OpenSea: The moat and the future of eBay in the NFT industry after a monthly transaction volume of US$3 billion

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

Google has a 92% market share in the search field, Facebook and its related assets have more than three times the number of active users of the second competitor, and Amazon has 50% of the e-commerce market in the United States (AWS’ share in the cloud computing field is 31 %.)

Investors praised this concentration, and the government argued for it. However, OpenSea is even more concentrated in the NFT field. Since its establishment in 2017, this NFT trading platform has developed into an undisputed leader in this field. Outstanding asset breadth, simple issuance process and powerful screening functions allow Opensea to occupy 97% of the market share in the Ethereum integrated trading platform.

No matter how you look at it, NFT is more than just interest. NFT’s total sales this year has exceeded 13 billion U.S. dollars, most of which occurred in the past two months. If the transaction volume of the previous quarter continues, the annual GMV will reach US$25 billion.

The potential market size not only makes OpenSea ahead of the competition, but also surpasses the traditional web2 trading platform. Etsy’s GMV in the most recent quarter was US$3.04 billion; OpenSea exceeded this figure in August alone. It is estimated that Opensea’s GMV this year will reach 16 billion U.S. dollars and revenue will reach 400 million U.S. dollars.

This explosive growth may make OpenSea look like a risky vendor, the grandest bazaar in a deranged kingdom. This will damage the creativity and wisdom of NFT, and make people misjudge the uniqueness of OpenSea.

This is not a company ruled by YOLO (You Only Live Once) doctrine, it is more guided by patience and conservatism. When the market fluctuates greatly, OpenSea has always maintained lean operations and kept a small team (at first it was 7 people, and now it has only 45 people); when opponents try new features and different business models, OpenSea has always focused on optimizing core products. The result is a subtle and contradictory business-restrained and moderately empowered something radical-a rational revolution.

This article will analyze the origin, team, valuation, moat of OpenSea, and its future direction with NFT.

The following is the content of this article, and it is recommended to read it according to the main points.

01. Origin: short-lived Wificoin

02. Market: Welcome to the Avatar Party

03. Product: imperceptible moat

  • Listing permission
  • Asset breadth
  • Powerful filtering function

04. Leadership and culture: excellent winners

05. Valuation: A16Z completed a steal

06. Competition: Gaze at the Throne

  • Centralized trading platform
  • Decentralized trading platform
  • Vertical trading platform
  • Cryptocurrency exchange

07. Risk: Improving too slowly, rushing too fast

08. Frontier: Where is the next step for OpenSea and NFT?

Origin: short-lived Wificoin

In 2011, Devin Finzer also studied computer at Brown University. On Halloween in his junior year, he and his classmates did the first popular project.

Coursekick is a social course registration system. You can use it to select courses, and you can also watch your friends’ courses. Within a few days, there were 500 users; a few days later, it rose to 1,000. More than a week later, 20% of Brown University students were on the platform.

In an interview with the school newspaper, Finzer described the vision of building a “Pandora of courses (an American streaming music service provider)”.

Although it didn’t bear fruit, CourseKick provided valuable exercise for the two most successful recent founders-one of the co-founders is Dylan Field, CEO of design platform Figma, whose recent valuation is $10 billion. Visiting the abandoned Twitter page of Coursekick and watching the celebration of the pair ten years ago gives a surreal feeling:

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The experience at CourseKick spurred the two men’s fascination with entrepreneurship, although it took Finzer a longer time to find a project that allowed them to fully function. After graduation, he went to Pinterest to work as an engineer on the growth team. Less than two years later, he decided to build his own thing again.

In April 2015, just one month after leaving Pinterest, Finzer launched two new projects: Iris Labs and Claimdog. The former is a set of ophthalmological tools, including a series of eye charts suitable for iPhone.

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Iris Labs

Despite some success-the App is still available today, and Finzer stated on LinkedIn that the kit has received 1.2 million downloads-Claimdog is the real focus.

