State of Solana's cNFT Adoption: A 2023 Review
Let us Deep Dive into the numbers behind the cNFT adoption on Solana in 2023!
NFTs (Non-Fungible Tokens) are not meant to be just some random pixels painted on a digital canvas owned by a wallet. They are meant to provide utility, and incentives, and be a key ingredient in the future of Token engineering or Tokenomics. However, developers, users, and engineers are constrained by the legacy NFT technology in various dimensions like collection sizes, mint costs, composability, etc.
These constraints in the legacy NFT technology limited NFTs to be just digital assets, with a speculative price. They inhibited their growth as a real utility asset and designed tokenomics around it. To understand this better, let’s see a scenario.
Let us consider a scenario where a developer wants to scale their application on par with the current web2 large-scale projects like Unified Payments Interface (UPI), food delivery services like Swiggy or Zomato, or a ride-sharing platform like Uber or Ola, they handle millions of financial transactions, food orders, and rides respectively.
To unlock the true utility and potential of NFTs needs to be an integral part of the tokenomics of the web3 alternatives of these massive user-focussed applications. For example, NFTs can act as rewards and cashback coupons on web3 payment platforms, and NFT-gated restaurant access on online food delivering applications based on customers’ previous interactions with the restaurants on the app, etc.
But to design this type of token engineering and add value to web3 applications, there is no easy way to mint NFTs, conquering the trilemma of Speed, Cost, and Size. As you can see from the above infographic, it takes millions of dollars on most of the chains with the existing legacy NFT architecture.
But Solana is here to change the NFT landscape with its groundbreaking Compressed NFT technology. This major upgrade which was released live on the Solana mainnet on April 6th, 2023, brings down the cost of minting NFTs by over 100 times, to put this into a raw number it just takes 1200 USD now to mint a collection of 100 Million NFTs. This brings the much-required utility, usability, and composability to the NFT landscape, and allows developers to build a wide range of applications on NFTs, rather than just launching NFT collections which are just digital assets with a speculative price.
In this deep dive let us understand the evolution, adoption, and future use cases powered by this compressed NFT technology in the form of data, metrics, and numbers, and let’s see how this can shape the future of user adoption of applications built on top of Solana. Let’s dive in.
How do cNFTs work? A technical viewpoint 🛠️
Compressed NFT technology is an off-spring and the most popular use case of the State Compression upgrade on the Solana Blockchain. cNFTs (or Compressed NFTs) use an on-chain Merkle tree to store the Metadata of a collection, rather than storing the data in a Solana account. To achieve this compression on-chain we utilize the Bubblegum program from the Metaplex. With this, we can aggregate multiple accounts on the Solana blockchain, and store the metadata of the NFTs on the leaf nodes, while keeping track of the state of the Root node of the tree to validate the changes. This novelty in this design lies in the fact that it is a Concurrent Merkle Tree, that can handle parallel updates on the leaf nodes of the tree.
As shown in the above infographic, there are three parameters that users and builders should configure and consider before minting their compressed NFTs, they are:
Max Depth: Maximum Depth of the tree determines the total number of leaf nodes or individual NFTs that the tree can hold, this should be configured by the owner before minting the NFTs.
Max Buffer Size: As said before this State Compression is possible because of a data structure called Concurrent Merkle Tree, which makes it possible to hit parallel updates (sell, buy, update bid prices, etc). To perform parallel changes on the tree, without violating the root hash validity, this concurrent Merkle tree maintains a buffer space on-chain called the changelog, and this quantifies the on-demand performance the tree can handle.
Canopy Depth: When you update a leaf, like when you transfer ownership of a compressed NFT, confirming its original ownership involves using the complete proof path to calculate the current root hash. This verification is crucial for the update to occur. The depth of the tree affects how many proof nodes are necessary for this check. A bigger tree demands more proof nodes, potentially surpassing transaction size limits because each node takes up 32 bytes.
But here's where the canopy comes in—it's a solution to this issue. The canopy stores a specific number of proof nodes on the chain for a given proof path, reducing the number required in each update transaction. For instance, if a tree has a depth of 14, it normally needs 14 proof nodes, but with a canopy of 10, only 4 nodes are needed for each transaction. However, having a larger canopy depth increases the associated costs.
Intro to cNFTs and their Impact on Cost ☀️
Compressed NFTs were officially launched by the Solana Foundation on April 6th, 2023. A detailed whitepaper on State Compression can be found here. cNFTs are a combined effort of both the Solana Foundation and Metaplex with their State Compression program and Bubblegum program respectively.
