Up until the release of subnets, Avalanche was a primarily DeFi focused ecosystem. Compared to two of its major peers- Solana and Ethereum, NFT protocols remain underutilized. Over the past year, NFTs have proven to be highly important for both local community growth and robustness of the retail on-chain marketplace.
Over the last three months, the chain’s focus clearly shifted. Through subnets, Avalanche is able to create sub-economies that can efficiently house transaction intensive protocols. Notably, Play-to-Earn/Metaverse projects like Crabada and DeFiKingdoms shifted onto subnets from being hosted on mainnets that couldn’t accommodate their player base. As more metaverse projects arrive on AVAX, there will be a growing need for an AVAX-native home to help facilitate the growing creator economy.
Trader Joe currently dominates the DEX marketplace for Avalanche, boasting 10x the weekly volume traded of the runner-up.
Through the launch of their ‘Joepegs’ NFT platform, Trader Joe is expanding the domain of their DEX into NFTs, facilitating the expansion of the space on Avalanche. We spoke to the team about the upcoming launch, digging in to find out just what the future holds for their NFT ecosystem.
At a high-level, Joepegs should be immediately competitive with other prominent NFT marketplaces. The planned offerings around launch include:
- NFT Launchpad, Incubators, and Artist Support. Launchpad features Dutch Auctions, Ascending Auctions, Flat Mints and Whitelists
- Batch Reveal
- Permissionless listing, and off-chain pricing
- Filterable Traits
- Collection Tiers, based on verification of NFT projects
For comparison, Magic Eden has similar search and launchpad offerings, with slightly less auction flexibility. Opensea has a significantly more limited product suite for the time being, electing to serve solely as Ethereum’s primary NFT trading platform.
For almost a year, Ethereum was the only chain where NFTs were transacted in size, despite gas fee limitations. However, over the past six months Solana has seen a massive amount of growth. Over the past 7 days, Magic Eden’s volume was 75% of OpenSea’s total, with some days even surpassing its mainnet peer. Clearly, the market has evolved, and is ready to trade NFTs anywhere.
Avalanche NFT Market Opportunity
To help add more context around the market opportunity on Avalanche we looked at the size of the actively traded DeFi Marketplace, relative to the size of the largest NFT Marketplace, on each chain.
This led to a few conclusions –
- The total DeFi trading market volume in each ecosystem tends to be larger (4x+) than the NFT trading volume.
- Users on Ethereum tend to be more venue agnostic. While Uniswap commands a large portion of DEX trading, NFT statistics was more mixed – LooksRare and X2Y2 also moved meaningful volume.
- Avalanche’s DeFi economy is mature, but concentrated. Trader Joe boasts the highest total for unique 7 day users of any single platform. As the incumbent, they’ll have the easiest access to those looking to trade NFTs on Avalanche.
- Avalanche’s DeFi economy still operates on lower total volume traded than either Solana or Ethereum. Additionally, given the relative youth of its NFT space, a market leading protocol would likely deal in lower volumes than peer ecosystems even if volumes were equal. These two factors combine to suggest Market Cap for Joepegs will scale up over time.
- OpenSea is also deployed on Solana. Interestingly, despite being a familiar marketplace for many Ethereum users, it sits at just 10% market share on that chain. Clearly, there’s room for chain-native players to dominate ecosystem NFT trading.
Given the data, an average expected 7D Trading value of $20mn-50mn seems reasonable in the short term after post-launch hype settles. Standard fee rates of 2.5%/transaction, that would likely translate to $26mn – $65mn annually in additional revenue for Trader Joe.
Keys to Success & Risks
After speaking with the team, the game plan is clear. First, they must execute on a conservative, but effective roadmap. Then, through Launchpad, partnerships, and organic growth, they give NFT creators of any expertise a home in the Avalanche ecosystem.
Obviously, this is always easier said than done. While there are no immediate plans to offer aggressive rewards for trading, like some Ethereum competitors, Trader Joe confirmed plans to incentivize listings via fee structure. Although not yet set in stone, this move would likely be sufficient to ensure they capture the majority of NFT activity on Avalanche considering their incumbent status as the top DEX.
One systemic risk is the uptake of NFTs in the ecosystem. Even if Trader Joe builds a great platform, with a successful launchpad, total volumes may underperform relative to the DEX. NFTs are ultimately a community-driven affair, and without buy-in (as we’ve seen on Solana) it will be hard to perform up to full potential.
The second, smaller, risk would be the rise of a competitor. While Trader Joe definitely has both first mover advantage and ecosystem strength as the incumbent, they could be challenged by large NFT platforms moving cross-chain, or by startup platforms offering mercenary rewards for vampire attacks. This is less likely for two main reasons. First, we saw via OpenSea’s expansion onto Solana that a large platform’s move doesn’t guarantee success on another chain. Second, given macro market conditions, offering wildly high yield in the hopes of accumulating unestablished market share seems unjustifiable.
Regardless, given the evolution of the NFT space over the past year, it’s definitely worth keeping an eye out as Avalanche hopes to undergo the same rapid maturity.
This report is not investment or trading advice. Please conduct your own research before making any investment decisions. Past performance of an asset is not indicative of future results. The Author may be holding the cryptocurrencies or using the strategies mentioned in this report.