In-depth analysis of OpenSea’s NFT revolution: origin, products, risks and development prospects

This year’s NFT boom has increased OpenSea’s huge exposure, and it is expected to achieve a transaction volume of more than 27.5 billion U.S. dollars in 2021.

Original title: “The Way of DeFi丨A long essay that explains the development history of OpenSea and discusses the competition, risks and opportunities it faces”

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

Where to invest $10,000 now?

Today, investors face a dilemma. Inflation is rising. From Goldman Sachs to BlackRock, almost every company expects stock returns to be less than 5% by 2035. The global pandemic has completely disrupted the market. Finding promising investments is harder than ever.

Recently, Bloomberg asked financial experts where they would invest $100,000 today. What is the answer? They overwhelmingly recommended alternative assets, such as art.

I recently adopted their advice and invested millions of dollars in art.

The reasons are as follows:

  • From 1995 to 2020, contemporary art has appreciated by an average of 14% per year.
  • It is estimated that by 2026, the global art industry will grow by 51%.
  • The correlation with public stocks is 0.01

Fortunately, I don’t need to buy the entire painting to invest. I used Masterworks, which allows users to invest in art like investing in company stocks. They use artificial intelligence to recognize the works of artists such as Picasso, Banks, and Basquiat, then securitize these paintings and issue stocks.

Actionable insights

  • If you only have a few minutes of free time, here is what investors, operators and founders can learn from OpenSea.
  • NFTs are real. Whether it is an angry youth or a supporter, the data shows that NFT is by no means boring. So far this year, NFT’s total sales have exceeded 13 billion U.S. dollars, most of which arrived within the past two months.
  • Lean operations are essential for volatile markets. OpenSea maintained a small team in the first few years, and as of the end of 2020, there were only 7 employees. This allowed the company to withstand the test of the cryptocurrency bear market and persisted until the NFT took off.
  • OpenSea is very advantageous. The trading platform has a 97% market share. This is due in part to OpenSea’s outstanding asset breadth, simple listing process and powerful filtering system.
  • Decentralization is not necessarily dogmatic. Many crypto communities seem to view decentralization as a source of legitimacy and panacea. Although there is clearly room for decentralized participants-Uniswap is an example in the field of token trading, centralized companies can also thrive, and OpenSea is the latter.
  • Investors may want to pay attention to the new type of NFT. If you feel annoyed that you missed CryptoPunks , Bored Apes Yacht Club and Art Blocks, there may be some comfort. New formats are constantly being created. Two experts suggested that music and smart NFTs deserve attention.

OpenSea

What is the most dominant company in the world in terms of market share?

Several names may come to mind: almost certainly, Google, perhaps Facebook, Amazon, depending on the category.

All of these are good answers. Google has a 92% market share in the search field, Facebook and its related assets have three times more active users than its next competitor, and Amazon’s U.S. e-commerce dominance is considered to be 50% (AWS’ cloud computing share is 31 %).

However, OpenSea beats all the companies mentioned above.

Since its establishment in 2017, the NFT market has grown to be the undisputed leader in this field, with a share of over 97% and transaction volume 12 times that of its closest competitor. The intuitive response to these numbers is to ask about the size of the market. Of course, OpenSea won, but what exactly did it win?

Regardless of people’s stance on this field, these figures show that NFT is far more than a trivial interest, and OpenSea is more than just a mysterious hawker. Since the beginning of this year, NFT’s sales have exceeded 13 billion U.S. dollars. If sales for the rest of this year are the same as the previous quarter, the annual gross merchandise transactions (GMV) will reach 25 billion U.S. dollars. This scale not only puts OpenSea ahead of its competitors, but also surpasses the traditional Web2 market. In the most recent quarterly report, Etsy reported a GMV of US$3.04 billion, and OpenSea surpassed this figure in August alone. (Note: Etsy is an online store platform, which mainly features the buying and selling of handicraft products. It has been compared with eBay, Amazon and “Grandma’s Basement Collection” by the New York Times.)

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

Dune and Etsy company data

Coupled with a vibrant culture in the crypto space, these numbers may help portray OpenSea as a risky trafficker, the grandest bazaar in an abnormal country. This will damage the creativity and wisdom of NFT and misjudge the uniqueness of OpenSea.

This is not a company ruled by fanatical YOLOism, but a company guided by patience and conservatism. When opponents try new features and different models, OpenSea has always focused on improving its core products. The result is a subtle contradictory business, which empowers something radical, but at the same time it is restrained—a reasonable revolution.

