NFT Trader Personas
Young men who are interested in finance and technology
NFTs are still in their early stage of development with young people making up the majority of traders in the NFT market. NFTGo’s user data show that over 66% of its users are under the age of 34, and over 70% are male. In addition, as a core component of web3 and the crypto industry, NFTs are a crossover between finance, technology, and art. Coupling with the heavy reliance on social media for community discussion, NFTs tend to attract users who are interested in technology and finance. Data from Similarweb shows that the interests of both OpenSea and NFTGo users are mainly in the financial and technology sectors.
A niche track backed by strong beliefs
In user analysis, Daily Active Users (DAU) is to determine the user capacity of a market or a product. In the case of NFTs, we may view the act of trading as an indicator of an active user. According to NFTGo, the total number of NFT traders on Ethereum was 1.87 million in 2022. For reference, Sixdegree Lab on Dune reported that the total number of active addresses on Ethereum was 48.16 million in 2022 — 25.7 times more than the number of NFT traders. Therefore, viewed from the perspective of DAU, NFTs are still a niche sector compared to crypto. As crypto’s adoption rate increases and NFT use cases and narratives become more
diverse, NFTs have the potential to grow the number of users by tenfold or more. To be more specific, the number of traders in Ethereum’s NFT market for the year averaged out to 41k per day. The number peaked at 73k on January 9, 2022, and then fluctuated downward due to general market conditions. After hitting a low of 21,953 on December 9, the trend recovered. The number of daily active users on low days still managed to account for 53% of the best-performing days. If we consider January 2021 as the beginning of the previous bull market, there is still an almost tenfold increase compared to the average daily trader count in February 2021. It is evident that the last two years of tremendous growth in the industry have attracted and retained a great influx of users.
The US still leads the way, but the Asian market is flourishing
At present, NFT traders are still predominantly from Europe and the US, with the US accounting for the largest share of players. Similarweb data show that nearly 20% of OpenSea’s users between September and November 2022 were from the US
It is worth mentioning that although NFT traders are mainly from Europe and the US, Asian users are demonstrating a huge interest in NFTs as well. Their hype for NFTs even surpasses that of crypto. As seen from the chart above, the craze for NFTs in Japan rose gradually in the second half of 2022. Now, Japanese users constitute the second largest user group on OpenSea, second only to the US. Furthermore, Google Trends reveals that in 2022, the interest value for the term “NFT” in mainland China reached 100, with Shanghai topping the list among other provinces. This value represents search interest relative to the highest point on the chart for the given region and time. As Google is banned in mainland China, the value for this particular region will be higher than the others due to its limited number of search terms. However, mainland China only scored 39 for crypto index, which shows that NFTs remain the most popular topic of discussion in the region in 2022.
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Stratification of NFT Investors
Category of interest
Although the NFT industry is in its infancy, it has already branched out into several categories within the larger industry, including art, PFP, GameFi, and land. The degree of user interest in each segment varies. As described in the previous sections, the NFT industry experiences frequent segment rotation as well as narrative change. The prevalent market narrative at the time when a trader enters the market has an impact on the NFT category the trader focuses on, and even if a new narrative emerges afterwards, some traders will still pay extra attention to the narration they heard first. In addition to that, not only is the narrative of the NFT industry associated with traditional industries, we have found that the focus and perceptions of some NFT users stems from traditional industries as well. For example, the digital art and traditional art industries.
Let’s take digital art and PFPs as an example. First, the trading addresses of four well-known blue chips — BAYC, Azuki, Clone X, and Doodles — are set as a group, and the trading addresses of Art Blocks, the representative project of digital art, are allotted into another group. NFTGo.io data shows that the overlapping addresses of these two groups of traders account for only 13.9% of the Art Block group and 19.2% of the blue chip group. As NFT categories become more niche, user stratification driven by differing focuses also becomes more distinct.
Strategy and behavior
In addition to the different types of NFTs, as an asset class, the quality of different NFTs is beginning to diverge. For instance, a blue chip project may have a floor price that is more than a hundred times the floor price of a new project and have relatively good fundamentals, but it is also less volatile in the short term. Differences in the quality of investment targets, as well as the capital volume and risk appetite of NFT investors, and the prevailing market narrative at their time of entry into the market, all have an impact on traders’ strategies. The following classification of common strategy behaviors is based on two dimensions: the type of investment target and the type of trading strategy.
Top traders play a major role
As the NFT industry grows, some players have left the market, but early profitable investors, whales, and professional traders have begun to provide major liquidity to the market. For top blue chip projects in particular, the rising floor price can create a capital threshold for new NFT traders, causing these key projects to gradually become an exclusive game for top-tier players. Take the four most well-known blue chip projects (BAYC, Azuki, Clone X, Doodles) for example, NFTGo.io data shows that these four projects accounted for more than 15% of the total market volume for 2022, with 39.8k addresses involved in the transactions of these four projects (contracts and common aggregators have been removed). If we sort these users by the number of transactions, the top 1% (about 400 people) contributed more than 23% of the total transactions, whereas the top 9% contributed more than half of the total transactions. Thus, it is evident that top traders take up a heavier role in the market.
