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NFT Market size
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In the winter of ’18, the crypto market was close to collapse, with even blue-chip stocks like BTC and ETH down 90% from their all-time highs, and projects that once had grand visions were shutting down one after another. As other crypto projects gave up, OpenSea went live in February 2018, continuing to pursue its vision of becoming the “eBay of the crypto industry”. This persistence eventually paid off, as OpenSea became the most popular NFT marketplace, with a recent valuation of $13.3 billion.
Let’s look at the numbers. The table below compares the different NFT marketplaces based on the number of users, trading volume and ETH transactions in the last 30 days. These statistics come from DappRadar, which tracks various metrics of Ethernet applications by querying data on the Etherchain.
From the above, it is clear that OpenSea is already riding high, or should I say riding high (get it?). Get it?) [translation: the original may have been intended as a metaphor for the huge competitive advantage of water droplets over sand and dust]. In the last 30 days, it has facilitated about $4.5 billion worth of transactions (or 1.5 million ETH), far more than any of its competitors. Taken together, eBay has made about $6.6 billion worth of transactions per month in the last quarter.
The success of a project cannot be attributed to just a few factors; it requires a great product, a quality team, the right opportunity, and luck. It seems OpenSea has all of these, but we can still try to assess what exactly they did right to get to where they are now, and Opensea made those right choices.
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About Opensea
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OpenSea is a game-changing decentralized marketplace for buying and selling NFTs. If you’re wondering, NFTs stands for Non-Fungible Tokens, which are unique, collectible digital things like in-game assets, avatars, trading cards, and art.
In August 2021 alone, OpenSea recorded well over $3.5 billion in NFT trading volume. Considering it posted just $21 million in volume during all of 2020, it’s safe to say the 12,000% trading activity rise firmly signals success.
Investors like Mark Cuban, Kevin Durant, Ashton Kutcher, and crypto powerhouse a16z have helped push OpenSea’s valuation to over $1 billion, giving the young NFT platform unicorn status seemingly overnight.
NFT collectors, artists, investors, and traders all rate OpenSea highly, but if you’re new to the platform, it’s pretty confusing. This beginner’s guide to OpenSea gives you an easy explanation of NFTs, what OpenSea is + how to use it, along with some of the best NFTs in the marketplace.
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Quickly establish supply and demand
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As Lenny Rachitsky (former product manager at Airbnb) discusses in his newsletter, one of the biggest challenges in launching a marketplace can be described as the “chicken and egg problem. How do you convince suppliers to list their products when there are no users on the platform, and how do you get the attention of buyers if there are no products?
Most traditional marketplaces succeed by first establishing a supply channel, and so it is with OpenSea. As The Generalist reports, they do their best to build initial supply, which is perfectly summarized by Richard Chen (Partner at crypto investment firm 1confirmation) in the following quote.
“Devin and Alex (co-founders of OpenSea) did a great job of discovering new NFT projects in Discords and beating out Rare Bits (OpenSea’s strong competitor at the time) to successfully get these projects up and trading on OpenSea instead of Rare Bits . At the time of our investment in April 2018, OpenSea was trading at about 4x the volume of Rare Bits.” – Richard Chen
These efforts led to early OpenSea partnerships with several projects/artists, including supporting Axies (arguably the most popular Ether-based game), using its native token MANA to purchase Decentraland (an Ether-based virtual game similar to Minecraft), partnering with Major League Baseball to sell MLB digital collectibles, partnered with Deadpool Officials to sell digital collectibles, partnered with German soccer club Bayern Munich to list player cards NFT, and supported trading of ENS domains. This exhaustive list demonstrates the team’s passion for building stable supply partnerships with as many projects as possible, and its vision to cater to NFT in a wide range of categories such as gaming, art, sports, entertainment, and domain names.
OpenSea’s full speed ahead is fueled by the platform’s user-centric features that make it easy for vendors to get up and running with OpenSea. the NFT listing is license-free and does not require any approvals or complex approval processes. In addition, OpenSea creates a way to shift the cost of casting new NFTs on Ether from the seller to the buyer. Both of these features significantly lower the barrier to entry for budding artists/projects and greatly enhance the NFT inventory on the platform.
Once a steady supply is established, the traditional marketplace begins to focus on building demand, which is a bit easier for OpenSea, which defines itself as an NFT platform and gains early partners, and a steady stream of new projects begin to shelve NFTs on OpenSea, while bringing customers to OpenSea. Because OpenSea supports royalties on every sale of NFT, the projects themselves are incentivized and therefore encouraged to use OpenSea by their customers. in addition, the NFT mania that started in the summer of 2021 has driven the growth in demand for OpenSea. Once the crypto world embraces this non-DeFi use case for the blockchain and sets new transaction records on Ether, guess who will be there to facilitate this and make a fortune?
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Maximize user experience
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As Sarah Tavel discusses in her blog post, marketplaces should not just focus on increasing supply, but also on implementing product features to maximize the user experience. Just like Uber through credit card senseless payments, Airbnb has made it easier for hosts to gain access to customers by creating a premium host program that rewards hosts who meet requirements with a special display badge. openSea has excelled in this area as well.
One of their major achievements is the implementation of a powerful filtering and sorting feature to easily discover NFTs. it may seem trivial, but it’s not. Each NFT collection has different characteristics and rarity, and OpenSea allows “custom” filtering and sorting to change based on the collection being viewed so that users can refine their search based on that particular collection.
