Analyzing Metaplex: The Unsung Hero Behind Reducing Solana NFT Minting Costs by 1000 Times

Written by: James Ho

Compiled by: ShenChao TechFlow

The Solana ecosystem is recovering, with the NFT infrastructure protocol Metaplex experiencing a tenfold increase in the past month.

However, compared to other application layer projects on Solana, this project seems to receive little mention, and due to its foundational nature, the related products and technical principles are not particularly intuitive.

Two months ago, crypto VC Modular Capital provided an in-depth explanation and study of Metaplex on its blog, which we have compiled to help everyone better understand this rapidly rising project.

Summary

• Metaplex is a mature NFT infrastructure protocol within the Solana ecosystem. They facilitate over 99.9% of NFT minting. They established infrastructure standards for NFTs (token metadata) and developed applications like Candy Machine and Creator Studio, making it easier for creators to set up fair launches.

• Despite a significant decline in the NFT market (with floor prices and market trading volumes dropping by 85-99%), Metaplex's minting volume has increased more than fivefold year-over-year, thanks to their launch of Bubblegum, a project for minting compressed NFTs.

• Metaplex's compressed NFTs have reduced the cost of minting NFTs by over 1000 times (from over $10 on Ethereum to less than $0.001 per mint on Solana). This has led to a surge in experiments integrating NFTs into social, payment, creator, and physical infrastructure applications. Metaplex mints 180 million NFTs annually, compared to 25 million on Ethereum (over 7 times more).

• Metaplex recently began charging fees to sustain the project. If fees had been introduced in 2022, Metaplex would have generated $13.9 million in revenue.

• Solana has achieved success in mainstream web3 consumer use cases due to its unique parallel computing architecture and native fee market. We believe NFTs can play a crucial role in this regard, serving as narratives representing any unique digital content.

• Unlike the highly competitive NFT market, we believe Metaplex faces little competition and is likely to continue leading NFT minting through its infrastructure standards and front-end applications.

• Metaplex has the potential to become a Shopify-like product, allowing creators to mint, manage, and monetize their NFTs. In the next 3-5 years, we see Metaplex having the potential to support billions of NFT mints annually and generate over $25 million to $100 million in revenue.

Background

NFTs were a key innovation in the crypto space during the last crypto cycle. NFTs are unique digital identifiers recorded on the blockchain, used to prove the provenance, authenticity, and ownership of digital assets.

The first attempt at NFTs involved the ERC-721 standard on Ethereum, introduced in September 2017. CryptoKitties created one of the first blockchain games, allowing users to collect and breed digital cats (all represented as NFTs). This led to congestion on the Ethereum network in November/December 2017, accounting for over 20% of network activity.

NFTs, centered around digital images, made a significant push into mainstream audiences. CryptoPunks (launched in June 2017) and Bored Ape Yacht Club (BAYC, launched in April 2021) are among the highest-valued NFT collections, with one NFT valued at over $400,000 during the market peak of 2021-22. During that period, we saw NFT trading volume grow from zero in 2020 to an annualized $60 billion. NFT marketplaces like OpenSea were valued at over $13 billion at the market cycle peak, with monthly trading volumes exceeding $2-3 billion and annualized revenues over $1 billion, growing at a rate of 2.5%.

Like other areas of cryptocurrency, the floor prices and trading volumes of NFTs have seen a significant decline over the past two years. Blue-chip NFTs like Punks and BAYC have dropped 80-90% from their market peaks, while NFT market trading volume has fallen from an annualized $60 billion to over $3 billion. However, NFTs still achieved over $3 billion in annualized trading volume, with floor prices for Punks and BAYC at $35,000 to $70,000, demonstrating the power of digital communities and culture. For reference, eBay processed $74 billion in GMV in 2022.

During the 2021-22 period, NFTs were primarily associated with speculative JPEGs, similar to how Ethereum was mainly associated with initial coin offerings (ICOs) during the 2017-18 period. However, since then, Ethereum and smart contracts have evolved into much more. Today, smart contracts are the driving force behind permissionless finance, stablecoins, decentralized autonomous organizations, governance, traditional asset tokenization, and physical infrastructure networks. Similarly, we believe NFTs represent a narrative for the next decade, enabling digital ownership and property rights for any type of content.

