Web3 development bullish amid declining NFT trading volume

Various Bored Ape – CC BY-SA

There was a surge in Web3 development activities in the second quarter of the year despite the falling NFT trading volume, according to Alchemy’s recent Web3 Development Report.

Smart contract deployment across Ethereum Virtual Machine (EVM)-compatible networks surged to 5.9 million in Q2. This figure represents a surge of 302 percent compared to the previous quarter and a 1,107 percent year-over-year increase. Moreover, 26.8 million Ethereum software developer kits (SDKs) were installed, a seven percent increase from Q1.

Although not all of these new smart contracts or Ethereum SDKs were intended for NFTs, the continuous development in the Web3 sector suggests positive growth and progress toward broader adoption. Despite the ongoing bear market, Ethereum’s price has increased by 12 percent compared to the previous year.

At the same time, NFT trading volume saw a decline of 41 percent. According to Blake Tandowsky, a growth analyst at Alchemy, the surge, primarily driven by whale traders, has not been sustainable. As a result, the number of new users entering the NFT market has decreased.

However, Tandowsky also explained that developers remain intrigued by emerging use cases, such as gaming, for NFTs.

“One thing that kind of stands out is the need for additional use cases for some NFTs,” said Tandowsky. “There could be a lot of future NFT use cases that look very different from their original JPEG iteration.”

In the last quarter, the report highlighted several noteworthy Web3 use cases. For example, Nike’s Our Force 1 collection, the expansion of the decentralized social media platform Lens Protocol and the incorporation of NFTs in supported games by the gaming marketplace Google Play.

NFT market experiences volatility

NFTs have experienced significant ups and downs in trading volume since the start of 2023. The market saw a 43 percent increase in sales early in the year, but this success was short-lived.

This year, most of NFT sales volume has been generated on the Ethereum-based marketplace Blur, with a 65 percent market share as of June. However, after reaching its peak in February, both volume and trades declined in the following months.

In March, NFT trading volume reached a new high of $2 billion, which some experts said triggered the bear market. But in mid-May, trading volume was on track to fall below $1 billion, the lowest since January.

Since then, NFT trading volume has continued to decline, with popular collections experiencing substantial value losses from their previous highs. BAYC NFTs reached their lowest floor prices since 2021 in early July, averaging 30 ETH or equivalent to about $57,000 at the time. A similar trend has been observed with Azuki, with its core collection’s floor price falling to just under 7 ETH or around $13,000.

Holders point out that dilutions and fragmentation are potential root causes for the downward price action in these collections. For instance, BAYC holders protested when the metaverse Otherside and NFT game HV-MTL split the Yuga NFT ecosystem.

Likewise, fans of Azuki voiced their worries regarding the contentious expansion called Azuki Elementals — a derivative of the original Azuki collection that includes 20,000 NFTs.

Despite best efforts, the mint was tainted with technical issues, questionable mint mechanics and allegedly duplicated artwork that sunk the floor prices of Azuki and its accompanying collection, BEANZ. Within 24 hours of launching, Elementals’ price fell below their initial mint price of 2 ETH.