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Different filters for different collections
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They have taken specific steps to address the biggest problem plaguing NFT enthusiasts and Ether users in general – namely, the prohibitively high Gas fee, which is a fee charged per transaction on the Ether network and paid to the individuals running the network, aka miners. However, because demand for Ether is ridiculously high and the current capacity of the network is still quite low, the fee for each NFT transaction reaches anywhere from tens to hundreds of dollars (depending on network congestion). While OpenSea has no control over the Gas fees at the bottom of the Ethernet network, they have implemented several features that reduce these costs, at least to some extent.
They enable off-chain auctions so that the Gas fee is used only once during the final sale, allow off-chain auction prices to be lowered so that price changes do not require a Gas fee each time, and introduce “lazy one-click casting” so that artists can cast NFTs for free and the Gas fee is borne by the buyer. OpenSea is integrated with Polygon, a sidechain of Ether, which has lower interaction costs.
Opensea also maintains a focus on the financial side of the product, and OpenSea also allows the purchase of NFT using cryptocurrencies other than ETH, especially stablecoins such as Dai and USDC. This is especially useful because buying with ETH can trigger tax events in many countries, and using stablecoins is an easy way to avoid this.
Make the right choice
A good product is only one of the key elements of success, but not the only one. Every project faces a myriad of choices during its lifecycle, and the choices they make determine whether they ride the waves or capsize and sink. openSea has made many good choices on their journey to the top.
First and foremost is their belief in their mission. According to The Generalist, their strong belief is in something called ERC-721. This is a standard built by core Ether developers to specify the creation and transfer of NFTs on Ether. the creation of this standard means that the field is important enough to get the attention of Ether developers and that all future NFT projects will adhere to the standard. As a result, they have created a marketplace on top of the ERC-721 standard that can then support all future NFTs. by doing so, OpenSea provides a more convenient experience for buyers by aggregating NFT supply. Previously, each project had to create its own marketplace, for example, CryptoPunks and Axies had (and still do) their own NFT trading marketplace.
This belief in NFT is also what allowed them to survive the cryptocurrency winter of 2018. When the cryptocurrency market was down and not many projects were able to survive, OpenSea ran a lean team of seven employees, relying on constant transaction fees to keep the company afloat and continue to plow deeper into the industry.
But recently, they were faced with some tougher choices when a few bugs in the code led to many high-value NFTs being sold at lower prices. They decided to compensate the affected users for their losses. Likewise, in some cases, they froze the stolen NFTs. While they have been criticized by some for this, as it goes against the basic decentralized crypto spirit of the censorship boycott, these steps have certainly helped build trust with users.
If it were you, what would you do after conquering the world, and what would be the next step for OpenSea? You crush every competitor who dares to overthrow you and continue your dominance. This can be done either by being number one in your field by a large margin, or by expanding into other fields or tracks, or both.
OpenSea is already a dominant force in the NFT market. However, they face a real and potent threat from LooksRare, the market’s newest dark horse. This recently launched NFT marketplace has many advantages over OpenSea: it has lower fees than OpenSea and has native tokens, which makes it much more attractive to crypto natives, in addition to sharing all its fees with token holders. As you can see from the previous table, LooksRare has surpassed all other platforms and is approaching OpenSea’s volume and transaction amounts.
So will OpenSea launch its own token? It’s not that simple. As a U.S. company, OpenSea gets along well with U.S. regulators and cannot risk launching a token, which would only incur the wrath of regulators and thus hinder their operations. Therefore, the path forward for OpenSea is to maximize the user experience and potentially expand into other tracks. The following are some potential options.
Extending mobile,OpenSea already has a mobile app, but it is very limited and does not even allow trading NFT. the app requires abstracting the process of creating a wallet, storing a helper (which can be performed for advanced users) and complex Gas fee estimation. Basically, it allows a seamless access to use for crypto novices.
Explore NFT fragmentation, where the original owner of an NFT can split ownership into multiple smaller tokens, which others can then buy to share ownership of the NFT. Most people can’t afford blue-chip NFTs like BYAC and CryptoPunks right now, and such ownership will be in new demand. The original owners could benefit from the increased liquidity and potential “curator” fees from the sale of fragmented NFTs. Win-Win!
Consider partnering with a DeFi agreement (or create your own) to allow the use of NFTs as collateral to borrow money, starting with blue-chip NFTs, of course. This cross-sector collaboration could unlock a whole new user base and demand for OpenSea.
Non-transferable NFTs, Vitalik recently talked about non-transferable NFTs that have potential uses, such as awarding university degrees, land ownership, etc. While there are many considerations yet to be addressed (e.g., if owners want to move to other wallets of their own due to security concerns), OpenSea could lead the community discussion and perhaps even write an ERC standard for it! They could even explore the potential creation of a B2B solution, offering a non-transferable NFT solution for businesses that might want to use it.
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conclusion
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It should be noted that some of the options mentioned above, such as the fragmentation of NFT and its utility as collateral, may expose OpenSea to regulatory scrutiny. So they must proceed with caution. In fact, regulation is a major potential hurdle that OpenSea needs to continue to be careful about, given the general uncertainty surrounding the regulation of all cryptocurrencies. In fact, as the dominant player in the crypto community, they may even consider lobbying for crypto-friendly laws to help the ecosystem move forward.
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