Author: Jam
Editor: Vincero, YL, CloudY
Reviewer: Natalia
overview
As an emerging digital trading market, the NFT market is experiencing rapid growth and development. NFT is a unique digital asset that can be used to represent digital artworks, avatars, virtual land, and other digital items. The uniqueness of digital assets allows them to be used to prove the ownership and scarcity of digital items, thereby providing a new source of income for digital artists and creators.
Blur surpassed Opensea by combining airdrop incentives, order placement incentives, self-built trading markets and aggregators. Although Opensea was the NFT market with the best liquidity before, Blur's comprehensive strategy has gained more and more attention in the market. Blur's liquidity solution is currently the best, and the combination of its market and aggregator provides users with a wider range of choices. This is very important because in the NFT market, liquidity is often the key, and Blur's liquidity solution has proven to be very reliable.
To prepare for the impact, Opensea reduced its handling fee to 0%, demonstrating its emphasis on competitors. However, this strategy may have a negative impact on Opensea's sustainability. Optional royalties are another strategic plank. This allows Blur to offer more options in the market, thereby attracting more users. Segmented Marketplaces will have fewer opportunities.
Although there are still many opportunities in the NFT market, niche markets such as X2Y2, LooksRare, and Uni V3 (Genie) are no longer likely to have opportunities. This is because these markets are already occupied by large companies and powerful competitors, and new entrants will face huge challenges.
Blur's comprehensive strategy in the NFT market has proven to be very successful. Although the market competition is fierce, Blur's performance in the market is getting better and better, which shows the feasibility and practicality of its strategy.
We will combine the past development trajectory of NFT Marketplace to explore possible paradigms in the future.
Crypto Kitties Market is the original NFT trading platform
Crypto Kitties Market is the earliest NFT trading platform, originally established as an extension of the Crypto Kitties game. Crypto Kitties (the earliest NFT) is an Ethereum-based game where players can buy, breed, and sell digital cats. Each digital cat is unique, and NFT is used to ensure its uniqueness and liquidity.
Its ecosystem consists of the platform, users, digital cats, and a trading market. The platform provides services for creating, buying, breeding, and selling digital cats, as well as displaying, social interaction, and trading markets for digital cats. Users buy, breed, and sell digital cats, and participate in social interactions and event promotions. The breeds, breeding seasons, and competitions of digital cats also add a lot of fun and interactivity to the platform. The trading market provides users with the purchase and sale of digital cats, as well as transaction history records and price trend analysis. Therefore, the original intention of establishing the Crypto Kitties Market was to improve the monetary and asset attributes of digital cats.
The Crypto Kitties Market has developed very rapidly, attracting more and more users and collectors to join, driving the development of the NFT trading market. In addition to Crypto Kitties, the platform has also begun to support other types of digital assets, such as digital artworks, game props, etc.
Although the transaction speed of Crypto Kitties Market is very slow, this is mainly because it is built on Ethereum, which has limited transaction speed and processing power, and provides limited trading varieties. However, Crypto Kitties Market has made an important contribution to the development and promotion of the NFT market. Its emergence has opened up a precedent for the development of the NFT trading market and also provided inspiration for other more advanced and convenient NFT trading platforms.
（Crypto Kitties Market UI）
NFT Summer marks explosive growth and popularity of the NFT market
In the summer of 2021, the NFT market experienced a period of rapid growth and popularity. During this period, NFT trading volume and NFT prices hit all-time highs. Opensea grew rapidly during NFT Summer and became one of the largest NFT trading platforms. During this period, OpenSea's trading volume and number of users increased significantly, and NFT prices on the platform also reached all-time highs.
The total NFT transaction volume in 2021 reached approximately US$20 billion, a record high. This figure has increased by about 10 times compared to 2020. The main platforms in the NFT market include OpenSea, Nifty Gateway, Super Rare, Foundation, etc. During the NFT Summer, some projects were particularly popular, such as CryptoPunks, Bored Ape Yacht Club, Art Blocks, etc.
During the NFT Summer, various PFP (Profile Picture) projects have rapidly emerged, attracting a large number of users and investors. PFP refers to a profile picture presented in digital form, which can be used in social media, games or other online scenarios. However, these PFP projects are not just simple profile pictures, but a symbol of identity and community building, similar to fashion items worn in real life.
As a result, a crazy buying war broke out in the NFT market. Investors and collectors joined in and bought various PFP works at prices of millions of dollars to show their identity and social status. Even if the designs of some works look a bit strange, they can get high prices in the NFT market. Some people even spend thousands of dollars in handling fees to buy their favorite PFP.
