving" is roughly $4.4B.

So our 650K people spent a ton of ETH trading back and forth, but at the end of the day $4.4B showed up and was purchased... without just being "recycled." Is that real? Did these people show up with this money and put it into the NFT vending machine?

Well let's just look at their wallets... probably should have done this first! The wallets that satisfied our criteria had over $3.9B in LIQUID assets IN their wallet in Jan 2022. This is ONLY looking at USDC/T and ETH.

So, what have we established? There are likely 650K users who have participated in ETH NFTs. There was $6.5B spent on mints and $1.5B on secondary fees. Of that, projects dumped 50%(!) back into buying more NFTs. Taking out the "reinvested" dollars, the average user spent $7K

How did so many people spend so much on NFTs? Where did they get all of this money? Wasn't there a ton of adoption with new money coming in? How many people are left? Poof, I thought you said NFTs are dead? You'll have to tune in for the next chapter... sometime this week.

Sources / resources: flipsidecrypto.xyz/rmas/nft-market-stats-RAfgcM flipsidecrypto.xyz/rmas/ethereum-nft-market-liquidity-assessment-UwJyL6 dune.com/browse/dashboards studio.glassnode.com/metrics nansen.ai/research/nft-sales-where-did-the-eth-go

You can read the unrolled version of this thread here: typefully.com/poof_eth/KVPfQ2V