- The vertical NFT trading market is emerging, eating into Opensea’s share
- The game NFT trading market is expected to become one of the first successful vertical platforms
- At present, the game NFT trading market has been formed
- The game NFT trading market will occupy a more critical position in the ecosystem
The NFT market has been crazy over the past year. It seems that from a certain point, celebrities have been buying NFTs, replacing social media avatars such as Twitter avatars with these cartoon animals, coupled with the hype and wealth effect of the bull market, most people also began to understand NFTs from this time and participate in it. . Many companies also use NFTs as one of their marketing tools, such as Adidas, Li Ning, McDonald’s, Louis Vuitton, etc.
NFTs have become a cultural phenomenon. People buy NFTs (especially avatar PFP NFTs), join communities that match their personalities, and connect with like-minded people through meetups both online and offline. NFTs become the keys to the community and fulfill the psychological need for belonging. Fueled by celebrity and wealth effects, NFTs are starting to look like luxury goods and investments.
The numbers speak for themselves: According to Nonfungible.com, the size of NFT transactions in 2021 will be $17 billion, compared to just $82 million in 2020, a more than 200-fold increase. More than 2.5 million addresses hold or trade NFTs in 2021, compared to 89,000 in 2020. The vast majority of these transactions took place on Opensea, a general-purpose NFT trading marketplace, which at one point accounted for more than 98% of the market. With a transaction fee of 2.5%, its peak monthly revenue has exceeded $350 million.
However, with the surge in the number of NFT users, different demands for NFTs will also emerge, which will lead to the further development of NFTs with more types and functions. The NFT trading market, which only serves general purposes, will gradually be replaced by some specialized markets, provided that the market value of this segment expands. This is nothing new, we’ve seen similar things happen in the web2 world, where eBay’s market share is being eaten away by several specialized marketplaces with core categories.
The next cycle is the time for the split of the General NFT Marketplace represented by Opensea. We’ll see more vertical marketplaces start to grab Opensea’s share. In my opinion, gaming NFT marketplaces are expected to be the first successful vertical platforms thanks to real utility.
When the general NFT market crashed
The current blockchain ecosystem is like the Internet in the 1990s. When eBay went public in 1998, it had a GMV of just $105 million, but it already had the most users of any e-commerce site in the world. With less than half of adults in the U.S. using the internet, and even fewer using e-commerce platforms, it’s hard to imagine a platform that survives by selling just one item. But by 2013, eBay’s GMV had reached $83 billion, and almost everyone had learned to use the online store to shop.
eBay is still the online store for all things, where you can buy clothing, books, electronics, furniture, real estate, hotels, and even all kinds of weird and wonderful items. Although it once dominated the industry, its GMV growth has slowed sharply over the past few years. One of the most important reasons is that more and more vertical platforms are slowly eroding eBay’s market share and disrupting areas where eBay dominates.
Justine and Olivia Moore describe eBay breakup trends in 2018. What used to be a “go-to” for various needs has gradually become a more professional platform. Among these specialized platforms, Etsy, 1stdibs, Airbnb, Chegg and Zillow have a combined market capitalization of more than $130 billion, several times eBay’s current valuation of $30 billion. What’s the problem here? In the early days of e-commerce, there weren’t many users in the space, and eBay was well-positioned to meet demand. With the influx of new users and the expansion of demand for specific categories, vertical markets can carry this part of the user base, thereby creating a bigger pie.
Like eBay, Opensea is a general-purpose marketplace that dominates the NFT space. Founded in the last bull market, it has become the market leader in this round, occupying 98% of the market share. Looking back on history, you’ll see that it took almost a decade for vertical platforms to overtake eBay, but business within Web3 is changing at a much faster rate, and we expect a faster split crypto market for general NFT marketplaces like Open Sea for the following reasons.
1. Opensea is not an exclusive content provider, and the product recommendation mechanism is backward
First, none of the NFT assets listed by Opensea are exclusive to the platform. Simply put, since all NFT assets are on the chain, no NFT assets are unique to Opensea, nor are other platforms. Other platforms can display all NFT series simply by reading the on-chain contract.
In addition, Opensea does not have a complete NFT discovery and recommendation mechanism. At present, it tends to take the form of “recommendation after the fact”, such as displaying transaction rankings, recent hot projects, etc. It is difficult for creators to rely on Opensea’s recommendations to increase sales, and users are not told interesting and suitable items in the recommendation mechanism, but only know which items are popular. The reason behind this is that it is difficult to make recommendation judgments for pure investment and financial products, and only games and music NFTs with rich content are more suitable for recommendation mechanisms.