Today, we will explore the company’s past, present and future. Continue reading the following voyages:

  • Origin: The turning point between Wificoin and OpenSea.
  • Market: Re-examine NFT and its development.
  • Product: The subtle moat surrounding OpenSea.
  • Valuation: A16z’s annual transaction.
  • Competition: Rarible , Foundation and other companies are catching up.
  • Risk: OpenSea may get into trouble.
  • Prospects: Where will NFT go next, and is OpenSea in a good position?

The origin of OpenSea

Coinciding with the crypto bull market at the end of 2017, Devin Finzer, who graduated from Brown University with a major in computer science and has been working in the financial field for several years, suddenly became interested in cryptocurrency and blockchain and the new economic system it created.

In the fall of this year, Finzer decided to start business in this area and cooperated with another young software developer, Alex Atallah. The latter, as a graduate of Stanford University majoring in computer science, founded the student dormitory social network “Dormlink” while in college, and then served as the CTO of two other startups. Like Finzer, Atallah has also developed an obsession with encryption and wants to develop it further.

In September of the same year, Finzer and Atallah presented their project Wificoin at the Techcrunch Hackathon. Wificoin is consistent with projects that have gained a prominent position in this field. In exchange for sharing access to the wifi router, users can get gold coins, which can be used to purchase wifi access from other people in the company network. In this respect, it is no different from the blockchain network sharing platform Helium, which received an impressive Series B financing from Google Ventures the previous year.

Although Atallah admitted that the product was “very easy to crack” in the current instance, they were accepted by the famous Silicon Valley start-up incubator Y Combinator (YC) to further advance their project.

In some respects, this is an unstable combination. Although YC is known as a great talent and opportunity finder, YC has not shown a subtle understanding of encryption technology. A former OpenSea employee said that the YC team was skeptical of this field at the time, and in our discussion, Finzer admitted that there were some problems in the early stage.

“YC is definitely not tailor-made for crypto companies,” he said. Accelerators rely on startup companies’ construction templates, which seem out of place in the world of web3. Finzer believes that these novel companies are “exceptions to the rules.”

During the transition period between Wificoin’s acceptance of the program and its launch in January 2018, the cryptocurrency market has undergone indelible changes.

November 28, 2017 is a historic day for the crypto community. Although the test version made its debut at ETH Waterloo a month before, this day represents the official launch of CryptoKitties.

Although the beta version made its debut on ETH Waterloo a month before, these cute digital cats generated great interest at the end of the year and the second year. The enthusiastic bidding made a collectible “Genesis” sold for 247 ETH. , It was about 118,000 U.S. dollars at the time. (Based on this week’s price, valued at US$894,000)

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

CryptoKitties

CryptoKitty is not just a cute picture, but a “non-fungible token” (NFT), which is based on an encryption standard called ERC-721, which supports other NFTs. Now, for non-encrypted natives, this may sound like incomprehensible jargon, but I guarantee it is not as incomprehensible as you think.

Let us quickly ask three questions:

  • What is NFT? It is a data unit that cannot be changed. This unit can be anything: a picture, a song, a video, or even a picture of a weird cat.
  • Why would anyone want to buy one of them? This is usually related to status, scarcity and sense of belonging. Owning an NFT can grant influence, show personality, or get you into a private group.
  • How does ERC-721 work? Think of it as the underlying infrastructure for projects such as CryptoKitties. The thing to know here is that ERC-721 is also the infrastructure for many projects other than CryptoKitties. Therefore, if you can build a market on the basis of ERC-721, you can easily support other NFTs.

It was the last point that really attracted Finzer:

What makes us think (the market) this might be bigger because there is a standard for digital projects. Everything that appears after CryptoKitties will comply with this standard.

Therefore, he and Atallah decided to abandon their work on Wificoin, starting from CryptoKitties, and working hard to build a “meta universe market.” Given that few NFTs were created at the time, this does not seem to be a particularly exciting proposal. But they attach great importance to the novelty of what they do:

When you start a project, you look for something that you haven’t done before. This is unprecedented.

Finzer and Atallah are not alone. Almost at the same time they made the decision, another team also decided to establish a solution in this area, namely Rare Bits. In many ways, they seem to be a better choice.

Rare Bits consists of four former Zynga employees and seems to be able to take advantage of this new field. After all, NFTs will be mainly used by gamers. The industry view at the time was that NFT might attract these people and provide game developers with a way to sell new skins, special weapons, and other digital goods.

On the same day in February 2018, OpenSea and Rare Bits were released on Product Hunt.

OpenSea describes itself as the “eBay of encrypted goods.”

Rare Bits calls it “a zero-fee crypto asset market similar to eBay.”

