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While the NFT market may look unsustainable, a look under the hood shows that the “drops” may keep rising.

As the non-fungible token (NFT) market continues to boil and new projects seem to sell out hourly, a report published this week from on-chain analytics firm Nansen sheds some light on the number of active NFT developers shipping projects on Ethereum – and, perhaps more importantly, what they’re doing with the ether they earn from “drops.”

The research might help to calm jitters concerning an impending bubble burst. Most market observers agree that the NFT segment has grown unsustainably frothy, and one worry among collectors is that many NFT drops are effectively leeching liquidity from the market as developers cash out.

In an interview with CoinDesk, Nansen analyst Ling Young Loon said that he set out to gauge the sustainability of the market – and that the results were surprising.

“I wanted to see if the NFT economy is self-sustaining. If you have a lot of money leaking out to CEXes or DEXes, it’s not very healthy – you want the money circulating in the NFT community,” he said.

7 drops a day, 7 days a week
Loon’s analysis focused on the 645 NFT projects that have been released since June – a remarkable average of over 7 drops a day for the past three months. These drops have taken in roughly 84,000 ETH, or over $271 million.

While over a quarter billion in under 90 days may initially seem like a staggering number, Loon notes that the majority of drops are relatively modest – the median NFT project rakes in 10.2 ETH, or $33,000.

“The main point that was surprising was that there were so many smaller ERC-721 that launch as a fun side project, but then don’t go anywhere,” he said.

He credits the relatively low barriers to entry as one reason behind the number of projects.

“I’d argue the technical requirement to launch these projects is much less than launching a farm or something, so I think there’s lots of people trying to make a little money.”

Reinvestment
Perhaps the most eye-popping data point in Loon’s research, however, is that the majority of successful drops are likely either holding their ETH proceeds or reinvesting them in other NFTs.

Looking at drops that brought in 20 ETH or more, Loon found that 52% of developers transferred funds to new wallets but kept the proceeds as ETH and 18% of developers used their proceeds to buy other NFTs.

The data may be somewhat messy in that Loon could not track if the developer ETH wallets were only spending ETH derived from sales, but “we can assume, however, that the percentage spending on each type of entity should be a representative measure of how they chose to spend their income,” he wrote.

The largest single entity receiving funds from developer addresses is NFT marketplace OpenSea at 22%, and the second is centralized exchange Binance at 14%. Only 24% of proceeds go to either centralized or decentralized exchanges, a sign of those funds potentially being “cashed out.”

Ultimately, Loon believes that this data points to overall health in the NFT market.

“I think even though there is value outflow, what this chart doesn’t show is the amount of value inflow. For that, you have to look at the number of daily active addresses on OpenSea, the daily active buyers, and that’s been on an uptrend, and that might be enough to offset the outflows.”
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