2. Less friction for user migration in Web3
Since all assets are on-chain, it is easy for trading platforms to read on-chain data and list NFT series. For NFTs, the core of liquidity comes from sellers’ pending orders, because many users search for low-priced NFTs through aggregation platforms such as Gem. That is to say, the core of Opensea’s access to liquidity is to incentivize sellers to place orders.Currently, the cost for sellers to migrate to other exchanges is the gas fee for opening an account and authorizing the NFT. Compared to Web2 platforms that require a lot of information, qualification checks, and even deposit payments, Web3 migrations have very little friction. For buyers, connecting their wallets will allow them to buy on different platforms.
3. Opensea’s liquidity barriers are not insurmountable
Opensea’s lack of user incentives has led to the gradual loss of the previously established liquidity business barriers. At the beginning of this year, projects such as OpenDAO and LooksRare emerged, launched a vampire attack on Opensea, and used platform tokens to reward Opensea loyal users. LooksRare once surpassed Opensea in transaction volume. The emerging NFT trading market X2Y2 is grabbing Opensea’s market share with fast function iteration, better UI/UX experience and extremely low transaction rate (X2Y2: 0.5%, Opensea: 2.5%). In order to avoid misleading trading volume (in terms of trading volume, Opensea’s market share is less than 20%), it can be seen from the proportion of active people that Opensea’s share is on the decline.
In addition, unlike DeFi, an NFT can be listed on multiple exchanges at the same time, which means that the liquidity of NFT is easier to transfer and decentralize. Professional traders often list NFTs on multiple exchanges at the same time.
4. Opensea is not well managed, and the brand value has not opened a significant gap
Opensea’s mismanagement has long been criticized by users. Its security is also constantly being questioned, and the platform’s reputation is constantly being damaged by vicious incidents such as theft, fraud, contract loopholes, etc.Opensea has a large number of fake and shoddy NFT series, the platform takes a long time to accept complaints, and the rights and interests of developers and users are not guaranteed. In May of this year, its homepage incorrectly recommended a series of NFTs that fake PXN, and the transaction volume had reached 3,600 ETH before the delisting.There is also a bug in Opensea’s contract, which caused many boring ape NFTs to be sold at low prices, causing losses to collectors. In terms of security and trustworthiness, Opensea isn’t too far ahead of the competition and has yet to build a brand moat.
The vertical ecology of the NFT trading market
We have observed the trajectory of the NFT trading market for a long time, and have also found direct competitors such as Rarible, LooksRare, X2Y2, which are similar to Opensea’s positioning (some of which have a good transaction volume), but we believe that in the future, those who can make a bigger cake and surpass Opensea are not necessarily Or most likely not a direct competitor of Opensea, but a package of vertical NFT trading platforms focusing on a certain market segment.
NFTs are not just JPEGs. In terms of format, NFT is divided into JPEG, MP3, MP4, SVG, iframe, array, matrix, etc. In terms of categories, NFTs are divided into collectibles (PFP), pure art, virtual worlds, games, music, sports, equity and finance.
Tasha Kim summarizes the verticalization of the NFT trading market as follows. In the main categories, we can already see that the vertical ecology has been initially established, such as games (Fractal, Lootex, DMarket), music (Catalog, Glass, Roya), art (SuperRare, Sloika, Foundation) and so on. Some platforms have achieved good results, and emerging platforms have also received significant financing.
So what are the motivations for users to migrate to vertical platforms instead of staying on generic platforms? Let’s go back and look at the reasons why eBay ended up lagging behind the vertical market under the vertical evolution path of the traditional Web2 platform:
- Certification services: For some products, there is a strong demand for certification, which reduces the risk of buying counterfeit products. Items listed on eBay are not guaranteed to be authentic.
- Quality control: eBay does not conduct quality control on products on the platform, resulting in a large number of defective products and garbage flooding the platform, making it difficult to distinguish good from bad.
- Price guidance: eBay does not classify similar products and give the lowest price for reference. It is difficult for users to find a reasonable price among the tens of thousands of returned results.
- Lack of community: eBay lacks an intimate sense of community, making it difficult to motivate users to repeat purchases and actively participate on both sides of the market.
In order for the specialized marketplaces to compete for Opensea’s market share, they also need to offer something that the general NFT marketplace can’t offer, such as:
- Review system to improve content quality: For subdivisions, it is necessary to appropriately increase the entry threshold, select high-quality projects for users, and reduce user losses.
- Targeted design for subdivisions: Platforms can optimize UI/UX for specific categories. For example, the art category can provide 3D immersive galleries, and for example, the music category can introduce player settings.
- NFT pricing service: For some NFTs, such as equity, finance, games, etc., which have the ability to generate interest, the DCF model can be used for pricing.