However, NFT Summer was not a peaceful summer. As speculation heated up, the prices of some PFP projects began to plummet, investors and collectors sold their works, and market sentiment began to fluctuate. Some PFP projects could not survive due to the lack of sufficient community support. They were like small boats in the ocean, and were eventually submerged by the waves. After NFT Summer, people began to reflect on this crazy digital art craze. Some people believed that it was just a short-term speculation, while others believed that it marked the beginning of a new chapter in the digital art market.
In any case, NFT Summer is a period full of opportunities and risks, which demonstrates the potential and charm of the NFT market.
(Monthly Ethereum transaction volume)
PFP ignites NFT transactions
The cumulative transaction volume of NFT assets is about 40 billion US dollars, of which the transaction volume of PFP exceeds 25 billion US dollars, accounting for more than 62.5%. This data shows that PFP accounts for a very large proportion of the transaction volume and transaction amount in the NFT market, and also reflects people's emphasis on and demand for personal identity and digital image. At the same time, this also means that in the NFT market, PFP is one of the most popular and active assets and has become one of the main driving forces of the market.
From an economic perspective, the popularity of PFP is mainly related to supply and demand factors. First, due to the rapid rise of the NFT market, more and more people have begun to notice the investment value of NFT and are willing to pay high prices for it. Secondly, the supply of PFP market is relatively small, because PFP is designed and issued by individuals or teams, and its quantity is usually limited. Therefore, the supply of PFP is relatively small, but the demand is high, causing the price to continue to rise. However, as the PFP market expands, more and more designers and teams are emerging, bringing more choices and competition to the market, further promoting market development.
From a sociological perspective, the popularity of PFP is also related to social factors. PFP not only shows personal style and identity, but also serves as a form of social capital. When buying PFP, many people will choose designs that are related to their identity or hobbies in order to gain more attention and recognition in their social circles. In addition, due to the limited supply of PFP, some designs tend to be more popular, so owning these popular PFPs can also become a form of social capital. As the PFP market develops, people's awareness of PFP as social capital is also increasing, which further promotes the popularity of the market.
This has some implications for the development and future of NFT. First, with the continuous improvement of digitalization, people's demand for digital identity and digital assets will increase, so the market potential of NFT assets such as digital artworks and digital collectibles will continue to be released. Secondly, with the continuous advancement and popularization of technology, more people will be able to participate in the NFT market, thereby further promoting the development of the market. Finally, as one of the main assets in the NFT market, PFP also shows some preferences and trends in the market, which provides some reference and guidance for the investment and operation of the NFT market.
(Cumulative trading volume by type (as of 20230320))
OpenSea Becomes the Leading Marketplace of NFT Summer
First-mover advantage. Opensea is an earlier established NFT Marketplace, founded in 2017 and backed by some well-known capitals, and received a high valuation of US$13 billion in early 2022. This enabled Opensea to establish a large user base and collector audience before the NFT craze began, which enabled the platform to quickly attract more sellers and buyers. Opensea offers the widest range of NFTs, including collectibles, PFPs, virtual real estate, game items, music, movies, and other collectibles. This enables the platform to attract users with diverse needs and allow them to trade on the same platform.
The bridge between Web2 and Web3. Opensea's user interface is very simple and easy to use, which makes it easy for people who are not familiar with blockchain technology to trade. To a certain extent, it lowers the entry threshold of the NFT market and even Crypto, and brings a certain amount of incremental funds to the Crypto industry. At the same time, Opensea also provides some trading tools and resources to help users better utilize NFT.
Multi-chain layout. Although Ethereum NFTs is the largest NFT ecosystem, Opensea's early layout on multiple public chains has established a stronger moat for itself. Opensea supports multiple blockchains, including Polygon, Arbitrum, Fantom, etc. This allows users to choose the blockchain that best suits them for transactions and enjoy lower transaction fees.
Opensea provided the earliest solution for NFT Marketplace, but was limited by the traditional operating model. Opensea made it clear from the beginning that it would not issue coins, because it adopts the traditional equity financing method, and the shareholders' exit method will also be traditional, not tokens, so its capital operation belongs to the category of traditional finance. In addition, its income mainly comes from transaction fees. Although it maintained a high transaction fee of 2.5% before the emergence of Blur, it was reduced to 0% in order to cope with the impact of Blur on the market. In general, Opensea is more like an evangelist who applies the Web2 operating model to the Web3 world, but at present, Opensea's development status is indeed a bit "unsuitable".
