Reversal in NFT Market Triggers Plunge in Ethereum Burn Rate
Falling NFT activity is triggering a plunge in Ethereum's burn rate.
By: Samuel Haig •DeFi News
Declining activity in the NFT markets led to a plunge in Ethereum’s burn rate in February, according to Ultrasound Money, a data aggregator tracking activity on the Ethereum network.
Surging activity in the NFT markets has been a major catalyst for the recently record-breaking burn rate on Ethereum. Whenever complex tasks take place on the Ethereum network — minting NFTs, for instance — ETH is eliminated or burned in accordance with the EIP-1559 upgrade.
A recent boom in the popularity of NFTs has seen the sector’s leading marketplace, OpenSea, dominate Ethereum’s burn rankings in recent months, consistently representing more than 15% of all ETH destroyed. LooksRare, a recently launched rival, also contributed to the high burn rate, ranking fifth by ETH destroyed less than one week after launching.
While OpenSea enjoyed record volumes last month, LooksRare handled even more action. LooksRare attracted the lion’s share of NFT volume after airdropping its governance token to OpenSea users and launching an aggressive liquidity mining campaign in early January.
However, activity on LooksRare has crashed since its liquidity mining rewards were chopped in half on Feb. 10. The LOOKS token last changed hands for $7.10, and roughly 70% drawdown since Jan 20 according to CoinGecko. And this week OpenSea reclaimed its position as the top NFT marketplace by daily volume, beating out LooksRare for three of the past four days.
According to Ultrasound Money, Ethereum’s burn rate is down by about two-thirds since mid-January, falling to 4.5 Ether every minute after trending above 12 ETH per minute last month. The figure is also down by one-third over the past week, slipping from 7 Ether every minute on Feb. 8.
LooksRare burst onto the scene by airdropping its native LOOKS token to wallets that had traded at least three Ether worth of NFTs between June 16 and Dec. 16 last year, and also listed an NFT for sale on the platform. Users received between 125 LOOKS and 10,000 LOOKS depending on the volume of their activity.
LooksRare took aim at OpenSea’s centralized structure. While OpenSea pockets a 2.5% trading fee on all trades, LooksRare’s liquidity mining program redistributed its 2% trading fees back to users during its first month of operations.
However, LooksRare’s liquidity incentives came under fire, with opportunistic traders found to be wash-trading royalty-free collections on the platform. Despite LooksRare’s recently eclipsing OpenSea by trade volume, its user base is a fraction of OpenSea’s. LooksRare’s daily user count peaked at nearly 3,500 on Feb. 2, while OpenSea hosted 80,801 unique traders on the same day according to Dune Analytics.
Volume Has Crashed
Activity on LooksRare has sharply fallen since the rewards earned through its liquidity mining program were halved on Feb. 10. Daily volume has crashed, sliding below $200M in recent days after trending above $400M for the majority of January.
Daily protocol revenues for LooksRare also tanked in response, trending between $2.9M and $4.5M since Feb. 10 after sitting between $10M and $16M during most of January. By contrast, OpenSea’s 24-hour revenue is near $2M after hovering between $2.5M and $6M during January.
OpenSea’s volumes have declined sharply in February, slipping below $100M worth of trade on Feb. 14. OpenSea enjoyed record volume last month, processing more than $5B worth of transactions during January. According to Dune Analytics, daily trade was above $150M for roughly three-quarters of January, including a high of almost $250M worth of trade on Jan. 28.
The floor prices of major NFT collections appear to have largely weathered the drop in trade activity.
BAYC Down 9%
According to NFT Price Floor, Bored Ape Yacht Club has not moved over the past week at 99 ETH, and is down roughly 9% for the fortnight after posting an all-time high of 118.7 ETH on Feb. 1. CryptoPunks is down 14.6% in 14 days, having fallen from 84 ETH at the start of February.
Activity on leading decentralized exchange Uniswap has also declined steeply since the mid-January high, albeit less violently than on NFT marketplaces. Uniswap v3’s burn rate has fallen by half since its local top, sitting at 542 ETH after peaking above 1,200 in mid-January, according to Ultrasound Money.
However, the share of the daily burn represented by Uniswap has been growing amid the drop in NFT activity. Uniswap v3 drove 8.8% of Ether burned in the past week, up from 5.3% when February began.