Finzer explained the clever idea behind Claimdog very well in the company’s Product Hunt post:

“Claimdog allows you to search whether businesses owe you money. There are more than $60 billion in “unclaimed property” or “lost money” in the United States. Our mission is to increase the importance and transparency of this issue. Unclaimed Property refers to money that a company owes to an individual or organization but cannot be returned. For example, suppose you forgot to cash the check-where did the money go? State governments require companies to hand it over to them after a certain period of time in accordance with the law. Cashed checks, dividends, checks sent to old addresses, abandoned bank accounts or PayPal accounts, and inheritance are common sources of unclaimed property. And the numbers are shocking—more than $60 billion in arrears .”

Finzer received and accepted CreditKarma’s tender offer after operating the business for more than a year. After changing hands, Claimdog’s product became the “unclaimed property” of its parent company.

It was during the work of CreditKarma that Finzer entered the fantasy world of cryptocurrency and became more and more fascinated by the blockchain and the new economic system it produced. This is in stark contrast to his stable financial sector, and it coincides with the cryptocurrency bull market at the end of 2017.

By the fall of that year, he decided to establish a business in this field and collaborate with another young software developer, Alex Atallah. As a graduate of Stanford University majoring in computer science, Atallah reproduced Finzer’s experience almost perfectly: He founded Dormlink, a social network for student dormitories, and then served as the CTO of two other startups. Like Finzer, he became obsessed with encryption.

In September of the same year, Finzer and Atallah presented their project at the Techcrunch hackathon: Wificoin. By sharing the access rights of the wifi router, users can get coins, which can be used to buy wifi from other people in the company network. Permissions. In this respect, it is no different from Helium. Helium is a network sharing platform built on the blockchain and received an impressive B round of financing from Google Ventures the previous year.

Although Atallah admitted that the product was “very easily cracked” in the instantiation at the time, they were selected for Y Combinator.

November 28, 2017 is a historic day for the crypto community, although its importance is disguised — like many other innovations — to look like a toy.

Although the beta version debuted at ETH Waterloo a month ago, this date marks the official release of CryptoKitties. These stupid digital cats aroused great interest at the end of the year and the following year, and a collection called “Genesis” went through crazy bidding and finally sold for 247 ETH, which was about 118,000 US dollars at the time. (If you want to know, according to this week’s price, this is $894,000.)

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Encrypted cat

Although some people despise the project (and many continue to do so), others see through the dull eyes of the cats. CryptoKitty is not just a cute picture, but a non-homogeneous token (NFT), which is built on the encryption standard called ERC-721, which supports other NFTs.

Let us quickly ask ourselves three questions:

  1. So, what is NFT? It is a unit of data that cannot be changed. This unit can be anything: a picture, a song, a video, or even a picture of a weird cat.
  2. Why would anyone want to buy? This is a longer conversation, I have written before, but it is usually related to status, scarcity, and belonging. Having an NFT can grant influence, show your personality, or enter certain private groups.
  3. How does ERC-721 work? This is the underlying infrastructure of projects such as CryptoKitties. It is important to know that ERC-721 is also the infrastructure for many projects outside of CryptoKitties. Therefore, if you can build a trading platform based on ERC-721, you can easily support other NFTs.

It was the last point that really attracted Finzer:

” There is a unified standard for digital items that makes us think that there is much to be done in this respect … Everything that appears after CryptoKitties will follow the same standard.”

He and Atallah decided to abandon the work of Wificoin, starting with CryptoKitties to create a “meta universe market”. Given that few NFTs were created at the time, this does not seem to be a particularly exciting proposal. But this pair of partners value the novelty of what they do:

“When you start a project, you are looking for things that have not been done before. Things that have never been done before.”

History is full of parallel moments of invention. For example, Leibniz and Newton’s calculation of calculus, or Darwin and Wallace’s deciphering of evolution, each revelation is independent. Although the dimensions are different, the market potential built on ERC-721 looks like another example of this parallelism.

Finzer and Atallah are not alone. Almost at the same time they made a decision, another team decided to build a solution in this area. In many ways, that team seems to be the better choice.

Rare Bits is composed of four former Zynga (American social gaming company) employees and seems to have the ability to fully explore this new field. After all, NFT will be mainly used by gamers. The industry’s view at the time was that NFTs might appeal to this market segment-providing game developers with a way to sell new skins, special weapons, and other digital goods. Who is more suitable to build a market for this than the team that made Farmville (a Facebook game developed by Zynga, which was the most popular app on Facebook at the time)?