- Build community: NFTs targeting niche areas are more likely to build a more cohesive community. For example, the game exchange market guides players to exchange game experiences, and even facilitates the exchange of assets between different games.
The Rise of the Game NFT Trading Market
Before the upcoming explosion of NFT vertical platforms, what kind of platform might be the first winner? The gaming NFT marketplace is the most promising seed player.
Gaming NFTs have always been the second most traded NFT category, excluding collectibles. With the advent of the NFT bear market, the number of collectible NFT transactions where the hype value is greater than the actual utility may continue to decline. NFTs are moving towards a greater focus on intrinsic value. According to Nonfungible.com, in 2021, game NFT transactions will reach $5.17 billion, $5.68 billion plus virtual world NFTs of $510 million, which can be attributed to the large category of games. Based on 5% royalties, gaming NFTs generate a profit of $284 million. According to Nansen’s estimates, by 2023, the total profit of the gaming industry will be around US$200 billion, while the profits of blockchain games can reach US$5 billion, accounting for about 2.5% of the TAM (total addressable market).
Ark Invest Annual Investment Report
Gaming NFTs are the most intuitive use case for NFTs. Gaming NFTs are nothing new. CryptoKitties was one of the first games to be deployed on Ethereum in 2017. Although PFP NFTs now hold a major share, gaming NFTs have always been able to solve problems with practicality in the face of hype.
For collectibles or artwork NFTs, the stories and collectibles behind them give them value. But in addition to telling the value of storage and collection, gaming NFTs also provide the value of usability, where users can truly engage and immerse themselves. Availability is a sustainable development that expands the potential market for NFTs.
Blue-chip PFP NFTs are also stepping into gamified narratives, providing them with more value support. The BAYC series launched the game brand Otherside, and BAYC holders can use NFT avatars in the game in the near future. In addition, Cool Cat, Doodle, Pudgy Penguins, Azuki and other series also have plans to launch games.
While large game developers are more likely to build in-game NFT marketplaces, users may prefer to trade in-game rather than jump to other platforms to buy and sell. However, an open platform can also bring several advantages to games:
- Game community: The platform can provide a larger community than the game, and can see players’ appreciation and evaluation of the game. Community leaderboards and an achievement system make the platform a more immersive place than a single game.
- Cross-selling opportunities: Platform-based data recommendations can also facilitate cross-selling of games and game assets. When different game assets are aggregated on one platform, with the interoperability of NFT, cross-game asset exchange and cross-game migration of assets can be realized.
- Asset Pricing and Comparison: Revenue is the driving force for users to play blockchain games in the short term. The open platform can make use of the rich attributes of game assets and provide price suggestions with reference to the prices of other interest-earning assets, which is convenient for users to compare.
- Targeted improvements: The official market often has many drawbacks, such as currency restrictions, price caps, high rates, inability to aggregate transactions and batch transactions. An open platform enables targeted improvements.
Even in the relatively closed ecosystem of Web2, there are dozens of third-party trading platforms built around CS:GO (Game – Counter-Strike: Global Offensive), such as CSGORoll, Skinchshier, CSmoney, SkinMonkey, DMarket, etc. In the Web3 world, a trading market can cover multiple (theoretically unlimited) game NFT assets, and the GMV of the game NFT trading market will be considerable.
Game NFT Trading Market Ecological Case
Eden Games: Games segment in the general NFT marketplace
Maigic Eden is a general NFT trading platform similar to Opensea, focusing on Solana public chain. Eden Games is Magic Eden’s one-stop platform for game developers and gamers.
Eden Games now has the following features:
- Exclusive game listings: Each game introduction page includes a game trailer, and the content showcase page displays the game’s social content and description, as well as the NFTs the game contains.
- Content Center: The game content recommendation mechanism helps players quickly find the content they need.
- Competition Channel: Regularly hold game competitions, invite community members to participate and provide rewards.
The platform provides developers with support services such as NFT consulting, custom casting, promotion and marketing, and user security.
Thinking: Magic Eden itself is the dominant NFT marketplace on the Solana chain (more trading volume on Solana than Opensea), the platform has 1.5 million daily active visitors and 10 million monthly active visitors. Eden Games is gearing up to take advantage of the huge traffic that Magic Eden brings to become a discovery layer and distribution platform for games and gaming NFTs. The giant itself has natural traffic and liquidity advantages because it is a marketplace for gaming NFTs.
Fractal: A Vertical Game NFT Trading Market
Built by Twitch co-founder Justin Khan, the platform focuses on blockchain games and gaming NFTs. It aims to create a more secure marketplace for trading NFT games, as well as provide marketing and distribution services for them.