To make it more clear, State compression is a technology upgrade that is brought on-chain by the Solana Foundation with the introduction of Concurrent Merkle Trees, but with the help of the Bubblegum program from Metaplex, it was finally possible to cheaply and securely store NFT metadata using State Compression on Solana.
Before diving deep into the evaluation of cNFT adoption across the ecosystem, let us understand why cNFTs are important in the first place. cNFTs reduce the minting fees of large (greater than 10,000) NFT collections by over 100 times. This makes it possible to drive mass adoption of NFTs while adding utility to the projects.
cNFT Adoption Overview:
From all the immediate benefits Compressed NFTs bring to the projects in cost savings, and composability, complemented by the speed and security offered by Solana, a ton of projects embraced the compressed NFT technology into their tech stacks and product suites in various forms and implementations, these include:
Marketplaces like Drip Haus, Tensor, Magic Eden, Solarplex, etc, bring top NFT artists and projects closer to their fans, while each project follows a unique usage of the cNFT technology (More about some of these projects in the next sections).
cNFT Tooling projects like Helius, Simplehash, Underdog Protocol, Shyft, Crossmint, Tiplink, and NFT standard foundations like Metaplex, are working day in, and day out to improve the experience for developers to build products around cNFTs.
Gaming platforms like MagicBlock are providing the required frameworks to include compressed NFTs into gaming projects and metaverse, while fun games like Picoplay and Stepn are utilizing the cNFT technology to the full extent to incentivize their players with unique token engineering models.
DePin projects like Helium, the largest LoRaWAN network in the world migrated to Solana to make the best use of the speed and security offered by Solana, and the team behind the Helium project are uniquely using cNFTs to incentivize their users who provide the infrastructure to enable the wireless network.
Social mediums like Dialect, an all-in-one on-chain messaging platform, are using the cNFT technology to the maximum extent by launching new sticker packs as cNFT collections, thus, providing a fun experience to their thousands of users at a very minimal cost, and also thanks to the concurrent Merkle tree implementation, they need not worry about the real-time transfer of stickers.
DeFi and NftFi platforms like Zetamarkets and Frakt are utilizing the cNFTs to enable incentivizing (special rewards) trades and lending cNFTs to access flash loans respectively.
A huge number of other projects are being pumped at Solana’s innovative hackathons like OPOS and Hackerhouses! Let us deep dive into each of these market segments of cNFTs and take a closer look at how these projects are implementing their products around cNFTs!
cNFT Developer Tooling Projects 👨💻
Helius is one of the leading RPC providers, Indexer on Solana. And now Helius provides end-to-end capabilities for other projects to work with Compressed NFTs with ease. They provide Digital Asset Standard (DAS) compliant API endpoints, DAS is the open-source specification developed by the Metaplex foundation to index the cNFTs and query the required metadata.
Apart from this Helius provides a fully functional, performant Mint API, with which developers can mint compressed NFTs, with no Solana Fees (although you need to pay mint fees for the NFTs 😂), no need to create a Merkle tree, and all cNFT off-chain metadata like Traits, Images, etc are stored on Arweave by Helius itself. This end-to-end functionality from projects like Helius makes it much easier for developers to use cNFTs and build cool projects.
Similar to the Helius project, but the Underdog protocol is a project laser-focused on NFTs. Right now they support and extend all their services to Compressed NFTs, these services include:
Minting NFTs
Managing transfers, and royalties
Updating metadata and images
With no-code management out of the box
Enable projects to do mass airdrops of compressed NFTs to their fans!
Seamless setup of custom storefronts for projects to sell their cNFT collections.
Web3 social login plugins with cNFT-Gated Communities can be embedded into any project with just a few lines of code.
Other major projects include:
Shyft, which is another excellent RPC provider, indexer, with a vast collection of Compressed NFT dedicated endpoints with DAS open-source standard support, to query and index metadata of any compressed NFT.
Crossmint, another major NFT-focused dev tooling platform on Solana, provides various services, primarily focused on NFT minting and selling, like hassle-free cNFT minting with very little code, minting cNFT collections, updating cNFTs, NFT-gating and Wallet services, quick NFT checkout using modular cNFT storefronts integration plugins.
Metaplex is the biggest open-sourced NFT research foundation on Solana, which introduced many game-changing projects like Candy Machine, the very Bubblegum program, which is used in tandem with Solana Foundation’s State Compression program to enable Compressed NFT in the first place, they also developed the DAS (Digital Asset Standard) API to enable developer tooling platforms to build services on top of this standard.
cNFT-Enabled Products Use cases 📈
- Marketplaces 🛍️
The drip platform is currently the biggest fuel behind the massive adoption of cNFTs on Solana. Drip is a digital collectible platform that drops free NFTs to collectors’ wallets’ from their favorite emerging artists on the platform. Drip employs a curated, invite-only approach to maintain the quality of the shipped NFTs.