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

OpenSea describes himself as ” eBay encryption commodities” .

The introduction of Rare Bits is ” a zero-fee crypto asset trading platform similar to eBay “.

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Product Hunt

OpenSea defeated Rare Bits with 230 votes by 447 votes that day. But both were overwhelmed by a series of other products including Intel’s new smart glasses, a book on UX job interviews and a set of “indestructible tights.”

After graduating from YC, OpenSea successfully raised US$2 million from a strong lineup including 1confirmation, Founders Fund, Coinbase Ventures and Blockchain Capital. This is excellent, but it is far behind the $6 million Rare Bits obtained a month ago. Participants include Spark, First Round and Craft.

Richard Chen, a partner of 1confirmation, summarized the consensus at the time and explained his betting logic:

“Rare Bits looks like a better team-they are Ex-Zynga, and they have raised a lot more money from traditional venture capital than OpenSea. However, the OpenSea team is more capable and full of fighting spirit. Devin and Alex pass Discords very well. I discovered new NFT projects and worked hard to promote the listing of these projects on OpenSea and most of the transactions, instead of Rare Bits. When we invested in April 2018, OpenSea’s transaction volume was already about 4 times that of Rare Bits .”

Over time, the distance between the two companies seems to only widen. Although Rare Bits prides itself on not charging a commission for the first sale (OpenSea charges 1% in 2018) and refunding any Gas Fee (a commission paid to miners on Ethereum) generated by users.

However, the kindness of Rare Bits seems to be out of sync with the “cryptocurrency winter” in 2018. When Rare Bits burned money to maintain its popularity, OpenSea took another approach, charging fees and operating lean. As of August 2020, the company has only 7 employees.

In order to fight for the transaction volume, 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 unremittingly improves its core transaction link, which is exactly what the industry needs. When asked why OpenSea eventually beat Rare Bits in the long run, Finzer replied:

“(This is due to our) willingness to deepen the field in the long-term, regardless of the short-term growth trajectory. We want to build a decentralized market for NFT. Even if this market is small in 3-4 years, we are happy.”

In 2019, Rare Bits seems to have closed its doors. Today, if you visit the site, it will be redirected to CoinGecko, although no acquisition has been announced.

But for OpenSea, the story has just begun.

Market: Welcome to the Avatar Party

It is difficult to tell how much the NFT market has grown in the past year.

The total sales of NFT in 2020 is 94.8 million U.S. dollars. Then the year-on-year growth is 30,000%. Our brain cannot understand this kind of growth, this kind of sudden gigantism. In the blink of an eye, NFTs have matured from an annoying trivial matter to a behemoth.

This is largely due to the popularity of profile picture NFTs, which are called “pfp” (Profile Picture) projects. Famous representatives of this movement include CryptoPunks , Bored Ape Yacht Club (BAYC), Pudgy Penguins, Meebits, and many other organizations.

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The proliferation of different images has spread among friends and followers on social media, driving further collections, speculation and investment. (The boundaries between these three are often very blurry and indistinguishable from each other.)

Even people in the industry find themselves surprised by this appearance, partly because it represents a deviation from initial expectations. As the story of Rare Bits illustrates, NFT is expected to coincide with the game field. Projects such as Gods Unchained and Decentraland , The Sandbox and Animoca Brands are expected to push the field forward.

Of course, Axie Infinity is not only a blockchain game, but also the largest transaction volume in the NFT project. But on the whole, the avatar still dominates. Five of the top ten projects in historical transaction volume can be reasonably classified as avatar 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 replaced with the 11th project-Sandbox-the share of transaction volume of avatar-type NFTs in these projects will reach 73%. 

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DappRadar

Even Finzer admitted, “We did not predict the rise of Bored Ape Yacht Club or other collections.”

This is a bit surprising in some ways. On the one hand, OpenSea has long recognized the potential of encrypted avatars. At the beginning of 2018, Finzer also brought in his old friend Dylan Field to help him make Ethmoji.

Users can use combinable elements such as eyes, mouth, and accessories to create an avatar.