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

As of the end of the day, OpenSea had defeated its opponents with 447 downloads, while Rare Bits had only 230.

However, when it comes to the venture capital market, the roles of both parties have been reversed. OpenSea successfully raised US$2 million from a strong lineup including 1confirmation, Founders Fund, Coinbase Ventures and Blockchain Capital. But it is far behind the $6 million that Rare Bits received a month ago. Participants include Spark, First Round and Craft.

Richard Chen, the general partner of 1confirmation, summarized the consensus at the time and explained his company’s forecast:

“Rare Bits is a team that talks on paper. They are former Zynga employees. They raise a lot more money from traditional venture capital companies than OpenSea. However, the OpenSea team is more capable and more combative. Devin and Alex are discovering new NFTs. The project has done a good job and surpassed Rare Bits in getting these projects listed on OpenSea, attracting most of the transaction volume on OpenSea. When we invested in April 2018, OpenSea’s transaction volume was already Rare Bits’ 4 times.”

The gap between the two companies seems to only widen over time, although Rare Bits prides itself on not charging any commissions on the first sale (OpenSea charged 1% in 2018) and refunding any generated gas cost.

However, this kind of charity does not seem to be commensurate with the “cryptocurrency winter” that enveloped 2018. When Rare Bits burned money to maintain its popularity, OpenSea seemed to have taken another approach, charging fees and streamlining operations. As of August 2020, the company has only 7 employees.

In order to fight for the number, Rare Bits launched new experiments, including cooperation with Crunchyroll, allowing users to collect “digital stickers” of anime characters. At the same time, OpenSea remains focused and continues to improve its core exchanges, which is exactly where the industry is interested. When asked why OpenSea can outperform Rare Bits in the long run, Finzer replied:

“We are willing to develop in this field for a long time, regardless of the current growth trajectory. We want to build a decentralized market for NFT and hope it can last for 3-4 years.”

By 2019, Rare Bits seems to have closed. Today, if you visit the site, it will be redirected to CoinGecko, although it has never been announced for sale. For OpenSea, however, the story has just begun.

Market: Welcome to the PFP party

It is difficult to grasp how much the NFT market has grown in a year.

As mentioned above, we noticed that OpenSea alone is expected to exceed US$27.5 billion in transaction volume in 2021. If the company maintains its 97% market share, this would indicate a total annual GMV of US$28.4 billion.

NFT sales in 2020 will be 94.8 million U.S. dollars. This is an increase of 300 times over last year. We cannot understand this sudden and dramatic change. In a blink of an eye, NFT has grown from a trivial thing to a walking behemoth.

This is largely due to the popularity of personal profile pictures NFT, known as the “PFP” project. Famous representatives of the movement include CryptoPunks, Bored Ape Yacht Club (BAYC), Pudgy Penguins, Meebits, and many other projects.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

The proliferation of these characters, spread among your friends and followers on social media, promotes further collection, speculation, and investment. (The boundaries between these three are often so blurred that they cannot be distinguished from each other.)

Even people in the industry find themselves surprised by this phenomenon, in part because it represents a deviation from initial expectations. As the story of Rare Bits shows, NFTs are expected to connect with the game field. Projects like Gods Unchained and Decentraland, The Sandbox and Animoca Brands are expected to promote the development of this field.

In general, this is not the case. There is a huge exception: Axie Infinity, which is both a blockchain game and the largest number of NFT projects. However, if viewed as a whole, PFP seems to be the dominant form. Five of the top ten projects ranked by historical transaction volume can be reasonably classified as PFP products. In terms of quantity, they reached 5.4 billion U.S. dollars, accounting for 37.3% of the total. If Axie is excluded and the 11th project Sandbox is used instead, the share of PFP in these projects will reach 73%.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

DappRadar

Even Finzer admitted that he did not see the current wave coming. “We did not predict the rise of Bored Ape Yacht Club or other collectibles.”

This is surprising in some ways. Because OpenSea has long recognized the potential of cryptocurrency incarnation. In early 2018, Finzer brought in his old friend Dylan Field to help him make Ethmoji.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

Jessica Phan, Alex Atallah, Devin Finzer, Dylan Field and Elena Nadolinski. Offered by Richard Chen

Users can use combinable elements such as eyes, mouth, and accessories to create a profile picture.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

Emoticons

Driven by the focus of Finzer, Ethmoji was ignored. Although it has not received much attention, it seems to be still active until 2019, a year after its establishment, Atallah tweeted that the new avatar is still being created.

Another reason why Finzer did not anticipate the PFP revolution may be that OpenSea looks like it is tailored for the present. This has a lot to do with the company’s deceptively powerful products.