（OpenSea UI interface）
LooksRare, X2Y2 use vampire attacks to grab market share
LooksRare and X2Y2 were launched one after another, adopting the strategy of airdropping tokens to Opensea users to accumulate initial traffic. After that, they launched their own mining rewards in an attempt to occupy market share. However, due to the continuous reduction of the reward mechanism, the real transaction volume eventually continued to decline.
Despite this, LooksRare and X2Y2 are still strong competitors to Opensea because they achieve this goal through a user experience that is superior to Opensea. In addition to basic NFT buying and selling transactions, they have also launched additional features such as bulk listing and bulk purchase, and integrated other trading tools to facilitate users to query the rarity of NFTs. Compared with Opensea, the transaction fees of these two platforms are lower, which is more friendly to those users who are engaged in real transactions and transfers. However, this may also lead to a certain degree of brush trading on the platform.
In general, the design concept of LooksRare and X2Y2 is to design Marketplace into the "Taobao Mall" model, that is, to provide more convenient and complete services and charge lower fees.
When it comes to low-priced NFT transactions, batch transactions are a more suitable transaction method. This is because batch transactions can reduce the time and labor costs required for a single NFT transaction, thereby reducing the cost and fees of the transaction. In addition, batch transactions can also increase the efficiency and speed of transactions, making transactions faster and more efficient.
However, when conducting batch transactions, it is necessary to pay attention to the collection of appropriate fees to maintain the normal operation and development of the platform. The collection of fees should be within a reasonable range, which should be able to maintain the operation of the platform and be affordable for traders. In the process of batch trading, the phenomenon of brushing orders is also an issue that needs to be paid attention to. The emergence of brushing orders will lead to a continuous decline in real transaction volume, thereby affecting the normal operation of the entire trading market. Therefore, measures need to be taken to prevent and combat brushing orders and maintain the healthy and stable development of the trading market.
In general, LooksRare and X2Y2 did not start with functional differentiation, but from the perspective of token economy, taking advantage of the obvious shortcoming of Opensea not having a platform token, and implemented a more Crypto Native strategy, but as marginal rewards decreased, the business became unsustainable. This also laid the groundwork for Blur's success.
(LooksRare UI interface)
The story of an aggregator
Gem is an NFT aggregator project and was the largest aggregator before Blur went online. It provides a platform for users to easily discover and purchase NFTs on different NFT markets and platforms. Similar to Blur, Gem aggregates traffic from multiple mainstream NFT markets and enables bulk purchases of NFTs at a lower cost. This can help users get the best deals on different Marketplaces, while also bringing more traffic and revenue to Gem itself. Gem has a diversion function, which can guide users from different NFT markets and platforms to its own platform, which may form a certain traffic hijacking effect, making Gem a center for aggregating large amounts of NFT traffic. In April 2022, Gem was acquired by Opensea, but remains independently operated. This means that Gem will become part of Opensea and receive support and resources from Opensea, but will continue to provide its unique features and services to meet the needs of different users. As part of Opensea, Gem can better serve Opensea users and expand its influence and market share.
Genie is the earliest NFT aggregator project, with similar functions and positioning to Gem. Compared with Gem, Genie aggregates fewer NFT markets and platforms, but is still able to provide users with a convenient platform for them to easily discover and purchase NFTs on different NFT markets and platforms. In June 2022, Genie was acquired by Uniswap and became part of Uniswap. Uniswap is a decentralized exchange based on the Ethereum blockchain that enables asset exchange and liquidity provision through smart contracts. The acquisition of Genie can help Uniswap expand its service scope and provide users with more NFT-related tools and services. This means that Uniswap can use its leading position in the field of decentralized trading to attract more users and provide them with more NFT services. At the same time, using Genie as a tool, Uniswap can provide a better NFT browsing and purchasing experience. Additionally, partnering with emerging NFT markets could help Uniswap expand its user base and increase revenue sources.
Overall, Gem's Genie has a relatively simple function and strong substitutability. In addition, neither platform has issued tokens, so it is impossible to use tokens to drive the continued development of the business. However, after the acquisition, both Gem and Genie can use the support and resources of their parent companies to expand their service scope and provide users with more functions and services. This will help them maintain their competitiveness and achieve long-term development in the highly competitive NFT aggregator market.
(Gem UI interface)
Blur's emergence
Blur's target audience is NFT professional traders, whale players, and ordinary users (although the number of ordinary users is small). This target group positioning is very different from other platforms in the market from the beginning. The platform's model is Marketplace+Aggregator, which aims to aggregate multiple markets and platforms to provide users with a more convenient experience. Therefore, under this model, NFT market makers and LP providers will benefit to a certain extent.