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Ethmoji

Because of Finzer’s focus on concentration, Ethmoji was ignored. Although it did not receive much attention, it was still online until 2019-a year after it was established-Atallah tweeted that the new avatar is still being created.

OpenSea looks too much tailored for this revolution, but it may be another reason why Finzer did not anticipate this avatar revolution. This has a lot to do with the company’s powerful products visible to the naked eye.

Product: imperceptible moat

From a macro perspective, OpenSea’s product is very simple: it is a trading platform for buying and selling NFTs. But its success is due to other factors that are more difficult to detect. The company’s dominance seems to benefit from the convenience of listing works, the wide range of assets on the platform, and a powerful screening and classification system.

Listing permission

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

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OpenSea

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

” OpenSea’s emphasis on becoming a license-free market for NFT casting, discovery, and trading explains its natural growth in market share. Because of the lower barriers to entry compared to other platforms, long-tail creators can easily join. This method expands creators’ Supply, thus attracting users and liquidity in the primary and secondary markets. If Uniswap is a market for any token, then OpenSea is a 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.

Asset breadth

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

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OpenSea

“Collectibles” is 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. This figure may also be outdated, as it coexists with OpenSea’s statement that it processed a transaction volume of $4 billion; this volume has now become even more.

According to Mason Nystrom, an analyst at the encrypted data platform Messari, this inclusive approach proves 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 types of assets. Although Rarible received early trading volume due to its liquidity mining at the time of launch, Rarible did not aggregate other non-Rarible assets (ie Punks, Axies, Art). Therefore, OpenSea has become the preferred market/liquidity for many of these early assets. OpenSea provides royalties across other platforms, provides a great indexer, interactive pages to filter assets, validated smart contracts, and creates NFTs for users Another way.”

Maria Shen, a partner at Electric Capital, highlighted a key part of the OpenSea platform’s liquidity, which is the large number of NFTs available to “buy now”.

“Capturing the “buy now” mechanism is important because the more “buy now” NFTs the platform has, the more liquid your market will be…Opensea has the most “buy now”.”

By embracing various assets, OpenSea has made itself the default setting of the NFT ecosystem-competitors may find it difficult to escape this perception and position.

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

Powerful filtering function

NFT projects vary greatly in terms of overall form and details that can increase value. Important features that need attention in one project may not be relevant to another project. OpenSea excels at capturing, organizing, and allowing users to search for this information.

To explain what we mean, 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.

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CryptoPunks on OpenSea

These distinctions are important because they can directly indicate rarity. The price of a punk with earrings may be lower than that of a rare alien punk with a hat, sunglasses, and pipe. For example, “CryptoPunk #7804” with scarce attributes was finally sold for 4,200 ETH, which currently corresponds to $15.1 million.

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These characteristics are very important for punk buyers, but they are useless for those who want to buy Bored Apes:

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Bored Apes on OpenSea

For ape connoisseurs, the salient aspects include the color of the fur, whether they are eating pizza, and glowing eyes. One of the most expensive BAYC sold on OpenSea is “#3749”, an ape with golden fur, captain’s hat and red laser eyes. It was sold for 740 ETH, which corresponds to $2.7 million. (Interestingly, it was purchased by the official account of the blockchain game The Sandbox we discussed earlier.)

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OpenSea provides users with tools to filter and search for those important differences.

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OpenSea

This may seem simple, but it has a huge impact on buyers. Richard Chen clarified this position:

” People underestimate the importance of search and discovery to 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 Created a huge defensive user experience moat for OpenSea, which is difficult to replicate on other platforms. For example, on Rarible, I can’t even filter out the skulls wearing headphones in Meebits; therefore, choose NFT on one platform and then on another. Checkout is meaningless. Through an excellent NFT shopping guide experience, 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 buyers, simplifies the browsing experience, and turns browsing into purchases.

All in all, OpenSea looks like a very clever product, it perfectly captures the bubble of last year. With a permissionless creation method, a large number of assets on the platform, and powerful filtering capabilities, it looks like an enterprise surrounded by an imperceptible but important moat.

Leadership and culture: outstanding winners

Devin Finzer will never be complacent because of Opensea’s success.