Product: Delicate Moat

At a high level, OpenSea’s product is simple: it is a marketplace for buying and selling NFTs. But its success is due to more subtle factors. In particular, the company’s dominance seems to benefit from the ease of listing, the breadth of assets on the platform, and a powerful filtering and cataloging system.

Permission list

Launch an NFT on OpenSea, whether it is a picture or a song, just a few clicks. This is a question of filling in information about the work and uploading relevant data, whether it is an image or other content.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

OpenSea

Alex Gedevani from Delphi Digital, a crypto research organization, described this as one of the decisive factors behind OpenSea’s dominance:

“(OpenSea) emphasizes becoming a permissionless NFT casting, discovery and trading market (to explain its market share growth). This makes it easy for long-tail creators to join because the barriers to entry are low compared to other platforms. This The way is to expand the supply of creators, attract users and liquidity, including in the primary and secondary markets. If Uniswap is the market for any altcoin, then OpenSea is the market for any NFT.”

Although other markets have since followed suit and made it easier to release products, OpenSea is clearly in a leading position in this regard. It helps bring a lot of assets to the platform.

Breadth of assets

OpenSea divides its selection into eight categories: art, music, domain names, virtual worlds, trading cards, collectibles, sports, and utilities.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

OpenSea

As we discussed, “collectibles” has proven to be the most popular category, but the above distribution illustrates the diversity of NFTs and the various products offered by OpenSea. According to the company’s website, there are more than 1 million collections on the platform, and more than 34 million personal NFTs are available for purchase. It is worth noting that even this number may be out of date, as it appeared in the statement that OpenSea processed $4 billion in transaction volume, and it is conceivable that the current number has increased.

According to Mason Nystrom, an analyst at the cryptocurrency data platform Messari, this inclusive approach has proven to be a key competitive advantage, especially for rival Rarible (we will discuss this in more detail later in this article):

OpenSea aggregates and provides a wide range of different assets. Therefore, although Rarible received early trading volume due to its liquidity mining at the time of launch, Rarible did not aggregate other non-Rarible assets (i.e. Punks, Axies, artworks). As a result, OpenSea has become the market/liquidity of choice for many of these early assets. OpenSea also provides a powerful indexer through royalties from other platforms, as well as an excellent interface (UI) for filtering assets, validating contracts, and creating NFTs for users.

Maria Shen, a partner at Electric Capital, highlighted a key part of the liquidity of the OpenSea platform, which has a large number of NFTs available for immediate purchase.

It is important to capture the immediate purchase mechanism, because the more immediate purchase NFTs you have, the higher the market liquidity, and Opensea has the most immediate purchases.

By embracing various forms of assets, OpenSea has made itself the default choice for the NFT ecosystem, and it may be difficult for competitors to get rid of this perception and position.

However, the scope of the platform comes at a price-in order to obtain a wide range of choices, powerful search and filtering are necessary.

Powerful filtering function

NFT projects vary greatly in their overall form and the details that contribute to their value. Features that are critical to one project may not be relevant to another project. OpenSea excels at capturing, cataloging, and allowing users to search for this information.

For a better understanding, let’s take a look at two popular PFP series: CryptoPunks and Bored Ape Yacht Club.

This is what CryptoPunks look like-they are pixelated faces with different skin tones, hairstyles and accessories. Although most of them are humans, there are also some zombies, apes and alien punks.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

CryptoPunks on OpenSea

These distinctions are important because they can directly indicate rarity. Punks with common characteristics (such as earrings) may be less expensive than rare alien punks equipped with hats, sunglasses, and pipes. In fact, CryptoPunk #7804 with these characteristics was finally sold at the current price of 4200 ETH (15.1 million US dollars).

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

For potential CryptoPunk buyers, being able to filter through these qualities is very important, but for people who want to get one of the Bored Ape Yacht Clubs, they are useless.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

The Boring Ape on OpenSea

For ape connoisseurs, the salient aspects include the color of the fur, whether the ape is eating pizza, and glowing eyes. One of the most expensive items BAYC sells on OpenSea is #3749, an ape with golden fur, captain’s hat and red laser eyes. It is priced at 740 ETH, which is 2.7 million US dollars at the current price. (Interestingly, it was purchased from the official account of the blockchain game The Sandbox we discussed earlier.)

