The market for non-fungible tokens (NFTs) experienced explosive growth in 2021. According to a report by Messari, a blockchain research firm, total NFT secondary sales have surpassed the $15 billion mark, accounting for more than 85% of the entire volume of USD traded. While NFT sales for the entirety of 2020 were just north of $340 million, that figure is expected to reach a staggering $17.7 billion by the year-end, which is a growth of more than 50-fold.
Secondary NFT Sales Are Booming
The primary market is where the first sale of digital artworks (NFTs) takes place. All subsequent resales of digital collectibles are considered as part of the secondary market. Notably, the secondary market in the NFT industry is much more vibrant than the primary market in terms of the number of buyers and volume of USD traded.
According to Messari, the volume of USD traded in the secondary markets has now surpassed $15 billion. On the other hand, data by NonFungible shows that the volume of the primary market is just north of $2 billion. Messari reported:
“The NFT market has officially surpassed $15 billion in secondary sales combined across a variety of categories including gaming, PFPs (profile pics), virtual worlds, sports, and collectibles. More importantly, while Ethereum leads, the future is growing more multichain by the day.”
A comparison between the total number of traders in the primary and secondary markets further highlights the gap between the two markets. According to NonFungible, there are 40,000 traders in the secondary market versus less than 25,000 in the primary market.
Similarly, the total number of primary market sales is just over 31,000 for the last seven days. In comparison, the number of sales in the secondary market is over 41,000 during the same span of time.
Why is the Secondary NFT Market More Popular?
Prior to NFTs, there was no system that could have allowed artists to earn profits from resales of their artworks. Even if artworks sell for exorbitant prices in the secondary markets, traders would likley not give the artist a cut of the deal.
NFTs offer a solution to this by being powered by smart contracts; allowing artists to choose how much royalty they want to earn in resales prior to auctioning their artworks, with no extra-legal work required. Therefore, the secondary market is definitely in favor of digital artists.
Moreover, a recent report from Chainalysis reveals that NFTs purchased via the secondary market have a much higher chance of leading to a profit than those purchased during minting. More precisely, only 28% of NFTs purchased during minting result in a profit, while 65% of NFTs purchased in the secondary market lead to a profit.
That is because the majority of NFTs receive publicity only after they are traded on secondary marketplaces, especially if they are traded for eye-popping prices. OpenSea reported:
“More than anything else, NFTs run on community and word of mouth growth. Look at virtually any successful NFT project, and you’ll likely find Discord servers and Twitter threads full of enthusiasts promoting the project. This is by design.”
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OpenSea Denies IPO Plans
OpenSea, the largest NFT marketplace that accounts for more than 97% of the NFT market, has no intentions of going public. Brian Roberts, the first CFO of the company, revealed the news after misleading reports about IPO plans prompted backlash among the crypto community.
In a report, Bloomberg cited people “familiar with the talks” saying that investors aim to invest around $1 billion in the company, giving it a valuation of more than $12 billion. The news prompted backlashes among the crypto community, who argued a decentralized company cannot go public.
However, Roberts denied IPO plans, insisting that they are only considering what an IPO could look like but are not planning for one. He tweeted:
“There was inaccurate reporting about OpenSea’s plans. Let me set the record straight: there is a big gap between thinking about what an IPO might eventually look like & actively planning one. We are not planning an IPO, and if we ever did, we would look to involve the community.”
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Why do you think the secondary market is much more popular? Let us know in the comments below.
About the author
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.