Trading the Unique: Market Microstructure of Non-Fungible Tokens

Abstract

Despite trading volumes in the tens of billions, NFT markets are illiquid: median quoted spreads of 48-200% far exceed equity levels, though execution-based measures covering nearly all sales yield effective costs of only 2-5%. Using over 410 million orderbook events-including, for the first time, comprehensive bid-side data-across six major collections, we document a distinctive institutional response: a two-tier orderbook in which collection-level floor bids, rather than token-specific orders, supply the dominant source of buy-side liquidity. A small number of algorithmic market makers provide these bids but face adverse selection inherent in collection-level offers, experiencing market-adjusted post-purchase returns of-3% to-7%. In panel regressions, collection identity absorbs over 30 percentage points of R-squared , dominating all observable spread determinants. A comparison of the same 10 000 assets under two market structures reveals that the native bilateral marketplace achieves tighter spreads (54% vs. 200%), suggesting that ease of bidding generates liquidity activity but not price efficiency.