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

OpenSea provides users with tools to filter and search items through the most important descriptions.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

OpenSea

This may seem simple, but it makes a big difference for buyers. Richard Chen clarified this position:

People underestimate the importance of search and discovery for NFTs. Each NFT project (such as Meebits, Lost Poets) needs to customize search filters by attributes, and these filters must be manually added by OpenSea on a project-by-project basis. This creates a huge user experience moat for OpenSea, which is difficult for other platforms to replicate. For example, on Rarible, I can’t even filter the skulls wearing headphones on Meebits. Therefore, it does not make sense to make NFT shopping on one platform and then check out on another platform. By having an excellent NFT shopping experience on OpenSea, users can stay on the platform and use OpenSea’s smart contracts for actual NFT transactions.

By treating each item as fundamentally unique, OpenSea builds a platform that truly caters to the buyer, simplifies the browsing experience, and enables it to capture purchase needs.

All in all, OpenSea looks like an unusually crafty product, and it positions itself perfectly to capture the craze of last year. With a permissionless creation method, a large number of assets on the platform, and a powerful filtering system, it looks like a company surrounded by a moat.

OpenSea valuation

Before we discuss OpenSea’s competitors, we must first flesh out our understanding of OpenSea’s valuation. In some ways, this is futile because it is a (fast) moving value that can make today’s analysis look stupid tomorrow.

We have seen this in risky markets, thanks to Andreessen Horowitz (a16z). In late July this year, the company led OpenSea’s $100 million Series B financing with a valuation of $1.5 billion. At that time, OpenSea handled less than US$1 billion in transactions throughout the year, with an average monthly fee of US$8.5 million.

In the two months after a16z announced its investment, OpenSea’s GMV has increased more than six times to 6.4 billion U.S. dollars, and expenses have also increased simultaneously. Between August and September, Finzer and the company charged an average of $220 million in monthly fees.

This now seems to be a ridiculous steal. In the two months after a16z announced its investment, OpenSea’s GMV has increased more than six times to 6.4 billion U.S. dollars, and expenses have also increased simultaneously. In August and September, Finzer and the company charged an average of $220 million in monthly fees.

So, what should be the valuation of OpenSea today?

Considering that OpenSea itself is an alliance, direct comparison is very tricky. But we can understand the situation by looking at a small number of markets, cryptocurrency exchanges and gambling platforms. Although no one is independent and perfect-the cost of physical goods traded in traditional markets is completely different, but exchanges may rely on different revenue streams, such as “order flow payment.”

The chart below shows the valuations of companies-whether publicly or in the previous round, divided by their “revenue run rate.” This is calculated by extending public data for the past three months.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

Dune and company data

One of these things is different from the other.

OpenSea has clearly exceeded its last valuation. If it is given the same 13 times as Etsy, its valuation will exceed 24 billion U.S. dollars. Of course, its growth rate is much faster, and the cost structure is much lower, because Etsy has 1,400 employees, while OpenSea has only 45.

(On the contrary, OpenSea’s revenue is not so reliable. If we see a full-scale cryptocurrency winter, it may fall by 90% or more.)

Revenue per employee is as high as 41 million U.S. dollars; Ebay’s revenue is around 800,000 U.S. dollars.

If OpenSea is raising a new round of funding, every growth investor is definitely knocking on their door. Only three months after the announcement of Series B financing, the company’s value seems more likely to exceed 10 times.

Competition: optimistic about the throne

Now, OpenSea’s lead seems almost impeccable. Although its products and choices make it defensive, it operates in an early, highly active market. This leaves room for various competitors, including centralized NFT markets, decentralized markets, vertical markets, and cryptocurrency exchanges.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

Centralized market

It can be said that the competition among other centralized NFT exchanges is the weakest, at least for now. Competitors include Nifty Gateway (now owned by Gemini), Foundation, MakersPlace and Zora. In some cases, these platforms differ from OpenSea in terms of choice and aesthetics. For example, Foundation is a beautiful minimalist platform that attracts more design-sensitive creators-but there is still overlap. Both Foundation and Zora were established in 2020, and many people are also on the newer side.

Can these platforms coexist with OpenSea for a long time? Considering the hidden network effects in this business, it is difficult to imagine that OpenSea will be replaced, but the growth of the NFT market should mean that there is enough room for other destinations to thrive. This is especially true if they can build a supply on certain categories and specialized feature sets.

The success of OpenSea may also encourage capital to flow into the field because investors recognize the size of the bonus. This may give rising stars the firepower to compete for share, especially the many new buyers who may flood the ecosystem in the next few years.

A more fundamental threat may come from decentralized participants.