In addition, its economic model is also worth mentioning, which includes airdrop incentives, royalty fee incentives, and order incentives. The purpose of these measures is to reduce the order gap and provide stable liquidity for NFT orders. But the author believes that Blur's best strategy is to manage expectations. For example, the goal of the platform's first season airdrops is to incentivize smart orders, the goal of the second season airdrops is to incentivize Bid pools, and the third season is to incentivize market making. The core point of this series of operations is that the rules are vague and expectations are forever.
In addition, Blur has a 0% fee and a very affordable gas fee. Users can easily buy stocks and have complete trading tools (including a data analysis panel). In addition, compared with other aggregators, Blur's transaction speed is faster, bringing users a faster trading experience. The functional differentiation distinguishes the user groups for Blur. More professional trading depth charts, monitoring liquidity and floor price tools are more suitable for professional traders.
Through unique product positioning, product design and airdrop distribution method, Blur has initially created a positioning different from Opensea, solved the problem of insufficient differentiation, and stood out among many NFT trading markets. However, the problem that Blur really solves is the problem of insufficient liquidity.
Overall, Blur has achieved both differentiated functional improvements and expected token incentives, and to some extent has also improved the defect of insufficient liquidity of NFTs.
(Average daily transaction volume and market share of NFT MarketPlace in the past 3 months)
When we think of Amazon in the context of Web 2.0, what comes to mind is a wide range of goods, efficient and fast logistics, and user-friendly after-sales service. NFT is essentially a consumer product/commodity, and the characteristics of the venue that provides a buying and selling platform for NFT are similar to those of e-commerce platforms. Therefore, we believe that the NFT market can be regarded as the Amazon of Web3.
First, there are several key business features of e-commerce that enable businesses to sell their products online. These include online category and product information, shopping carts and checkout systems, secure payment processing, order management and fulfillment, customer relationship management, analytics and reporting, and personalization and customization options. By leveraging these features, businesses can create a powerful online marketplace, sell products or services efficiently, manage orders and inventory, build customer relationships, and optimize marketing and sales strategies.
Furthermore, NFTs can be considered a commodity. Commodities are defined as raw materials or primary agricultural products that can be bought and sold, such as gold, oil, or wheat. NFTs, on the other hand, are unique digital assets that represent proof of ownership or authenticity of a specific digital item, such as artwork, music, or even tweets. They can be bought and sold like other commodities, and their value is determined by market supply and demand.
Similar to traditional commodities, the value of NFTs can fluctuate based on a variety of factors, such as the popularity of the underlying digital asset, the reputation of the artist or creator, or the rarity of the NFT itself. In addition, NFTs can serve as a means of diversifying a portfolio or as a speculative asset for potential financial gain.
In general, although NFTs are a unique type of digital asset, they can be considered a commodity in the sense that they are bought and sold on the market, and their value is determined by market forces. Therefore, NFTs can be considered a commodity first, and an asset with investment attributes second.
There are two key factors that contribute to the success of NFT Marketplace: liquidity and user stickiness. In terms of liquidity, a market needs to have a sufficient number of buyers and sellers to ensure the depth of transactions and thus ensure the smooth progress of transactions. As for user stickiness, this is largely driven by the token economic model, and the final result of the strategy from this perspective may not necessarily translate into deep "loyalty" among users. However, once the liquidity of the platform improves, coupled with the catalytic effect of the token economic model, the liquidity of the platform will continue to form a positive feedback loop until the marginal arbitrage opportunities disappear.
Therefore, we believe that Blur is a phenomenal project. As the field develops, we can expect to see Marketplaces with better performance, faster order transactions, and lower overall costs.
OpenSea loses to the market
The speed of updates and iterations cannot keep up with the speed of changes in market demand. This means that Opensea has been slow to update its platform and features to meet the changing needs of the market. Opensea led the market in the early days with its good liquidity depth and the ability to provide a more complete range of NFT assets. But the NFT market is very volatile and susceptible to sudden changes in demand. Platforms that cannot keep up with these changes may lose customers to competitors. In essence, Opensea cannot do something that surpasses other projects in terms of trading performance because there will always be Fork products in the market.
No token economy. A token economy is a system that uses tokens as a means of exchange and incentives. Opensea currently does not have a token economy, which may limit its ability to attract and retain users interested in earning or using tokens on the platform. LooksRare and X2Y2's vampire attacks on it and attracted a group of users in the past are direct examples.
