Ethereum's Reign As King of NFTs Could Be Nearing an End

Mark Hake

Ethereum is known as the King of NFTs or non-fungible tokens. Right now the vast majority of NFTs are written on the Ethereum crypto blockchain. DappRadar reported that in August 70% of all Total Value Locked (TVL) was written on the Ethereum platform. But its high gas fees (transaction costs) and slower processing time to complete a transaction has spurred competition from other cryptos.

According to DappRadar, trading on Opensea is the second largest use of Ethereum. Opensea is the largest NFT marketplace. For example, DappRadar has a page that shows that in the past 30 days Opensea has had $2.6 billion in transactions (buying and selling of NFTs). It accepts Ethereum and Polygon NFTs, but the vast majority (probably over 90%) are written on the Ethereum platform.

The largest use of Ethereum is trading on Uniswap, a large trading exchange with a $15.5 billion market cap, according to Coinmarketcap. This ranks it the 11th largest crypto.

By contrast, Ethereum has a $436.5 billion market value and is ranked as the second-largest cryptocurrency. But since there are almost no NFTs developed in Bitcoin, the largest crypto with a $1.25 trillion market value, Ethereum is now the King of NFTs.

But Ethereum is now facing stiff competition from a number of other cryptos in the NFT space.

Ethereum's Issues

DappRadar has a page that shows in the past 24 hours there have been $64.9 million in transactions conducted on Opensea. It also shows that there were 28,680 users. Therefore, assuming both sides to a transaction got charged fees, the average NFT transaction was worth $2,254.

To complete the analysis, to view the prices of gas fees, look at Etherscan. That site also shows that Opensea has had $3.20 million in gas fees charged on Opensea, the largest NFT marketplace. Opensea deals in Ethereum and some Polygon blockchain.

Assuming that 90% of the transactions in Opensea are done in Ethereum (i.e, $58.41million), the average Ethereum transaction fee works out to 5.48%. This can be seen by dividing $3.20 million by $58.41 million.

People don't like this. They don't want to pay fees with their cryptos. That is like the old-school brokerage economics. They want to pay zero fees or be close to it. After all, you can now buy stocks with no commissions on Robinhood or Webull. So why not with NFTs and with Ethereum?

Enter Competitors

This is exactly what DappRadar wrote about in a recent article, "Is NFT Hype Killing Defi On Ethereum?" The author goes on to point out that NFTs are exploding in popularity but Ethereum's market share seems to be eroding. The culprit is its high gas fees.

For example, Solana crypto is now picking more NFT minters and traders by the day. Solana is the 7th largest cryptocurrency with its $47 billion market capitalization. Its Solflare wallet and Solanart NFT marketplace are becoming very popular.

DappRadar's analysis of TVL recently showed that both Solana and Avalanche (the 16th largest crypto with a $12 billion market value) are runner-ups after Ethereum.

The reason is simple. Both have low transaction fees and very fast transaction speeds. For example, according to Barron's, the Solana network claims to process 65,000 transactions per second at an average cost of just $0.00025 per transaction. this makes it much faster and cheaper than Ethereum.

Avalanche claims it can process 4,500 transactions per second. According to Decrypt, this compares to around 7 transactions per second for Bitcoin and 14 transactions per second for Ethereum. The AVAX crypto can close a transaction within 3 seconds, whereas the Ethereum standard is up to 1 minute, according to Cointelegraph magazine.

Conclusion

The result is that the Solana and Avalanche tokens have a good chance at making further gains. This is despite the fact that they are already up significantly for the year. For example, in the last 3 months, Solana is up 483% to $156.09 per SOL token and Avalanche is up 412% to $54.80 per AVAX token.

This also does not mean Ethereum will fall, but its gains going forward could be slower than its NFT competitors. For example, ETH is up "just" 96% to $3,716 in the last 3 months.

This is a very good performance but clearly not as high as Solana and Avalanche. And going forward it may not be better than those of Solana or Avalanche cryptos. So the astute investor may want to broaden his portfolio to include these other cryptos rather than just Ethereum. I know, for one, that I intend to do this.

Disclosure: Mark R. Hake, CFA owns a stake in Ethereum and may buy Solana and Avalanche in the near term.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

Phoenix, AZ
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