Author: Jam

Editor: Vincero, YL, CloudY

Reviewer: Yasmine

The NFT market, as a nascent digital marketplace, is currently witnessing exponential expansion and advancement. NFTs serve as distinctive digital assets capable of representing digital artworks, avatars, virtual land, and various other digital commodities.

Overview

The uniqueness of digital assets enables them to function as evidence of ownership and scarcity for digital artifacts, thereby creating fresh avenues of income for digital artists and creators.

Blur has surpassed Opensea by incorporating a range of mechanisms, such as airdrop and ordering incentives, self-established trading markets, and aggregators. Although Opensea was previously considered the most liquid NFT marketplace, Blur's comprehensive strategy has gained significant market attention. Blur offers the most optimal liquidity solution by integrating its market and aggregator, thereby granting users a broader selection. This aspect holds paramount importance, as liquidity plays a pivotal role in the NFT market, and Blur's liquidity solution has demonstrated remarkable reliability.

In response to the challenge, Opensea has eliminated transaction fees to 0%, demonstrating its competitiveness. However, this strategy may jeopardize Opensea's long-term sustainability. Optional royalties provide Blur with another strategic advantage, offering a wider array of choices and attracting a larger user base, causing Subdivision trackunlikely to thrive in this environment.

While the NFT market still holds numerous opportunity, niche segments like X2Y2, LooksRare, and Uni V3 (Genie) have reached a saturation point with limited growth prospects. This is attributed to the dominance of established corporations and formidable rivals, creating significant hurdles for new entrants to prosper.

Blur's comprehensive strategy in the NFT market has demonstrated remarkable success. Its consistently outstanding performance serves as evidence of the viability and effectiveness of its strategy in the competitive market.

We will investigate prospective paradigms by integrating the historical trajectory of NFT marketplaces.

Crypto Kitties Market: the most rudimentary NFT trading platform.

Crypto Kitties Market enables players to acquire, breed, and trade digital cats, which originates as an extension of the Crypto Kitties Game and serves as the pioneering NFT trading platform. It employs NFTs to guarantee the distinctiveness and transferability of each digital feline.

The Crypto Kitties Market ecosystem encompasses platforms, users, digital cats, and a trading marketplace. The platform offers comprehensive services for creating, purchasing, breeding, and selling digital cats, alongside features like showcasing, social interaction, and trading for these feline assets. Users actively buy, breed, and sell digital cats, as well as engage in social interactions and promotional activities. The platform's appeal and interactivity are further enriched by the diversity of cat breeds, breeding seasons, and competitive events. The trading marketplace facilitates the buying and selling of digital cats, providing transaction histories and price trend analysis.

Consequently, the establishment of Crypto Kitties Market aimed to augment the monetary and asset properties of digital cats.

The swift expansion of Crypto Kitties Market has garnered a growing user and collector community, catalyzing the progress of the NFT trading market. Alongside Crypto Kitties, the platform has broadened its scope to encompass diverse digital assets, such as digital artworks and gaming items.

Despite Crypto Kitties Market's slow transaction speed resulting from its Ethereum foundation with limited transaction speed and processing capacity, it has played a significant role in advancing and promoting the NFT market. Its emergence marked a pioneering milestone and inspired the creation of more advanced and user-friendly alternatives.

NFT Summer：Reflecting the Exponential Growth and Ubiquitous Adoption of the NFT Market

In the summer of 2021, the NFT market experienced rapid growth and widespread adoption, with record-high transaction volume and prices. OpenSea, one of the largest NFT trading platforms, saw substantial increases in transaction volume, user count, and historic NFT prices, consolidating its position in the market.

In 2021, the NFT market achieved a remarkable milestone with a total trading volume of around $20 billion, indicating a tenfold surge compared to 2020. Prominent platforms in the NFT market included OpenSea, Nifty Gateway, Super Rare, and Foundation. Notably, during the NFT Summer period, specific projects garnered significant attention, including CryptoPunks, Bored Ape Yacht Club, and Art Blocks.

During the NFT Summer, numerous Profile Picture (PFP) initiatives swiftly arose, captivating a significant user and investor base. PFP denotes digitally rendered avatar images adaptable for social media, gaming, and online platforms. Nevertheless, these projects transcend mere pictures, embodying symbols of identity and community establishment, akin to fashionable accessories in offline domains.