Fragile user stickiness. User stickiness refers to the user's loyalty to a specific platform or brand. Opensea's user stickiness is fragile, which means that users are not necessarily loyal to the platform and may be more interested in speculative investments (i.e. buying NFTs in the hope of selling them later for a profit) than the platform itself. In other words, most users who use Opensea are more interested in being able to arbitrage through different platforms than in the performance of the platform itself. Blur is targeting the needs of this part of users and has launched a token airdrop plan with strong expectation management.
Overall, these factors suggest that Opensea may have difficulty competing in a rapidly evolving market and provide inspiration for later-developing projects. To remain competitive, Opensea may need to focus on improving its platform functionality and user experience, creating a token economy to incentivize user participation (Opensea is unlikely to issue tokens, but it is very likely to issue tokens through its Gem), and building stronger customer relationships to increase user stickiness.
(NFT MarketPlace market share in the past two years)
How far can Blur go?
One of the biggest challenges facing the NFT market is determining the value of an NFT. Unlike traditional assets, NFTs are unique and not backed by other intrinsic value. Therefore, determining a floor price or fair value for an NFT can be difficult. This lack of transparency makes it difficult to conduct additional derivatives or secondary market transactions, as buyers and sellers may not agree on the value of the asset. Opensea and Blur, among others, attempt to address this problem by providing a transparent and trustworthy marketplace for NFT transactions.
Opensea is one of the earliest NFT markets. The platform allows users to build different NFTs and cultivate community culture. This approach has successfully built a loyal user base, and Opensea's success has provided a paradigm for other markets such as LooksRare and X2Y2, which have adopted a similar model but added a token economy to promote their own products.
Blur is another NFT marketplace that is more focused on speculation than collection. The underlying purpose of these users is to make money on Blur, and they don’t care what type of NFT they hold, as long as it has a floor price. Blur is seen as a platform for speculators who are more interested in value discovery and making profitable trades than building a collection.
Therefore, we believe that the moat of NFT Marketplace is not deep.
Where is the next phenomenal project?
At present, we can regard platforms with market makers, LPs and traders as professional NFT Marketplaces, with Blur as the representative project; and those platforms that only provide the most basic Mint, Collect, Buy and Sell as retail NFT Marketplaces, with Opensea as the representative project. In fact, the competition in NFT Marketplace is also concentrated in the two. For professional Marketplaces, whether they can provide traders with more stable trading depth and more professional trading tools are the key points that they need to pay attention to. For retail Marketplaces, we need to think about how to empower the platform and bring continuous traffic input to the platform. Because the initial traffic import is the key factor in whether the NFT Marketplace can get started.
In summary, we make the following conclusive predictions:
One trend in the future development of the NFT market is the emergence of vertical segmentation platforms. These platforms will focus on specific types of assets or markets, such as game NFTs, sports NFTs, or music NFTs. By focusing on specific markets, these platforms can provide more tailored services and attract corresponding user groups.
Another trend is the emergence of new trading assets. Not just PFP (profile picture NFT), as the NFT market continues to grow and evolve, new types of assets will emerge and become the object of speculation.
In terms of technological development, more efficient and functional NFT Marketplaces are needed. Currently, most NFT markets use the same AMM/bonding curve protocols, which can be subject to manipulation and inefficiency. New protocols may emerge that provide more transparent and efficient trading mechanisms.
Finally, multi-chain NFTs and L2 NFTs may face challenges in competing with ETH NFTs due to the network effects and established user base of the Ethereum blockchain. However, as other blockchains continue to develop and gain traction, there may be opportunities for cross-chain transactions and interoperability.
Reference
[1] Devin Finzer, Opensea acquires Gem to invest in pro experience, Opensea Blog, 2022, 25(4): https://opensea.io/blog/announcements/opensea-acquires-gem-to-invest-in-pro-experience/
[2]Karen, Understanding Genie and Gem in One Article: Pioneers of NFT Market Aggregation Platforms, Foresight News, 2022, 12 (2): https://www.defidaonews.com/article/6729148
[3] Kunal Goel, Meessari: How will OpenSea’s acquisition of Genie “break the impasse”?, WeChat Official Account, 2022, 05 (7): https://mp.weixin.qq.com/s/ph8vNngMgU8344xNYsxxOQ
[4] Alastair, NFT Finance (NFTfi) and the Rise of OTC Trading, Old Fashion Research, 2022, 13(6): https://mirror.xyz/0xe70628e0E8e15F222AAdb406ce93fea713d6c30e/1LT5liPLgVCoWx8fVxudYVQYg-L-E7wKJWYVkdV-tUI
[5] Alex Atallah, Create NFTs for Free on OpenSea, Opensea Blog, 2020, 29(12): https://opensea.io/blog/announcements/introducing-the-collection-manager/