Although opensea is already one of the most important unicorns in the world and occupies an absolute dominant position in its territory, CEO Devin Finzer speaks mildly and behaves tenderly.

When asked explicitly about the success of OpenSea, he often changes the subject, turning to all the unresolved problems of the exchange and the improvements that need to be made. When asked about the grand vision of the platform and what it might bring in the next few years, he objected and said that the focus is on “working to improve the core trading platform.” His humility is almost pathological. A very good winner.

According to different accounts, he is also very focused. A former employee Chen called him “one of the most dedicated founders in the entire crypto space.”

“He is very stoic, focusing on the company’s most important long-term priorities, and will not be distracted by short-term prices/speculation in the crypto market.”

In the face of fierce competition and market turmoil, OpenSea has maintained an admirable focus.

This was largely helped by co-founder Alex Atallah. Chen described the CTO of OpenSea as a “10 times engineer” who has a special talent for React.js. Atallah is also described as paying close attention to the crypto ecosystem and “living in Discords”, an activity that helps to understand the needs of users keenly. Like Finzer, he is obviously relatively conservative, and both of them are described as “more risk-averse than ordinary founders.” If their leadership has obvious weaknesses, then this is it. Chen also admitted:

“(Finzer and Atallah) are more willing to occupy a favorable position to leverage the macro trends of the NFT market, rather than take new measures to push this space forward.”

The company they built seems to reflect this low-key demeanor overall. In our conversation, Finzer pointed out that he prefers a “flat” management structure. He mentioned a “pod” structure in which small groups unite to handle different projects. The leadership of these subgroups is determined by the participants.

Currently, the company has only 45 employees. This is a lot more than before. There were only 7 employees in August a year ago. If it goes well, it will soon expand, posting 21 job vacancies on Lever.

When the growth is fast, some problems will naturally arise. In September of this year, users analyzed the transaction history of Nate Chastain, the company’s product leader at the time, and found that he had participated in the preemptive transaction. In some cases, Chastain seems to have bought NFTs that he knows will appear on the OpenSea homepage, using the increased exposure to sell them at a higher price.

This strategy runs counter to OpenSea’s policy around “manipulative” trading behavior. Finzer expressed disappointment, Chastain resigned, and OpenSea formulated a policy prohibiting employees from “using confidential information to buy or sell any NFT, regardless of whether it is available on the OpenSea platform.” They are also not allowed to buy distinctive NFTs on the platform.

It is difficult to overly criticize OpenSea for the actions of a single employee. But at least for certain types of competitors, the Chastain incident illustrates the need for OpenSea alternatives. Many players try to challenge the status of OpenSea.

Valuation: A16z completed a steal

Before we understand OpenSea’s competitors, we must first have a sufficient understanding of OpenSea valuation. In some ways, this is futile-OpenSea is a (fast) moving target that can make today’s analysis stupid tomorrow.

We have seen this happening in the venture capital market, thanks to Andreessen Horowitz. 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, and the average monthly processing fee was US$8.5 million.

This now looks like a bizarre steal. In the two months after a16z announced its investment, OpenSea’s GMV has increased by more than six times, reaching 6.4 billion U.S. dollars, and expenses have naturally changed simultaneously. Between August and September, Finzer and the company charged an average of $220 million in monthly fees.

So, should OpenSea be taken seriously today?

Considering that OpenSea itself is on a brand new track, direct comparison is very tricky. But we can get an idea by looking at trading platforms, cryptocurrency exchanges and betting platforms. No single benchmarking target is perfect independently-the physical commodities traded in the traditional market are completely different in cost, and the exchange may rely on different revenue streams, such as “order flow payment”, and NFT and NFL Fantasy football are not. Not exactly the same-but together they make up a useful comparison object.

The chart below shows the valuations of different companies—whether it’s the market value of the secondary market or the previous round of valuations—divided by their “revenue run rate” (a type of forecasting company’s overall performance based on the previous quarter’s performance). Method of annual income). The results calculated using the public data of the past three months are as follows:

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Dune and Company filings

OpenSea looks out of place in the map

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

(On the contrary, OpenSea’s revenue is not very reliable. If we see a complete cryptocurrency winter, its revenue may fall by 90% or more.)