A buying frenzy unfolded in the NFT market, as investors and collectors lavishly spent millions of dollars to obtain diverse PFP artworks, aiming to express their identity and social standing. Surprisingly, even seemingly unconventional designs commanded substantial prices in the NFT market. Certain individuals were willing to incur exorbitant transaction fees, amounting to thousands of dollars, in their pursuit of acquiring their desired PFP.

However, the NFT Summer proved to be a tumultuous period. As speculative fervor escalated, prices of select PFP projects sharply declined, leading investors and collectors to liquidate their holdings and inducing market volatility. Some PFP projects succumbed to insustainability due to inadequate community backing, akin to small boats overwhelmed by ocean waves. Subsequent to the NFT Summer, contemplation ensued regarding this digital art frenzy, with divergent perspectives arising: some regarded it as transient speculation, while others saw it as the emergence of a new era in the digital art market.

Regardless, the NFT Summer was a period filled with opportunities and risks, showcasing the potential and allure of the NFT market.

PFP ignites NFT trading

The cumulative trading volume of NFT assets reached around $40 billion, with PFP transactions exceeding $25 billion, representing over 62.5% of the total. This data highlights the substantial share of trading volume and value held by PFP transactions in the NFT market, reflecting the significance and demand for personal identity and digital representation. This signifies that PFPs have emerged as highly popular and dynamic assets, playing a pivotal role in driving the growth of the NFT market.

From an economic standpoint, the popularity of PFPs stems primarily from the interplay of supply and demand. Firstly, the rapid growth of the NFT market has increased awareness among individual investors, resulting in a willingness to pay premium prices for them. Secondly, the availability of PFPs is relatively scarce, as they are created and released in limited quantities. Consequently, the persistently high demand with constrained supply leads to ongoing price escalation. However, an influx of designers and teams introduces more options and competition, further propelling its development.

From a sociological standpoint, the popularity of PFPs is shaped by social dynamics. PFPs serve not only as vehicles for personal style and identity expression but also as a form of social capital. Individuals often select designs that align with their identity or interests, aiming to gain recognition within their social networks. Furthermore, limited PFPs contribute to the elevated desirability, establishing ownership of these coveted PFPs as a form of social resources. The more people recognize PFPs as social prestige, the more the market's appeal is propelled forward.

This offers valuable insights into the prospects of NFTs. Firstly, the progressing digitization fosters a rising appetite for digital identities and assets, thereby unleashing the market potential for NFTs. Secondly, continuous technological advancements enable broader participation in this market, fostering its expansion. Lastly, the prominence of PFPs as key assets within the NFT market reflects distinct preferences and trends, providing valuable guidance for NFT investments and operations.

OpenSea: The Leading Marketplace During the NFT Summer

• First-mover advantage: OpenSea, founded in 2017, quickly emerged as an early player in the NFT market, gaining support from renowned investors and reaching a valuation of $13 billion in early 2022. This strategic positioning enabled OpenSea to establish a sizable user base ahead of the NFT boom. It offers the widest range of NFT categories, including collectibles, PFPs, virtual real estate, gaming items, music, movies, etc. This diverse selection caters to users with various preferences, facilitating seamless transactions on a unified platform.

• The bridge of Web2 and Web3: OpenSea's intuitive user interface enables transactions, with individuals unfamiliar with blockchain technology. This contributes to lowering the entry barrier for both the NFT market and the broader crypto industry, thereby attracting additional funding. Furthermore, OpenSea provides a range of trading tools and resources to aid users in optimizing the potential of NFTs.

• Strategic Multichain Positioning: Despite Ethereum NFTs reigning supreme in the ecosystem, OpenSea strategically expands its reach across multiple public blockchains such as Polygon, Arbitrum, and Fantom to enhance its competitive edges. It empowers users to choose the blockchain that aligns with their transactional requirements and cost advantages.

Opensea provides an early solution for NFT marketplaces but operates within the confines of traditional models. It explicitly chose not to issue its own tokens, opting instead for conventional equity financing and exit strategies, whose capital operations align with traditional finance practices. Moreover, Opensea primarily generates revenue through transaction fees, which have decreased from 2.5% to 0% as a result of the emergence of Blur. Opensea resembles a proponent applying Web2 operational models in the Web3 world; however, its development status currently faces some challenges in adapting to the new landscape.

