eBay for NFTs
In prior posts, I have written about some of the most important battles happening in Crypto and web3. Will a new token challenge Bitcoin as the store of value token? Not likely any time soon. Is Ethereum going to remain the top programmable blockchain? This is a little harder to say. I lean towards yes, but they will grapple with formidable alternatives for years to come. Can MetaMask build on its early success and fend off the many wallet competitors? This is going to be a tough position to maintain.
Today I want to talk about the next big battleground in web3 — who will be the eBay for NFTs? As I have written before, digital assets are going to be a big part of virtually every industry. We will see lasting changes in entertainment, gaming, art, sports, and more from the introductions of NFTs. The company that leads the secondary trading of these assets will own a nice chunk of the economics and will build a company with tens of billions of market cap.
The early leader is OpenSea. The platform has seen explosive growth with over $23 Bn in transactions since launch. This was an overnight success five years in the making. OpenSea launched in 2017 and muddled along with limited transactions for years. When the NFT market started to bloom, they raised a $23MM Series A in March 2021. At that time, monthly sales were running about $100MM. After a few months in that range, the company announced their $100MM Series B raise. At that point, everything changed. The NFT game Axie Infinity caught fire, PFP projects mooned, and volumes went parabolic for OpenSea. July saw $350MM in trades, and August 2021 went 10X to $3.5Bn. Since then, transaction volume has averaged about $3Bn per month. The company announced a $300MM Series C in January 2022 at a reported $13.3Bn valuation.
OpenSea charges a 2.5% fee for every transaction on its platform, much less than the 12–15% fee charged by eBay for physical goods. Still, this puts OpenSea on a $75MM per month net revenue level, which is astonishing growth in such a short period of time since last summer. OpenSea’s $3Bn per month volume puts it currently in line with the transactions on eBay, which was founded in 1995 and serves a huge range of categories.
OpenSea currently has a near monopoly on trading of Ethereum NFTs, with well over 90% of the transaction volume. There are a few platforms focused more on digital art that have seen some success in that niche. Nifty Gateway, Rarible, and SuperRare are doing well with art NFTs. As of now, none of these are real threats to OpenSea’s Ethereum dominance.
OpenSea’s success to date has been accomplished with a frankly terrible onboarding process. Users still need a Crypto wallet to buy something on OpenSea. They don’t allow purchases in fiat currency with a credit card yet. When they solve this problem, it should spark another big burst in trading volume. Another big opportunity for growth at OpenSea is expanding beyond the Ethereum blockchain, the only major one currently on the platform. There is a large and growing market for Solana and Flow NFTs, and OpenSea doesn’t support either yet.
A major player to watch in the race to be the eBay of NFTs is going to be Coinbase. The company has 89 million verified users for its core Crypto exchange product, and they started offering a Crypto wallet in the last few months. Coinbase has announced their own NFT trading platform, which is currently in an early access waitlist stage. Coinbase has said they will be starting with Ethereum NFTs, but they have talked about expanding quickly to other chains. In addition, Coinbase announced a partnership with Mastercard and have said they intend to accept credit cards for NFT purchases denominated in USD. Things could get a bit awkward between OpenSea and Coinbase as this competition heats up, as Coinbase invested in the Seed round from OpenSea back in 2018.
As discussed above, we have seen good activity in the past few months with NFTs on the Solana blockchain. Magic Eden is the leader in this space, with 77% of the Solana NFT trading volume. Magic Eden is doing about $500MM in monthly transaction volume currently, up from basically zero in August 2021. The company charges a slightly lower 2% trading fee, so they are seeing around $10MM in monthly revenue right now. There are a few other NFT marketplaces tackling Solana NFTs such as Solanart and Solsea. This is a space worth watching as Solana continues to expand its use cases in gaming and entertainment due to its low transaction costs relative to Ethereum.
Right now, there is no open marketplace for secondary trading of Flow NFTs like NBA Top Shot or NFL All Day. These are only traded on their own websites today. Transaction volume for NBA Top Shot is significant, as that product has been around more than a year. NFL All Day just opened their secondary up last week and has already seen good interest from users. Dapper Labs has attracted other exciting projects to the Flow ecosystem, in the future we might see a full marketplace for these NFTs as well.
While these are the current serious players in the NFT game, we could certainly see new entrants. Back in May 2021, eBay announced it would support NFTs on its platform. So far, market participants have largely ignored eBay, but it’s possible they will figure out a competitive product. We could certainly see some of the bigger tech giants make a move to launch their own NFT marketplaces. Apple or Google could launch Crypto wallets and then extend their offering into these areas. Ditto for Amazon. Rakuten announced their own NFT marketplace recently. For sure, other Crypto exchanges will get into the NFT game eventually. Binance has a marketplace now, and FTX has plans for blockchain gaming that could bring them to this fight. There are little barriers to entry to starting a NFT exchange, but major barriers to attracting buyers and sellers to get the flywheel spinning.
For now, OpenSea has a fantastic market position as the leading NFT exchange, but fierce competition is coming. The results will move billions in business valuations. Keep an eye on this space.
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