The revenue run rate per employee is as high as 41 million U.S. dollars; eBay’s metric is about 800,000 U.S. dollars.

If OpenSea is raising another round of financing-every growth investor is definitely knocking on the door-only three months after the announcement of the B round of financing, the company’s valuation seems more likely to exceed 10 times. Katie Haun (a16z partner), bow to you.

Competition: Gaze at the Throne

Now, OpenSea’s lead looks almost invulnerable. Although its products and optional supplies make it defensive, it is in an early, highly active market. This leaves room for various competitors, including centralized NFT trading platforms, decentralized trading platforms, vertical trading platforms and cryptocurrency exchanges.

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Centralized trading platform

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 supply choices and aesthetics—for example, Foundation is a minimalist and exquisite platform that attracts more design-sensitive creators—but inevitably, they differ from OpenSea. There is overlap. Foundation and Zora are updated, both established in 2020.

In the long run, can these platforms compete with OpenSea? Given the hidden network effects, it’s hard to imagine OpenSea will be replaced, but the growth of the NFT market should mean that there is enough room for alternative products to flourish, especially if they can obtain supply in certain categories and focus on Provide related functions.

The success of OpenSea is also likely to encourage capital to flow into this area, because investors recognize the scale of returns. This may give upstarts the firepower to compete for market share, especially for the many new buyers that may flood into the ecosystem in the next few years.

The more fundamental threat may come from decentralized players.

Decentralized trading platform

In past articles, we outlined the two basic “laws” of cryptocurrency:

  1. The law of power flow. The operation of cryptocurrency is contrary to the existing power structure, and the traditional hierarchical system is considered to be improper and illegal. You can use an analogy with other long-standing institutions, such as the traditional financial system or a new company like Coinbase. In both cases, power is considered to be seized by a central entity that attempts to codify and strengthen its control. Crypto hopes that power is completely fluid and accumulated according to the value of contributors to the community. In this regard, it is not only about decentralization—perfect power distribution is often undesirable—but also about how to measure contributions in a decentralized structure.
  2. The law of wealth flow. Likewise, the crypto world is skeptical of rent-seeking entities. Organizations that do not provide continuous value and effort, but earn money under the same rules, are often considered to violate this rule. The crypto community hopes that wealth is fluid and rewards continued value creation. Fundamentally speaking, cryptocurrency believes that users are an important part of value creation, not consumers of value.

As far as the current situation is concerned, OpenSea is a fully centralized entity that fully controls its platform. It charges a 2.5% handling fee. (In addition to this fee, users must also pay “gas”, the transaction fee of the Ethereum network.) In other words, power and wealth are not liquid.

Will this have an impact in the NFT field? Of course some people think so.

In the past year, there have been some scattered participants, of 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 $16 million in venture capital. As part of this transformation, Rarible issued a token in the summer of 2020-$RARI can be obtained through the use of the project’s platform, and it also grants the owner the right to govern the platform.

In the context of that issuance, Rarible briefly became the No. 1 NFT platform in terms of transaction volume, because order trading-the practice of buying and selling assets to increase transaction volume and pricing-can drive the $RARI ratio. But this did not last, as Chen described, OpenSea’s excellent platform finally won users.

“Rarible launched tokens for the purpose of launching tokens and did not think deeply about the token economy. Therefore, they strongly encourage people to obtain token swap transactions. In the months of last summer, Rarible’s transaction volume was larger than that of OpenSea. But once this non-spontaneous demand dries up, it will become obvious that OpenSea is a better product.”

Although Rarible’s method was unsuccessful, it did not fail. Its RARI token has a fully diluted market capitalization of $430 million, and it is OpenSea’s closest competitor-not bad for a project that was less than two years old.

But more importantly, Rarible outlines a potential attack method for future decentralized participants.

Artion is another notable attempt. Artion was founded by Andre Cronje, the creator of Year Finance, to address common complaints about 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 rake is my opportunity”. By taking a 0% fee, Artion provides a strong incentive to use its platform. It also open sourced the code so that other projects can easily fork and build based on it.

When asked why he wanted to build a project with no profit potential, Cronje replied: “I like to disrupt the situation.”

Is the cost cut enough to compete with OpenSea? There are different opinions. Chen believes that OpenSea’s products will be difficult to replicate.