Market Share Seizure Through Vampire Attacks: LooksRare and X2Y2 Dominate the Competition

LooksRare and X2Y2 sequentially launched their platforms, airdropping to Opensea users to garner initial traffic. Subsequently, they introduced their own mining rewards in an endeavor to seize market share. Nevertheless, the persistent reduction in reward mechanisms ultimately led to a sustained decrease in actual trading volume.

Nonetheless, LooksRare and X2Y2 assert themselves as formidable rivals to Opensea through their provision of an enhanced user experience. Additionally, they have incorporated value-added functionalities, including bulk listing and purchasing, as well as integrated tools for exploring the rarity of NFTs. In contrast to Opensea, these platforms boast lower transaction fees, fostering a more favorable environment for legitimate transactions and transfers. However, it also carries the potential for wash trading.

In summary, LooksRare and X2Y2 have embraced a design philosophy of an "online shopping mall," with the objective of offering heightened convenience, comprehensive services, and reduced transaction fees.

In the context of low-value NFT transactions, batch trading proves to be a preferable approach. By reducing time and labor costs, batch trading effectively minimizes transaction fees. Furthermore, batch trading enhances transaction efficiency and expediency, resulting in swifter and more streamlined transactions.

However, it is vital to levy suitable fees during batch trading to maintain the platform's developmental integrity. The fee structure should be reasonable, ensuring the platform's sustainability while remaining affordable for traders. It is imperative to tackle the issue of volume manipulation in batch trading. Wash trading can lead to a prolonged decrease in legitimate trading volume, thereby disrupting the market's normal operation. Consequently, preventive measures must be implemented to combat malicious manipulation and preserve the stable growth of the trading market.

In general, LooksRare and X2Y2 embraced a token economy approach instead of focusing on functional differentiation, capitalizing on Opensea's notable vulnerability of lacking a platform token. They implemented a more Crypto Native strategy, but the declining marginal rewards made their business model unsustainable, providing an opportunity for the success of Blur.

Unveiling the Narrative of Aggregator

Gem, the leading NFT aggregator prior to the launch of Blur, offers a platform that enables users to explore NFTs from diverse markets. Similar to Blur, Gem consolidates traffic from multiple mainstream NFT markets, facilitating cost-effective bulk purchases. This empowers users to secure optimal deals while driving traffic and revenue to Gem. Serving as a conduit, Gem redirects users from various NFT markets and platforms to its own platform, potentially establishing itself as a central hub for aggregating substantial NFT traffic. In April 2022, Opensea acquired Gem, allowing it to operate independently within the Opensea ecosystem. This integration provides Gem with access to Opensea's resources while preserving its distinctive features and services tailored to diverse users. As a part of Opensea, Gem is strategically positioned to serve Opensea's user base, expand its influence, and increase its market share.

Genie, the pioneering NFT aggregation project, shares similar functionality with Gem, providing a convenient aggregator with a smaller number of NFT platforms compared to Gem. In June 2022, Uniswap, a DEX built on the Ethereum blockchain facilitating asset swapping and liquidity provision through smart contracts, acquired Genie. Utilizing Genie as a tool, Uniswap enhances the NFT browsing and purchasing experience. Moreover, collaborating with emerging NFT markets enables Uniswap to broaden its user base and diversify its revenue streams.

Overall, Gem and Genie exhibit limited functionality and high substitutability because the absence of platform tokens impedes their potential for sustained business growth through tokenization. Nevertheless, both of them can capitalize on the support of their parent companies to broaden their service portfolios and offer users enhanced functionalities after the acquisition. This strategic approach enables them to preserve competitiveness and attain long-term development in the highly competitive NFT aggregator market.

The Emergence of Blur

The target audience of Blur includes NFT professionals, whale players, and general users (albeit in smaller numbers). This distinctive targeting strategy sets Blur apart from others. Operating as a Marketplace+Aggregator, Blur aims to integrate various markets and provide users with enhanced convenience. Within this framework, NFT market makers and liquidity providers can reap specific advantages.

In addition, the noteworthy aspect of Blur is its economic model, which includes incentives such as airdrops, royalty fees, and order placement, all aimed at minimizing order gaps and ensuring consistent liquidity for NFT transactions. However, the most impactful strategy implemented by Blur is the management of expectations. For instance, the initial season's airdrop incentivizes intelligent ordering, followed by a focus on incentivizing the Bid pool in the second season, and market-making incentives in the third season. The core principle underlying this sequence of actions is the existence of ambiguous rules and perpetual expectations.