Decentralized market

In the previous article “Sushi and the Founding Murder”, we outlined two basic laws of cryptocurrency:

  • The law of fluid power. The operation of cryptocurrency runs counter to the existing power structure and believes that the traditional hierarchical system is improper and illegal. This may be related to long-term survival institutions, such as traditional financial systems or new companies like Coinbase. In both cases, power is believed to have been seized by an entity trying to codify and strengthen its control. Cryptocurrency hopes that power will flow completely, accumulating according to the value of contributors to the community.
  • The law of liquid wealth. Similarly, the crypto world is skeptical of rent-seeking entities. Organizations that do not provide continuous value and effort, make money under the same rules as other participants, are generally considered to be a compromise. Cryptocurrency hopes that wealth is liquid and rewards continuous value creation. Fundamentally speaking, encryption believes that users are an important part of value creation, not consumers of value creation.

Currently, OpenSea is a fully centralized entity that can fully control its platform. It charges 2.5% of the fees received by the company. (In addition to this fee, users must also pay for “gas” fees, which are essentially network transaction fees.) In other words, power and wealth are not liquid.

In the past year, there have been some decentralized participants, among which Rarible is the most mature. This is also an interesting case, because the project started as a centralized entity, and before it was announced as a DAO, it raised $16 million in venture capital. As part of the transition, Rarible issued a token in the summer of 2020. RARI can be earned by using the project’s platform, and governance rights can also be granted.

After that release, Rarible briefly became the number one NFT platform in terms of transaction volume, because wash transactions (the practice of buying and selling assets to increase transaction volume and pricing) pushed up RARI’s exchange rate. But this did not last long, and OpenSea eventually won back the users, as Chen described:

“Rarible launched tokens for the purpose of launching tokens. They did not think deeply about the economics of tokens. Therefore, they greatly encouraged people who farmed tokens to carry out wash transactions. In the months of last summer, Rarible’s transaction volume Exceeds OpenSea. Once the inorganic demand dries up, people will know very well that OpenSea is a better product.”

Although Rarible’s method is not an absolute success, it is not a failure either. Its RARI token has a fully diluted market value of $430 million, and in terms of quantity, it is OpenSea’s closest competitor, which is not bad for a project that has been established less than two years ago.

But more importantly, Rarible outlines a potential attack vector for future decentralized participants. As mentioned in Sushi’s article, the community’s “Shoyu” project is one such example, although it is still not online. Holders will hope that the vitality of the broader Sushi ecosystem can drive transaction volumes. However, according to a source, only one engineer was responsible for the construction of Shoyu. For one person, beating OpenSea is a considerable task.

Artion is another notable attempt. Artion was founded by Andre Cronje, the founder of Year Finance, to address common complaints against OpenSea. It does not charge platform fees and is built on the Fantom network instead of Ethereum. This decision makes transactions faster and reduces gas fees.

Artion is the logical conclusion of the cryptocurrency maxim of a16z partner Chris Dixon, “Your acceptance rate is my opportunity.” By taking a 0% fee, Artion provides a strong incentive to use its platform. In turn, it has open sourced its code so that others can easily fork and build on it.

When Cronje was asked why he would build a project with no profit potential, Cronje replied, “I like arson.”

Is the fee reduction enough to compete with OpenSea? There are different opinions. Chen said that OpenSea products are difficult to replicate:

“OpenSea is difficult to be forked and’vampire attacks’. This is because 99% of the engineering work is done off-chain (such as search and discovery, infrastructure), so it cannot be forked.”

However, Messari researcher Nystrom has a slightly different point of view. He emphasized the advantages of decentralized platforms:

“License-free agreements… will be more composable, community-driven, resist harmful regulation, attract better talents, and be profitable. In the long run, these qualities are what most decentralized agreements will win Over-centralized competitors. ”

In the end, Nystrom also explained how OpenSea can still thrive in the presence of powerful decentralized opponents:

“I think both centralized and decentralized markets have a place, just like Coinbase and Uniswap have succeeded. OpenSea will continue to exist and will provide excellent entry, UI and useful features.”

Vertical market

Although not a direct competitor, OpenSea may see vertical platforms take away its trading volume. To some extent, this is already happening, and several of the largest NFT projects facilitate transactions on their own exchanges.

For example, if you want to buy an Axie, you won’t start by visiting OpenSea. Instead, you can go to Axie’s “internal market.” There, you will find an interface tailored to the product, with perfect filtering and search functions. In addition, there is a wallet and transaction tracker for a specific project.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

Axie Infinity

LarvalLabs (the creators of CryptoPunks, NBA Top Shot, and Sorare) have similar dynamics, all of which handle meaningful transaction volumes on their own platform.

In the end, although OpenSea has done an excellent job of adapting to different NFTs, it will be difficult for projects that have invested a lot of resources to build a dedicated platform to keep up. Finzer’s company will hope that it will grow stronger, win through choice, and continue to serve publishers who are unable or unwilling to create customized solutions.