Historically, a key barrier to NFT adoption has been minting costs, which have hindered growth beyond highly speculative use cases. For a standard collection of 10,000 NFTs, the cost on the Ethereum network today is 176 ETH, nearly $300,000 (around $800,000 at peak), equating to $30 per mint (around $80 at peak). This may be an acceptable cost for speculative users, but it is too high for everyday use.

To make NFTs ubiquitous, they need to structurally shift from scarcity to abundance.

Introducing Metaplex

Metaplex is the protocol behind the NFT standard in the Solana ecosystem. The company was initially incubated at Solana Labs, founded by a team including Stephen Hess (former product lead at Solana Labs), and began operating as an independent organization in the fall of 2021. Metaplex has developed a range of products that allow artists, brands, and creators to mint NFTs and launch self-hosted minting pages through a series of APIs and low-code tools.

Metaplex drives the vast majority of activity (99.9% of NFT minting), covering multiple product lines for infrastructure and application tools. Here are some examples:

• Token Metadata -- A Solana program responsible for attaching additional metadata to fungible or non-fungible tokens. For NFTs, this includes name, symbol, URI, attributes, royalty fees, etc.

• Candy Machine -- A leading minting and distribution program for launching fair NFT collections on Solana. It allows creators to securely and customizably put their digital assets on-chain.

• Auction House -- A protocol that allows marketplaces to implement non-custodial sales contracts.

• Fusion -- A program that adds on-chain tracking and composability around NFT ownership. It is used by creators to implement complex ownership models.

• Creator Studio -- A no-code, web-based tool for creators, enabling them to easily create, sell, and mint NFTs on Solana without writing any code.

• Bubblegum -- A program for creating and interacting with compressed Metaplex NFTs, which are protected on-chain using Merkle trees.

Since its inception, Metaplex has facilitated the minting of over 144K collections, 61.7 million NFTs, 14 million collectors, and over $1.1 billion in creator revenue. The cost to mint 10,000 NFTs is only $2,500-$3,000 (equating to $0.25-$0.30 per mint), while on Ethereum it ranges from $250,000 to $300,000 (equating to $25-$30 per mint).

The most commonly used programs in Metaplex include Candy Machine and Token Metadata. Unlike most other blockchains, Solana separates logic and data into two distinct components—referred to as programs and accounts. Programs (which store application logic) do not store data in internal variables but interact with accounts (which store state and data) and can modify them. Candy Machine is one such program, serving as the leading minting and distribution program for fair NFT issuance on Solana. Token Metadata is another such program that attaches metadata to fungible and non-fungible tokens on Solana.

Metaplex's programs are publicly available for anyone to view and fork under an open-source license. While the source code is public, Metaplex's license does not allow others to copy or fork the code for profit or to provide competing products or commercial alternatives that conflict with Metaplex's economic interests. Additionally, Solana's architecture separates programs and accounts, meaning that if a new startup were to fork Metaplex's NFT standard, many key participants in the ecosystem (such as NFT marketplaces, wallets, custodians, and node providers) would need to integrate that program. This would incur significant coordination overhead.

In fact, Magic Eden (the Solana NFT marketplace) previously attempted to launch its Open Creator Protocol (OCP), which defined a new standard for NFT collections with mandatory royalties. This effort achieved limited success but was later shut down.

The result is that Metaplex holds a strong and dominant position in the Solana NFT ecosystem while building programs at the application and infrastructure standard layer.

Compressed NFTs

Despite challenging market conditions for NFTs and cryptocurrencies, Metaplex has significantly increased the number of NFTs minted weekly, from 500,000 for most of 2022 to over 3 million today. This more than fivefold growth is driven by the launch of the compressed NFT standard, which further reduces minting costs. Today, the cost to mint 100,000 compressed NFTs is only $100, equating to less than $0.001 per mint.

Metaplex's compressed NFT program (called Bubblegum) achieves this breakthrough through Solana's Merkle tree program (known as account compression). This is accomplished by moving the storage of NFT metadata (image URLs, attributes) off-chain through indexers and RPC node providers. Compressed NFTs do not store metadata in typical Solana accounts but instead store it in the ledger.