Drip is currently driving the mass adoption of cNFTs on Solana, they shipped about 40 million of the cNFTs out of the total 50 million that are minted on Solana, engaging with over 1.2 Million wallets, with over 500,000 DAW (Daily active wallets).
The key stat here is that the average size of a collection is over 1.7M mints, which is well over the usual 10,000 mints sized collections. This brings us to the point of how adopting cNFTs has increased user engagement and interest in the project, and how the Artists are getting more feedback and response for their work.
As the user base and their engagement with the artists increase, drip enables this loyal fanbase to tip their favorite artist on the platform itself. To make this possible, Drip is coming up with its mobile application, with an in-app token called Droplets!
Tensor is one of the earliest marketplaces to extend its support to cNFTs on Solana, and is currently a leading NFT marketplace on Solana. Tensor is known for its advanced trade functionalities on top of the NFT ecosystem like buy/sell, market making using NFTs, and searching through collections based on various rarity filters, also Tensor offers a ton of rewards for their users trading on their platform.
These rewards are called Tensorian Shards, and they were the key ingredient behind the massive success of the first major 10K cNFT collection dropped by Tensor, called Tensorians. So traders on the platform got their Tensorian Shards airdropped, with which they can purchase the Tensorian cNFTs.
As shown above, Tensor being an early adopter of cNFT technology, handles a high volume of over 485,0000 trades by over 24K unique wallets, while their famous Tensorians are the most traded collection on the marketplace. Tensor is also one of the earliest adopters of the Solana Inscriptions upgrade, this shows how the team is leading the pack in NFT innovation and adoption on Solana.
Magic Eden is the OG NFT marketplace on Solana and one of the largest NFT marketplace on Solana. They launched their cNFT support quite late when compared to others, but owing to their large existing userbase, and cross-chain presence, the aftermath of cNFT adoption resulted in a massive spike in the trade volume and sales.
- Gaming 🕹️
Magicblocks is an on-chain, open-sourced gaming stack, framework, and infrastructure provider, that can be used by developers to build on. They provide multiple solutions like Solana Unity SDK and Soar, to simplify on-chain achievements and rankings in games.
And they are betting big on cNFTs, the project has added cNFT support to their framework, to enable developers to use cNFTs to mint rewards in-game and share it with their massive user base. Magicblocks also prevents market fragmentation, by providing the same standard to a large base of game developers, thus making collections span across games and improving interoperability.
Picoplay is a simple yet fun game of chess built on chain. This project reiterates the value and utility added by token engineering and cNFTs, being more than just a digital asset, they provide incentives to the players who play this game, at the same time build a loyal connection between the project and the fans. Picoplay allows users to play chess, and reward players who maintain a winning or daily streak with NFT drops, this scale of NFT adoption was possible only because of the compressed NFT technology, and guess what, they use Drip Haus to drop the NFTs to their best players, what a way to build a community, isn’t it?
Stepn is the biggest game on Solana, it is a move-to-earn game, where users are rewarded with various in-game assets like sneakers, gems, and others, in the form of compressed NFTs and other in-game native cryptocurrency. These NFTs are minted quite often due to their large user base, and this proves once again that cNFTs can save a ton of cost for the developers who want to scale their web3 business models to the scale of web2 applications.
- DePin💡
Helium is a decentralized, distributed wireless network of hardware infrastructure provided by the people, for the people, in turn, earn $HNT and $MOBILE tokens as per the hardware they provide. Now, Helium migrated its entire infrastructure onto the Solana blockchain, to build on the lightning-fast and secure environment that Solana provides. Helium embraced the recent advancement of compressed NFTs to reward new members who board the network, thus essentially linking the physical infrastructure they provide with a unique identifier a cNFT. What’s more exciting is they are linking the ECC (unique device identifiers) to cNFTs, this in turn helps developers to map both of them and build incentivizing models around the digital assets, also securing the ownership of the device from any hacks.
- Social 💬
Dialect is an on-chain messaging app built on Solana, which makes chat and communication a fun and enriching experience on-chain. They make this experience possible by minting curated NFTs as in-chat stickers. These sticker collections can be unpacked and used by the users. Chat applications are realtime and the scale of users provides the perfect use case for the compressed NFT technology, this is once again proved by the numbers in the below infographic, Dialect minted over 2.45 Million Stickers to over 160K unique minters, this would have costed an early stage project like Dialect a ton of money, but with cNFT this is compressed to a very minimal spend.