“OpenSea is difficult to be forked and attacked by vampires. This is because 99% of its engineering work is performed off-chain (such as search and discovery, infrastructure), so it cannot be forked.”

However, Messari researcher Nystrom emphasized the advantages of decentralized platforms:

“License-free agreements…will be more composable, community-driven, resist harmful regulation, attract better talent, and be profitable. These qualities are why most decentralized agreements Outperform centralized competitors in long-term competition.”

When he also believes that ” centralized and decentralized markets have a place, just like Coinbase and Uniswap are very successful. OpenSea will continue to exist and will provide excellent ways of participation, UI and useful features.”

Vertical trading platform

Although it is not a direct competitor, OpenSea may be absorbed by the vertical platform part of the transaction volume. To some extent, this has already happened, and several of the largest NFT projects are bought and sold on their own trading platforms.

For example, if you want to buy Axie, you won’t start by visiting OpenSea. Instead, you can go to Axie’s “Inside Trading Market”. There, you will find an interface tailored to the product, with perfect filtering and search functions. Project-specific wallets and transaction trackers enhance this user behavior.

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Axie Infinity

LarvaLabs (creator of CryptoPunks), NBA Topshot and Sorare also have similar dynamics-all of which handle large amounts of transactions on their platforms.

In the end, although OpenSea has done a great job in serving different NFTs, it is difficult to continue to follow up on projects that have invested a lot of resources to build a customized platform. Finzer’s company hopes that it can become stronger and stronger, win through choices, and continue to host issuers who are unable or unwilling to create a customized solution.

Cryptocurrency exchange

In the in-depth introduction to FTX, we outlined how Sam Bankman-Fried positions its business as a place for various ways of buying and selling. Including NFT.

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

Can they cause problems for OpenSea? The current answer is no. However, it makes sense to introduce NFT trading platforms to cryptocurrency exchanges. As NFTs become more valuable, some of which are worth millions of dollars, their financial utility also increases. Not only do they need to be kept safe, but they can also be used as collateral. For example, when considering the margin, FTX will take into account your ownership of the $3 million Fidenza (a work generated by a set of algorithms generated by artist Tyler Hobbs), not just based on the tokens in your account.

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Fidenzas by Tyler Hobbs

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

OpenSea gives the impression of never worrying too much about competitors. Although more rivals are expected to join the competition in the next few years, if the market continues to develop, OpenSea should still have room for growth. Greater concerns about it may come from elsewhere.

Risk: Improving too slowly, rushing too fast

Despite its huge scale, OpenSea is still a young startup with few employees. It operates properly and has grasped the exciting market expansion of cryptocurrencies, but it also has weaknesses. Some may be within its control, and many are not.

In particular, OpenSea needs to ensure that it responds to customer feedback to improve the platform, gradually takes action to reduce regulatory risks, and prepares for adverse market conditions.

Respond to customer feedback

Although it is the default place in the crypto world, users sometimes complain about the company’s handling fees, the high gas fees generated by using the Ethereum blockchain, and the lack of decentralized functions such as issuing their own tokens.

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

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OpenSea

One of the most common requests is for OpenSea to add support for other blockchains, including Cardano, Tezos, Solana, etc. For now, the company supports Ethereum and Polygon-although the usage is less, the gas cost of the latter is indeed lower.

Support for Solana should be scheduled with high priority. The project has exploded in the past year and there seems to be room for development. Its low fees and fast transaction processing may make it very suitable for NFT, a series of apes, cats and chihuahuas specific on the chain have appeared, and a trading platform 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.

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Degen Apes on Solanart

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

Supervision

Is NFT a security?

If the US regulators make a positive decision, OpenSea’s business will undoubtedly be affected. Securities and platforms that sell securities must comply with SEC rules, which is a burden that requires 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 aspects of the “Howey Test”. This test is used to determine whether the asset is a security. To meet the standard, the following conditions must be met:

  1. Invested money (or equivalent)
  2. Invest in a common enterprise
  3. This investment comes with “reasonable profit expectations”
  4. 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 money equivalents are used for investment and usually expect the value to increase. These potential profits do seem to depend on the work of others. Whether the NFT project represents a common cause is a more difficult question.