As a result, compressed NFTs inherit the security and speed of the Solana blockchain while reducing storage costs by moving such storage off-chain. Since the entire computation history is on the Solana ledger, if any indexer or RPC provider goes down, the entire state data can be reconstructed by replaying all historical transactions. Notably, all compressed NFTs are compatible with the standard NFT format and can be losslessly decompressed into regular Metaplex NFTs. To some extent, this is similar to Ethereum's rollups offloading computation and state storage to L2 blockchains (Optimism, Arbitrum), while Ethereum itself stores the Merkle roots and data availability. This allows Ethereum to reconstruct state without trust when L2 rollup blockchains are threatened.

Metaplex launched compressed NFTs in November 2022. Since then, over 57 million compressed NFTs have been minted. Due to the low minting costs, many applications have found creative use cases:

• DripHaus -- A platform connecting creators and fans by airdropping their works (art, music, games, comics) to fans. On Solana, over 20 million compressed NFTs have been minted at a cost of $2,000, while the cost on Ethereum would exceed $300 million.

• Helium -- A decentralized network of over 2 million user-owned IoT hotspots. Helium migrated from its own blockchain to Solana, during which they issued over 1 million compressed NFTs on Solana to represent user-owned hotspots.

• Dialect -- A wallet-to-wallet messaging application. Emojis and stickers are tokenized as compressed NFTs, making them collectible and ownable. Users can mint custom emojis and stickers and share them with friends. Over 20,000 users have minted and collected these stickers.

• Tiplink -- A crypto payment application that allows users to send and receive funds via web links or URLs. Tiplink allows new users to claim AI-generated compressed NFTs, enabling users to test its product as a growth strategy. Tiplink has acquired over 1 million users (independent minters) through this acquisition strategy.

With cases like Dialect, Tiplink, and DripHaus adopting compressed NFTs, this would be impossible in Ethereum or other ecosystems. As the cost of minting NFTs drops below $0.001, applications are seeking innovative ways to integrate NFTs into everyday use cases—including payments, artwork, chat stickers, and physical infrastructure networks. Additionally, Magic Eden and Tensor have launched support for compressed NFTs in their marketplaces, indicating the adoption of the compressed NFT standard from the Solana ecosystem.

Monetization

For most of its history, Metaplex has operated all its products for free. The company raised $47 million in venture capital from Multicoin Capital, Jump Crypto, Asymmetric, and many other leading funds, selling 10.2% of its tokens in a strategic round. This capital has funded the development and maintenance of a wide range of programs in the Metaplex library. In late May 2023, Metaplex announced plans to further enhance the sustainability of the protocol. These changes include:

• Plans to convert the Token Metadata program to complete immutability, meaning it will no longer be upgradeable or modifiable.

• Access to the Token Metadata program will remain permissionless, treating all users equally, and there will be no token gating using $MPLX before or after.

• Introducing small fees for using the Token Metadata program, primarily charging 0.01 SOL (about $0.20) for each uncompressed NFT created.

Fee revenue will be used to fund the development of other programs maintained by Metaplex (such as Candy Machine, Auction House, and Bubblegum). Notably, these changes have received strong support from key participants like Solana Labs (from which Metaplex spun off), Magic Eden, and Tensor (the largest Solana NFT marketplaces).

In 2022, Metaplex facilitated the minting of 22 million NFTs. At the day's prices, if Metaplex charged 0.01 SOL ($0.20) per mint, this would translate to $4.4 million in revenue, or $13.9 million if charged at the daily SOL price. Since its inception, Metaplex would have earned $23.5 million in revenue at the daily SOL price.

Since the introduction of compressed NFTs, over 99% of ongoing NFT minting is now done under Bubblegum. Note that there is currently no monetization for compressed NFT minting. Monetization is only applied to standard NFTs using the Token Metadata program. We believe that in the medium term, Metaplex's main focus should be on further driving experimentation, usage, and adoption of Bubblegum, which has significant growth potential in mainstream consumer crypto applications.

Historically, NFTs have been scarce. In a world where the minting cost of NFTs is $20-$30, this is a logical conclusion that only supports high-value, artificially scarce assets like CryptoPunks and BAYC. However, as prices have dropped over 1000 times, we believe NFTs are transforming into core infrastructure supporting digital experiences—whether in consumer payments, gaming, social, identity, music, or physical infrastructure.

Looking ahead, we believe NFTs will increasingly be about abundance.