Cryptocurrency exchange

In an article on The Everything Exchange, one of the FTX trilogy, we outlined how Sam Bankman-Fried’s business positions itself as a venue for various ways of buying and selling. This includes NFTs.

They are not the only traditional cryptocurrency exchanges interested in this area. As we mentioned before, Gemini acquired Nifty Gateway to provide it with a foothold, while Binance operates its own sub-platform.

Will OpenSea worry about these? For now, no. However, there are reasons to show that an NFT market attached to a cryptocurrency exchange makes sense. As NFTs become more valuable, some of which are worth millions, their financial utility also increases. They not only need to be kept safely, but can also be used as collateral. For example, FTX can consider your ownership of the $3 million Fidenza, rather than just calculating the margin based on the tokens in your account.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

“Fidenzas” by Tyler Hobbs

Of course, this is not a threat, but can be seen as an opportunity for OpenSea. Cooperation with major exchanges may be mutually beneficial, NFT holders can obtain higher leverage, and token traders can obtain a way to purchase collectibles without having to transfer funds between wallets.

OpenSea gives the impression that the company has never overly worried about competitors. Although it can expect more opponents to join the battle in the next few years, if it continues to execute, there should be room for development. The bigger concerns may come from elsewhere.

Risk: too slow, too fast

Despite its size, OpenSea is still a start-up company with only a few dozen employees, and its track record is only a few years. Although it performs well and takes advantage of the exciting market expansion of cryptocurrencies, it also has vulnerabilities. Some may be within its control, many are not.

In particular, OpenSea will need to ensure that it responds to customer feedback to improve the platform, take steps to reduce regulatory risks, and be prepared for adverse market conditions.

Respond to customer feedback

Despite being the default place in the cryptocurrency world, OpenSea sometimes gives the impression that it is an unpopular platform. Users complained about the company’s fees, the high gas fees generated by using the Ethereum blockchain, and the lack of decentralized features like tokens.

It is commendable that OpenSea operates a customer portal where users can make suggestions for improvements and vote on previously submitted content. The list is long:

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

OpenSea

One of the most common requirements is that OpenSea adds support for other blockchains, including Cardano , Tezos, Solana and others. Currently, the company supports Ethereum and Polygon, although they are used less, the gas cost of the latter is indeed lower.

Support for Solana should be an important item on the list. The project has exploded in the past year (it is well explained in Solana Summer of Not Boring), and it seems that there is room for operation. Its low fees and fast transaction processing may make it very suitable for NFTs, with a series of chain-specific apes, cats and chihuahuas, as well as the market Solarart as an aggregator.

A project called The Degenerate Ape Academy has processed more than 950,000 Solanas on Solanart, which is equivalent to US$149 million at current prices. On OpenSea, it seems that only Degenerate Apes worth about 1.9 ETH has been traded.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

Degen Apes on Solanart

In our discussion, when asked what he thinks his strengths are, Finzer replied: “I try not to be conceited about things and see the essence of things.”

This seems to be true. As mentioned earlier, the CEO of OpenSea often mentions the shortcomings of the platform and is determined to correct these shortcomings. He wants to make sure that OpenSea will not miss future breakthrough projects like Degen Apes. The challenge will be to add more features, more networks, while maintaining the performance of the core product.

Supervision

Is NFT a security?

If the US regulator makes a positive decision, OpenSea’s business will undoubtedly be affected. Securities and the market for selling securities must comply with the rules of the US Securities and Exchange Commission. This burden will require OpenSea to do a lot of work and fundamentally change the NFT purchase process.

So far, regulators have hardly stated how they view NFTs and whether they meet the four requirements of the “Howey Test”, which determines whether an asset is a security. To meet the standard, the following conditions must be met:

  • Invested money (or equivalent)
  • It was invested in a “joint enterprise”
  • This investment comes with “reasonable profit expectations”
  • This kind of profit comes from the efforts of others

Legal scholars are best able to determine whether the NFT meets the standards, but even outsiders will agree that the investment is money equivalent, and the value is usually expected to increase. These potential profits do seem to depend on the work of others. As for whether the NFT project represents a “common enterprise” is a completely tricky question.

OpenSea should take advantage of this uncertain period to proactively work with regulators to help define appropriate boundaries and ensure that their platform is in a leading position in terms of compliance. If they can manage this well, regulation may prove to be not a susceptible issue, but a source of defense against smaller, less stringent participants. Nystrom from Messari mentioned this, adding that this may limit OpenSea’s options:

“With the development of NFTs, OpenSea may eventually rely on establishing a regulatory moat (similar to Coinbase) instead of providing riskier assets.”