OpenSea should use this period of uncertainty 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, then regulation may not be a potential threat, but a source of defense for OpenSea against smaller, less stringent participants. Nystrom of Messari mentioned this, while adding that it might cut OpenSea’s supply options:

“As NFT grows, OpenSea may eventually rely on building 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 ensure that she is given enough space and support to take a proactive position.

Market collapse

Although we believe in the creativity and social power of NFTs, there is indeed a kind of fanaticism in this field. Fraud, scalping and speculation are rampant, and prices do not always seem to be rational.

In the short term, this situation may lead to buyer dissatisfaction, thereby reducing OpenSea’s transaction volume. This will also likely be driven by a broader trend away from cryptocurrencies, and the current bull market will certainly not last forever-investors are shifting from the fantasy edge of this world to mature projects. This may actually have a positive impact on blue chip NFT projects-crypto investors may regard CryptoPunk or Fidenza as a fairly secure storage of value. But at the very least, smaller projects and their supporters may see the surface of the paper wiped out.

How will OpenSea respond to this downturn?

Like several other fast-growing startups, OpenSea actually feels that it can withstand the test of such events. As we mentioned, the company has been run by a lean, non-money-burning team for most of its life cycle and thrived by staying focused. Assuming that it will not suddenly develop a prodigal addiction, it should have enough treasury to survive the winter. It can use this time effectively by picking interesting vertical market players and prepare for the next crypto roller coaster.

Frontier: Where is the next step for OpenSea and NFT?

What will NFT become?

This is a question that can make visionaries crazy. The forms of NFT include painting art, music, fashion, games, domain names, and countless overlaps between these forms. As new projects continue to emerge on established boundaries, the industry is changing every day.

Loot, released by Vine founder Dom Hofmann in late August this year, is an example of how the new trend captures imagination. Much of the NFT mania is dominated by avatars-Loot tilts in another direction, avoiding images, to provide a black and white list of items. Creators can based on Loot’s idea of ​​creating again, and provide Loot holders with different places to show their ownership.

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Trophy

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

“Surprisingly, audio NFT has not yet taken off. A big reason is because NFT metadata now mainly only provides images or videos. OpenSea is working to support the rendering of important metadata for audio files, which will benefit like Projects like Catalog, these projects are building a platform for creating unique NFT music.”

Looking ahead, “smart” NFTs may represent another frontier field . Nystom summarized this opportunity:

“We can expect NFT to evolve from purely static to dynamic, that is,’smart’ NFT, with AI integration and other cool features that evolve based on the use of NFT.”

If NFT is now expected to reach tens of billions of transactions, what will become of a mature market? 

The challenge OpenSea faces is to classify and arrange such complex and dizzying objects. The opportunity is to capture as much of the growing transaction volume as possible.

Doing so may require new products and features. In the past few weeks, OpenSea 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 NFT.

If we want to understand where the company might go, revisiting Coinbase’s roadmap may be a good choice. In many respects, this seems to be the closest benchmark for OpenSea-a centralized digital currency exchange that serves as a natural entrance to the ecosystem and is keen to abide by 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 providing white glove services.

If feasible at the regulatory level, the segmented ownership of NFTs will represent a huge opportunity 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 US$140,000. This is beyond the reach of everyone but 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’s buying or selling, it’s all or nothing. Fragmentation will allow newcomers to purchase favorite assets with less money—for example, buying “stocks” in CryptoPunk—and holders can take away some bonuses while preserving upside.

Whether this is possible soon is not important to OpenSea. This is a market that seems to have just begun.

Transcendentalist Ralph Waldo Emerson once said: “Great people are always willing to be small.”

Perhaps the same is true for great companies. Remain humble in victory and regard success as the beginning rather than the end-these are the qualities of a new generation of companies. OpenSea seems to have this quality in its bones.

Revolution and temperance rarely go together well, but OpenSea is an exception. We are very happy that with the development of the web3 movement, a key player is not operating in an ego or rhetorical way, but out of reason.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/opensea-the-moat-and-the-future-of-ebay-in-the-nft-industry-after-a-monthly-transaction-volume-of-us3-billion/
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