- DeFi and NftFi 💰
Zeta Markets is a Decentralized Derivatives Exchange on Solana, built to enable near-zero fee trades at Solana’s lightning speed. And they provide all these secure trades and experiences bundled with a fun and gamified experience. Now with the advent of cNFTs they are creating a unique incentivization/rewarding system as shown in the below image. Zeta released a cNFT collection known as Zeta cards, to reward the traders with various in-app boosters while trading.
These cNFTs utilize the autoburn feature, with a timer set for 7 days, within which the trader can enjoy the perks of the reward. They are fully transferable and readily available on Tensor and Magic Eden for buying and selling!
Frakt is another amazing NFT lending platform, where users can lend their NFT, and borrow instant liquidity. They also provide NFT pools and NFT strategies to invest in, and Frakt recently announced that they are extending their support to cNFTs as well! Support and adoption from projects like these enable users from other projects to borrow loans or lend for interest against their hard-earned cNFTs!
cNFT Adoption: Metrics and Numbers 🔢
Now apart from all the metrics we discussed above let us go through some other key numbers to evaluate the growth and adoption of cNFTs in the Solana ecosystem.
Bubblegum Program:
The first one would be just the raw number of cNFTs minted on Solana. So as we discussed earlier Solana Foundation introduced the State compression program, and Metaplex came up with the Bubblegum program to extend this support for NFTs. And this makes every cNFT ever minted to interact with the Bubblegum program. As we can see in the below graph the cumulative count of compressed NFTs minted crossed over 50,000,000, and the best thing is as the projects grow and penetrate more into the user markets, this rate of cNFT mint will just keep rising exponentially.
Another key metric would be Legacy NFTs vs cNFTs after the launch. The picture below explains the whole story, cNFTs are dominating the market and now make over 50% of the total NFTs minted on the Solana blockchain.
Drip Haus:
Another major adoption metric would be cNFT marketplaces like Drip. Drip accounted for more than 90% of cNFTs minted on Solana totaling over 40 Million out of the 50 Million cNFTTs minted on Solana. And again as the users engage with curated and qualified emerging artists over time, they build this loyal fanbase to engage and tip the artists over time, this is evident from the below graph where the weekly cNFT mints are just increasing over time.
Dialect:
Dialect is another major user-driven application on Solana, and chat-based applications which require real-time processing are the best use cases to test the performance of cNFTs. So far Dialect has been minting over 50,000 NFTs consistently every week, in the form of in-app stickers to provide a fun experience to its users.
Untapped Potential Use Cases 🔥
As discussed at the start of this report, Compressed NFTs’ primary strength lies in utility and incentivization rather than just being a digital art going forward. NFTs traditionally were considered to be just artworks with a speculative price and with a short-lived demand. But going forward cNFTs would redefine this and be the critical factor in building utility-driven web3 applications with incentivization mechanisms at scale with web2 applications. These are some of my top use cases I want to see being built on top of cNFT technology:
End-To-End Event Ticketing: cNFTs can be the best solution to mint NFTs at scale for events like a Cricket World Cup, or a Taylor Swift Tour, they attract hundreds of thousands of participants over time and provide the ownership NFTs provide but at a mass scale with very minimal mint fees. These NFTs can be further used inside the stadium to verify the ownership, token-gate sections of the venue, special interactions with fans holding super NFTs with scarce traits, and many more engaging activities around this concept. Taking the example of the Cricket World Cup 2023 final between Ind vs Aus, with an approximate audience of over 100,000, this would just cost over 89USD with cNFTs, while it costs over 3.2K USD on Polygon and a whooping 3.3 Million on Ethereum, while the Cricket world cup 2023 had winning prize money of 4 Million USD :)
Widespread usage in Payment or Digital platforms as Rewards: Again reiterating the initial part of this article, using cNFTs for Reward and Incentive-Enabling Token design is the way to go forward. Builders can work on web3 alternatives to web2 apps at scale, like Google Pay or Other UPI applications, which are currently still finding ways to monetize, whereas web3 alternatives can easily build tokenomics around Rewards based on cNFTs, and provide an in-app store to buy, sell, lend and borrow these Rewards with other users to create a user-focussed NFT-Fi application. This can also be extended to other use cases such as online food delivery, ridesharing, etc.
Token-Gated Communities at Scale: The next Reddit or Twitter on web3 would need a way to monetize, but not on advertisements. cNFTs would play a crucial role in monetizing these communities by building NFTFi around the applications to hold, sell, and buy perks on the platform. This would initiate a fly-wheel economic model to sustain the community at the same time provide a decentralized way to build these platforms at scale
cNFTs vs Legacy NFTs: A Community POV 👥
cNFTs lead Legacy NFTs in building a community by miles. This is because cNFTs are not just collections owned by whales nor do they lack real value like many collections that just depend on speculative demand.