Fractal’s value comes from:
- High-quality game NFT Launchpad: Fractal adopts a strict review system and currently only accepts 5% of applicants, with more than 20 projects on the waiting list.
- Fractal provides NFT-fi related services with game features, such as lending, staking, sharding, etc.
- Fractal will act as a curation and discovery layer for the best games, enabling game developers to reach consumers.
Philosophy: Fractal does not develop games itself, nor does it have the backing of established NFT giants such as Magic Eden. Throughout Web2’s successful gaming platforms, such as Steam, Epic and even TapTap, there are seed users brought in by the parent company’s own game bundles. Fractal’s desire to position itself as the management and discovery layer of the game will require more resistance to overcome.
DMarket: A platform for aggregating Web2 & Web3 game assets
DMarket aims to create a multi-billion dollar digital asset trading platform for game developers, players, streamers and e-sports clubs. Unusually, DMarket uses blockchain technology to access tradable game assets (not just NFTs) such as skins in web2 games (eg CS:GO and Dota2) and web3 games (eg Decentraland).
Concept: In traditional games, the most profitable games are often big DAU free games with a “skin economy”, and billions of digital assets circulate in the secondary market every year. In fact, prior to 2016, there were already platforms that traded game assets in Bitcoin, such as OPSkins, a third-party platform that used Steam’s API to access other payment systems and bypass many of the limitations set by Steam (eg, no more than 1,800 dollar weapons). These platforms contain a large number of traditional players and are an important entry point for the conversion of web2 players to web3.
Axie Infinity now earns less than $10,000 a day after peaking profits on August 6 last year ($17.5 million in daily revenue).The narrative of blockchain gaming is changing, the P2E model is being questioned, and with the “failure” of Axie Infinity, it has even become an industry “consensus”.
But let’s also look on the bright side: Axie Infinity’s total profit was $1.3 billion, and its token $AXS FDV hit $43 billion. It is also now at $3 billion after the market fell. Axie Infinity using the Web2 development model would never have achieved what it is today without the cryptocurrency economy.
Although the NFT industry has exploded in the past two years, we are still in the early stages of the industry. According to research by Hootie Rashidifard, June 2021 data shows that only 13% of U.S. citizens have ever purchased cryptocurrencies, compared to just 3% globally. Number one Axie Infinity currently has around 300,000 DAUs, and this number will only get smaller after removing multi-wallet accounts. And Roblox, the game with the highest DAU on Web2, has 8.6 million. This shows that there is still a lot of room for blockchain games.
NFT is the underlying element of Metaverse and blockchain games, and the NFT trading market is the cornerstone of the digital asset economic system. The NFT trading market is dominated by games and is expected to become one of the first successful vertical platforms in the future. But in addition to the basic trading functions, we can see that the game NFT trading market is expected to become more of the discovery layer in the game ecology. How to acquire users for Web3 games has been a hot topic.
Web2 game customer acquisition methods and profit calculation are clear: advertising → user acquisition → user retention → compare LTV (customer lifetime value) and CAC (customer acquisition cost) to calculate ROI (return on investment).However, Web3 games are squeezed by regulatory compliance on the advertising buying side, low conversion rates on the user acquisition side, and unpredictable LTV on the profit side, and will face many challenges. Using the current web2 promotion method to push web3 games will encounter sky-high CAC, and the cost will be difficult to recover (unless the free and underlying blockchain is not discovered by users). The current mainstream promotion methods and profit sources of web3 are: community seed user accumulation → airdrop diffusion → encrypted traffic promotion → INO/IDO financing → NFT secondary transaction fee + token value (LTV).
This web3 promotion method relies on community fission, has high requirements on the project’s founding team, and cannot be quickly reused in other projects. The production and promotion process that is difficult to reuse is also not in line with the production process of the game industry. The number of projects is large, and the iteration, testing, optimization or elimination is fast. The business model mainly relies on the two-dimensional element, and the market transaction costs are uncertain, which eventually leads to unpredictable CAC. and LTV.
The business model of blockchain games has not yet penetrated, which shows that the market structure is far from being finalized, leaving many opportunities for entrepreneurs. Different from the Web2 platform’s business model of collecting advertising share and game lottery, game NFT platforms can only rely on primary or secondary NFT transactions (or focus on secondary transactions) to maintain the operation of the platform, greatly reducing the burden on game developers.With the large-scale application of blockchain games, the future game NFT market can occupy a richer ecological position and undertake functions such as user acquisition, user discovery, user retention, cross-promotion between games and user migration, thereby leading the development of the industry.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/game-nft-market-openseas-easiest-cake-to-cut/
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