Metaplex has established leading NFT infrastructure standards and applications that are the most accessible and scalable for consumer products reaching over 100 million users. In 2022, Metaplex demonstrated its potential for annual revenue of $4 million to $14 million in limited use cases. We believe the protocol has the potential to drive billions of NFT mints annually (from the current annualized 150-200 million), continue to build leading infrastructure standards and applications, and evolve into a substantial revenue and business outcome.

Valuation and Scenario Analysis

Given that Metaplex's experimentation and monetization of compressed NFTs have just begun, it is challenging to predict Metaplex's future state. We attempt to specify various scenarios:

• Our 2022 scenario emphasizes what Metaplex's revenue would be if it charged fees. Given that Solana's minting costs are significantly lower than Ethereum's and NFT valuations are higher, we believe Metaplex will have the pricing power to implement fees without losing too many minting instances, generating $14 million in revenue that year.

• Our current scenario highlights the astonishing growth of compressed NFTs, following the annualized growth rate of Q3 2023. Impressively, Metaplex's annualized minting volume exceeds 180 million, nine times that of Ethereum's current minting volume and 2.7 times that of Ethereum's minting volume in 2022. As minting costs have decreased by 100 times (in SOL), we see minting volumes correspondingly increase by 30 times, despite NFT trading volumes and floor prices dropping over 95%.

• Our fee scenario assumes that Metaplex will charge the same 83% fee for its compressed NFT products as it does for its traditional minting. Considering this would only increase the price of compressed NFTs from $0.002 to $0.004, we believe this will not significantly impact the number of NFTs being minted. Metaplex would be able to generate $1 million in revenue at these current valuations. For reference, OpenSea generated $7.6 billion in revenue in 2022, with current revenues at $30 million.

• Our base scenario assumes Metaplex can increase its usage tenfold from now. Solana's price rises from $20 to $40. This would bring in over $20 million in minting revenue, with an average cost of $0.02 per NFT, totaling 2.5 billion NFTs minted. Metaplex would also be able to increase value-added services related to NFT management and sales. Similar to Shopify, which allows online merchants to create and manage stores, Metaplex is trying to build a comprehensive service for NFT issuance and management. We believe this could add another $5 million in application-related revenue (assuming $10-$20 per month, requiring 20,000-40,000 subscribers). At a 20x multiple, this would support a $500 million valuation.

Our optimistic scenario assumes Metaplex can drive 1 billion NFT mints annually. For reference, compared to the following annual data:

• 2.5 billion blog posts

• 8.6 billion TikTok videos uploaded

• $70 billion for virtual goods (assuming $10 per item = 7 billion items)

• 200 billion tweets

• 1.8 trillion photos

• 8.4 trillion text messages

Although the cost per mint will increase with the rise in SOL prices, we believe that if the Solana ecosystem becomes increasingly valuable, minters will be willing to pay a premium commensurate with Solana minting. At a 20x multiple, this would translate to a $3 billion outcome.

Risks and Mitigations

• The use of NFTs is still in its early and emerging stages. Most NFTs minted during the 2021-2022 period were speculative. Today, we see attempts at applications in messaging (stickers), payments (growth acquisition), creator content (discovery), and physical infrastructure (tokenized representation), but these are still in early stages and may not last or ultimately monetize if applications do not build businesses on them.

• Risks from the Solana interface. Since Solana separates logic and state into programs and accounts, it allows specific programs like Metaplex token metadata or the Solana Program Library (SPL) to dominate the standards for SPL tokens and NFT minting. The Solana ecosystem has been developing interfaces that will replicate functionality in the EVM ecosystem, allowing developers to replicate ERC-20, 721, or 1155 standards to issue fungible and non-fungible tokens. This work is still ongoing, and developers will need to build new codebases to replicate/surpass the functionalities that Metaplex currently offers at already low fees. Nevertheless, this could be a long-term risk.

• Dependency on the Solana ecosystem. Today, most activity occurs in the Ethereum or EVM-compatible ecosystems, whether in decentralized finance, stablecoins, payments, NFTs, etc. Despite the FTX incident, Solana has proven to have a strong community with its unique architecture of parallel transaction processing, native fee markets, and scalability that grows in sync with computation and Moore's Law. However, as the Ethereum ecosystem continues to mature and addresses its scalability challenges, it is possible that NFTs, even if successfully adopted as widely used technologies in everyday consumer applications, may not occur on Solana.