NFT trading declines by 50%, and here’s why marketplaces’ latest strategy won’t work

A few months ago, NFTs were the next big thing after the Metaverse. It was the era of digital collectibles and all that it brought with it were projected to be the next revolutionary innovation in the next digital frontier.

However, recent developments have left much to be desired.

According to data from Dune Analytics, The liquidity of non-fungible tokens has been on a steady decline in the past 3 months. With over 50% decrease in daily trading volume in June, a lack of interest and activity is plaguing the NFT industry. It has led to a new trend of prominent NFT marketplaces enticing users with incentives to trade on their platforms.

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NFT liquidity refers to the ease and availability of buying and selling non-fungible tokens in marketplaces. When liquidity is high, willing buyers and sellers facilitate smooth and active transactions. On the flip side, when liquidity is low, it signals a drop in trading activity and a challenge in finding counterparties for trades.

NFT liquidity in decline 

Figures from Dune Analytics demonstrate that daily trades have been on a downward slope for the past 3 months. Earlier in the middle of March, the daily volume of global trade of non-fungible tokens was around $60 million but now in June, it has declined to an average of $20 million daily.

Also, in March, approximately 44,000 NFT trades were taking place. However, that number has declined to around 25,000 in June.

Additionally, the overall NFT market dipped in May, falling below $1 billion in monthly trading volume for the first time this year. The volume dropped 44% to $675 million from $1.2 billion in April, according to DappRadar.

NFT marketplaces offering incentives 

To address the declining trading activity, prominent NFT marketplaces are now offering incentives for traders in order to attract more users to trade collectibles.

On June 7, Blur announced updates to its incentive system for traders. In its statement, Blur emphasised rewarding bidders who take real risks with the highest number of Bidding Points.

Also, another notable marketplace LooksRare, whose daily volume once reached hundreds of millions of dollars, has been experiencing a decline since May 2022. At the moment, its activity is largely below $10 million but on June 1, LooksRare made a move to attain earlier heights by announcing a trading rewards scheme.

Can this work?

While incentives can attract initial attention, sustained liquidity and trading volume depend on the presence of genuine and organic interest. This is because these incentives can only create a short-term surge in liquidity and trading volume but they do not address the underlying factors that drive organic interest which has been recently in the NFT ecosystem.

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After a busy 2021 and 2022, there has been a palpable lack of genuine interest from collectors, creators, and investors due to obvious reasons of unfavourable market conditions which has made the space struggle to maintain sustained growth.

Organic interest in NFTs is driven by factors such as the uniqueness, scarcity, and value of digital assets.

In other words, enthusiasts are motivated by a genuine passion for the utility of these collectibles but that has been lost. Without this organic interest, incentives become mere temporary stimulants rather than long-term growth drivers.

Lastly

Incentives are insufficient on their own to ensure the long-term liquidity and trading volume that the nascent NFT space earnestly craves. Therefore, the ecosystem needs to build more utility-driven projects and solutions which will foster genuine enthusiasm to unlock the full potential of NFTs.