Gina Moon, the company’s general counsel, may be particularly important here. Before joining OpenSea, she worked on Facebook’s supervision team. Finzer needs to make sure she has enough space and support to take a proactive position.

Market collapse

Although we believe in the creative and social power of NFTs, this field is indeed a fanatical phenomenon. Fraud, laundering and speculation are rampant, and prices are not always rational.

In the short term, this situation may lead to bad buyers, which in turn reduces OpenSea’s transaction volume. In all possibilities, this will be driven by a broader shift away from cryptocurrencies.

The current bull market certainly cannot last forever. Investors have moved from the edge of more fantasy in this world to mature projects. This may actually have a positive impact on blue chip NFT projects. Cryptocurrency investors may regard CryptoPunk or Fidenza as a fairly secure storage of value. But at least, smaller projects, and many projects that support them, the “returns” on paper may be erased.

How will OpenSea respond to this recession?

Like several other fast-growing startups, OpenSea actually feels that it can withstand the test of such events. As we mentioned, the company has operated as a lean, low-burning team for most of its time and thrived by staying focused. Assuming it will not suddenly develop a profligate hobby, it should have enough funds to survive the winter. It can effectively use this time to pick out interesting vertical players and prepare for the next cryptocurrency roller coaster.

Prospects: What is the next step for OpenSea and NFT?

What will NFT become?

This is a problem that can make visionaries crazy. At present, this form already includes painting art, music, fashion, games, fields, and countless other overlaps and overlaps between these forms. Equally important, the situation changes every day as new projects continue to emerge on established boundaries.

Loot, released by Vine founder Dom Hofmann at the end of August this year, is an example of how new trends can capture people’s imagination. As we have noticed, most of the craze in NFT is dominated by avatars. Loot is moving in another direction, discarding images and adopting a black and white list of items. The idea is that developers can build content on the basis of Loot and provide digital itineraries with different places to express and show their ownership.

In-depth analysis of OpenSea's NFT revolution: origin, products, risks and development prospects

Lootswag

Chen said that music NFT may be worth paying attention to:

“Unexpectedly, audio NFTs have not yet taken off. An important reason is that most of the NFT metadata now only serves pictures or videos. OpenSea is working hard to support the rendering of important metadata for audio files, which will benefit projects like Catalog. The project is building a platform for the planned 1-of-1 NFT music.”

Looking further ahead, smart NFT may represent another frontier field. Nystom outlined this opportunity:

“We can look forward to the evolution of NFT, from static to dynamic, that is, intelligent NFT, including artificial intelligence (AI) integration and other cool features that evolve based on the use of NFT.”

This is exciting stuff, the only real boundary is law and technology. At some point in the future, we may buy virtual characters with real personalities and whose thoughts will change and adapt.

If NFT is now expected to reach tens of billions of transactions, how should a mature market respond?

The challenge for OpenSea is how to successfully catalog these increasingly complex and dizzying objects. The opportunity now is to seize the growing sales as much as possible.

Doing so may require new products and features. In the past few weeks, OpenSea has launched a mobile application. Although it does not allow buying and selling, this is the first step towards a true multi-platform product that can further popularize NFTs.

If we want to understand other possible development directions for the company, it might be a good idea to revisit Coinbase’s roadmap. In many ways, this seems to be the closest analogue of OpenSea, a centralized cryptocurrency exchange that serves as a natural access to the ecosystem and is keen to follow the rules.

In other words, we should expect OpenSea to provide an institution-friendly product, which is different from Coinbase Pro. This can handle hosting, expensive purchases and provide white glove services.

If it is feasible in supervision, partial ownership of NFTs will represent a huge unlock for the industry. As far as the current situation is concerned, many people are excluded just because of pricing. For example, the current base price of Bored Ape is 38.7 ETH, which is approximately $140,000. This is beyond the reach of everyone except the rich.

At the same time, holders of these NFTs have little choice in locking in revenue. If you are lucky enough to buy CryptoPunk for $10,000 and see its value increase to $1 million, should you sell it? What if a similar work sells for $10 million next week?

Now, whether it is buying or selling, either buy all or not sell. Segmentation will allow newcomers to buy their favorite assets for less money. For example, by buying “stocks” of CryptoPunk, the holders can make some profits while preserving the upside space.

For OpenSea, it doesn’t matter whether this will be possible anytime soon. Because this is a market that seems to have just begun.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/in-depth-analysis-of-openseas-nft-revolution-origin-products-risks-and-development-prospects/
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