They are built around projects with real users to incentivize their activity with the project at a large scale. This provides trust and loyal connection between the projects and users or artists and their fans, at a larger scale than traditional NFTs. This in turn results in a stronger community and a better inter-trade within the project’s community.
At this point, cNFTs are analogous to what tokens are to projects. They can be minted at a large scale at a very affordable price, they can be deployed with almost no code, thanks to the developer tooling community, and launch their collection with the project’s users with an in-app storefront, again with no or low code.
This is evident from the fact that some of the largest collection creators around Solana cNFTs are user-focussed projects like Drip Haus, Dialect, Helium, and Tiplink, rather than random NFT rug pull projects with no real value over time.
Impact of cNFTs on Solana’s Growth✊
As shown in the above chart, Solana’s Compressed NFTs are recording a higher number of mints than Ethereum and Polygon NFT mints combined, and one more key observation is that this rallying the total NFT landscape on Solana with many popular NFT projects like MadLads, NFT artists like DeGen Poet on Drip, and utility-based cNFT use cases like Dialect Stickers or Helium’s onboarding NFTs making their mark.
This creates a two-way impact on the growth of the Solana ecosystem, firstly the growth of the utility-driven cNFT communities brings innovative token designs for user-focussed applications, this allows both the projects and the users to be incentivized with tokens and cNFTs, rather than subscription model or an ad-revenue model. This in turn attracts more users into the ecosystem and acts as a fly-wheel economic model, where more users interact with cNFTs and engage with the community.
Secondly, this increase in niche app communities, allows inter-app cNFT-Fi, that is holding, selling, buying, bidding, lending, or borrowing the NFTs across the application to enable others or purchase perks of holding the NFT in the native platform.
A Quick Guide For Developers 💻
This is a bonus section for developers who want to get started with Compressed NFTs on Solana, here is a list of resources you can use to adopt cNFTs into your next web3 project:
Wanna know more about the basics of cNFTs, here’s the whitepaper.
Here are the open-sourced State Compression and Bubblegum Programs.
Here are some of the biggest RPC, Indexers, and API services you can use on Solana: Helius, Triton, Shyft, etc.
Here are dedicated cNFT-enabled projects, to seamlessly integrate cNFT ideas into your projects, be it storefronts, Query and Mint APIs, or anything with cNFT: Crossmint, Underdog Protocol, Simplehash, etc.
Metaplex docs, Solana Foundation docs, and Helius docs are your go-to places to learn more about cNFTs.
Wanna build games on Solana, using cNFTs? Checkout Magicblocks.
Want to build seamless one-click cNFT airdrops with a single click? Use Tiplink’s open API to build on top of. And do check out their cNFT demo here!
Closing Thoughts on the Future of cNFTs ☘️
cNFTs have the potential to bring a change in the way we look at NFTs over time, they mostly turned out to be scams, and rug pulls, but not this time, because this time they are meant to be driven by utility, mass adoption, and trail the projects that take solana closer to the users. This will also help the ecosystem as a whole to build trust and products with good user incentives and innovative tokenomic designs!
Thank you for giving this long technical deep dive a read. Hope I made it a fun and interesting experience for you all, if you liked the article give a like, share it with your friends, and give your feedback as a comment below!
💌
Regards,
Rohit Kumar Varma
References:
State Compression Docs: https://docs.solana.com/learn/state-compression
State Compression Whitepaper: https://drive.google.com/file/d/1BOpa5OFmara50fTvL0VIVYjtg-qzHCVc/view
Drip Haus: https://drip.haus/
Tensor: https://www.tensor.trade/
Magic Eden: https://magiceden.io/
Solarplex: https://www.solarplex.xyz/
Helius: https://www.helius.dev/
Underdog Protocol: https://www.underdogprotocol.com/
Shyft: https://shyft.to/
Crossmint: https://www.crossmint.com/
Metaplex: https://www.metaplex.com/
Magic Blocs: https://www.magicblock.gg/
Picoplay: https://picoplay.fun/
Stepn: https://www.stepn.com/
Helium: https://www.helium.com/
Dialect: https://www.dialect.to/
Zeta markets: https://www.zeta.markets/
Frakt: https://www.frakt.xyz/
Tiplink: https://tiplink.io/
Flipside Crypto: https://www.flipsidecrypto.xyz (all individual charts sources given in article and image captions)