The Behavioral Characteristics of NFT Traders
“Multiple wallets per person” becomes the norm
Web3 is driving the digital world from a “platform-centric, consumer-as-visitor” model to a “consumer-centric, platform-as-destination” model, where consumers’ IDs are primarily stored as wallet addresses. Contrasting to our daily practices where one person has only one ID, the encrypted world allows each user to create multiple wallet addresses. Actually, some users, especially NFT traders, do require many wallet addresses. 0xScope data shows that the average number of addresses associated with active addresses in the DeFi space is 1.39, while the average number of addresses associated with active addresses in the NFT space is 1.57. The number of associated addresses of NFT whales defined by NFTGo.io is 8.56. Therefore, it is evident that the phenomenon of “multiple wallets per person” is significant among NFT traders, and top-tier NFT traders with big capital size tend to use more wallets.
The multi-wallet phenomenon among NFT traders may have been caused by three main reasons. First, it is more competitive for multi-wallet users to participate in minting as NFT developers generally limit the number of NFTs that can be minted by a single wallet. Thus, if traders would like to gain more chips, they need to create multiple wallets to participate in NFT minting. This is especially true during the free-mint boom in the second half of 2022, when “multi-wallets” became a common feature of professional minters/flippers. Second, multiple wallets can be used for asset isolation due to frequent security incidents. Amidst the dark forest of the encrypted world, active NFT trading behavior is often accompanied by frequent security incidents, which is why NFT traders use multiple wallets to spread their assets and avoid theft of core assets. For example, some traders use some of their wallets to mint NFTs or to participate in various activities, while their core NFT assets are stored on a hardware wallet or wallets that require multiple authentications. Third, market makers and whales need to remain anonymous. With the development of wallet tracking data platforms, most market makers or whales have their addresses flagged and even followed. Due to their capital size and influence, their wallet activities will render a big impact on market prices and might even obstruct their original strategies. For this reason, some market makers and whales will therefore spread their assets across multiple wallets and trade using these wallets. For example, 0xScope data show that a whale once transferred their position to multiple wallet addresses during a market crash and continuously put up orders to suppress the project’s floor price. As a result, the price of the project approached the liquidation line of a major lending platform, and the whale grabbed the opportunity to purchase NFTs that had gone into liquidation and realized their gains. The multi-wallet phenomenon of NFT users has also guided the development of the industry ecosystem: in a survey targeting NFT degens, respondents expressed their high demands for “multi-wallet management” products by rating it 8.2 out of 10. It is foreseeable that wallet asset management, address analysis, and DID will generate excellent infrastructure products to serve this user behavior trend.
Putting profits first and trusting the community
Although NFTs have the attributes of a consumer product, they are still mainly used as an investment instrument. User research shows that, in response to the question “the 5 indicators you are most interested in”, users favor data dimensions such as PnL, realized and unrealized profits, etc. that directly reflect profitability. While in-depth content such as a detailed analysis of collections can also help traders profit, they are less focused on this. Therefore, we know that traders are more concerned about how much profit they make rather than how the profit is made. To some extent, this reveals their eagerness to profit in a bull market.
In terms of discovering money-making opportunities, the survey results show that community is the most important channel of all. It was mentioned by users 95 times, even more than Twitter, which is the mainstream channel for information acquisition. In recent years, the concept of private domain marketing has been prevalent in traditional industries as an important means of gaining consumer attention. In the NFT industry, this concept is even more significant, whereby community (private domain) plays a pivotal role. Meanwhile, smart money and alpha callers in a community or on social media are also important for investors, because they can find investment opportunities and make profits just by following. In a fast-growing industry, new entrants need to adapt to the industry quickly, which explains the “follow others/follow the group” mentality.
Attempt at derivatives
In 2022, with the continuous influx of new traders and capital, the industry saw an enrichment of NFT asset categories and an increase in the number of high-quality assets. Correspondingly, various derivative tracks such as NFT advanced data tools, NFT aggregated trading, NFT fractionalization, NFT collateralized lending, NFT AMM, NFT valuators, etc. have all started to develop. The evolution of these derivative tracks has enhanced industry liquidity and asset utilization while gradually encouraging users to participate in the NFT industry with a specialized and data-driven approach. In a survey conducted among NFT degens, when asked “where do you usually find trading opportunities?” over 43% of respondents spontaneously mentioned at least one NFT data platform besides marketplaces or social media. This shows that specialized data platforms have developed a significant degree of penetration among the experienced trader community. As NFTs attract more outsiders to join, and as current novice users gradually morph into professional investors, specialized tool platforms will be adopted by more NFT users.
Apart from that, aggregated trading has also gained popularity. Gem and Blur are two of the most prominent platforms for aggregated trading. Their services enable users to select the lowest price across platforms and support bulk buying, bulk listing, bulk offer and other bulk trading activities while saving gas fees as well. NFTGo.io data shows that in 2022, Blur (excluding its own marketplace) and Gem accounted for nearly 10% of the market’s trading volume even after the exclusion of unauthentic trades.
Aside from platforms that assist users in trading NFTs by providing services like aggregated trading and data tools, derivative transactions brought about by NFTFi are also being adopted. 0xScope’s data show that as of January 18, over 17k addresses have used the NFT lending platform BendDAO (3.4k addresses excluding $Bend token transactions). The number involves 10.6k entities and a TVL of $117 million. For some professional traders, NFTFi has become their preferred trading tool. An example for this is that BendDAO has become the KOL Franklin’s Dapp that has generated the most money flow in the year 2022.
With the development of aggregated trading, data tools, wallet management tools, NFTFi and other NFT- derived sectors, the user path of NFT pro-traders is becoming more specialized. The path used to be: obtaining information from social media or communities, then completing the trade on OpenSea. Now, it has become: obtaining information – researching using tools and platforms – selecting the lowest price with aggregation tools – asset management and interest generation.