Moreover, Blur distinguishes itself with a zero-fee rate and cost-effective Gas fees. Users can easily uncover profitable opportunities while utilizing a variety of trading tools, including data analysis panels. Additionally, Blur offers faster transaction speeds compared to other platforms, guaranteeing a seamless trading experience. The platform's functional differentiation caters specifically to professional traders, providing them with advanced trading depth charts, liquidity monitoring, and floor price tools for enhanced benefits.

Through its distinctive product positioning, design, and airdrop distribution method, Blur has successfully carved out a unique niche distinct from Opensea, effectively addressing the issue of insufficient differentiation and gaining prominence within the vast landscape of NFT trading markets. However, Blur's true achievement lies in resolving the challenge of liquidity scarcity.

In summary, Blur has achieved both differentiated functional enhancements and token-based incentives, which have addressed the issue of inadequate NFT liquidity to some extent.

When considering Amazon within the context of Web 2.0, one is reminded of its extensive product range, efficient logistics, and customer-centric service. NFTs as commodities, bear similarities to e-commerce platforms as they offer a marketplace for NFT transactions. Consequently, NFT markets can be likened to the Amazon of Web3.

Firstly, E-commerce has critical business features that empower companies to conduct online sales. These features include online categorization and product information, shopping cart and checkout systems, secure payment processing, order management and fulfillment, customer relationship management, analytics, and reporting, as well as personalization and customization options. By harnessing these functionalities, businesses can establish robust online marketplaces, streamline product/service sales, effectively handle orders and inventory, cultivate customer relationships, and optimize marketing and sales strategies.

Furthermore, NFTs can be classified as commodities, which include raw materials or primary agricultural products that are exchangeable, such as gold, oil, or wheat. Conversely, NFTs are distinct digital assets that signify ownership or provide proof of authenticity for specific digital items like artworks, music, or even tweets. Similar to other commodities, they can be traded, with their value influenced by market dynamics of supply and demand.

Similar to conventional commodities, the value of NFTs experiences fluctuations influenced by diverse factors, including the popularity of the underlying digital assets, the reputation of the artist or creator, and the rarity of the NFTs. Moreover, NFTs can be utilized as instruments for diversifying investment portfolios or as speculative assets with the potential for economic returns.

In summary, although NFTs are a distinct form of digital asset, they can be viewed as commodities in terms of their significance in the market for buying and selling, with their value being determined by market forces. Thus, NFTs can primarily be seen as commodities and secondarily as assets with investment attributes.

Two key factors crucial to the success of an NFT marketplace are liquidity and user engagement. Liquidity necessitates a significant presence of buyers and sellers, enabling smooth and substantial transactions. User engagement, predominantly influenced by the token economic model, does not always guarantee strong user loyalty. Nevertheless, as the platform's liquidity improves and is enhanced by the token economic model, a self-reinforcing cycle is established, persisting until marginal arbitrage opportunities diminish.

Hence, we firmly assert that Blur represents a paradigm-shifting undertaking. As this domain continues to progress, it is reasonable to anticipate the emergence of a Marketplace exhibiting enhanced performance, expeditious order transactions, and diminished aggregate expenses.

OpenSea succumbs to market forces

• The pace of updates and iterations lags behind the dynamic shifts in market demand.

  The stagnation of OpenSea's platform and feature updates to meet dynamic market demands suggests slow progress. Initially, OpenSea attained market dominance through superior liquidity depth and a diverse range of NFT assets. Nonetheless, the volatile and rapidly fluctuating nature of the NFT market renders platforms vulnerable to sudden shifts in demand, potentially leading to customer attrition in favor of competitors. Fundamentally, OpenSea struggles to surpass other projects in terms of transaction performance, as market conditions continuously offer opportunities for rival forked products.

• Absence of a Token Economy.

  The Token Economy, characterized by the utilization of tokens for exchange and incentives, is currently lacking within OpenSea. This deficiency may impede OpenSea's capacity to attract and retain users. The direct evidence of this limitation can be observed through the vampire attacks carried out by LooksRare and X2Y2, which successfully attracted a user base.

• Fragility in User Retention.

  User stickiness denotes the level of loyalty exhibited by users towards a particular platform or brand. OpenSea exhibits a precarious user stickiness, implying that users may not exhibit strong loyalty to the platform and instead demonstrate greater interest in speculative investments (purchasing NFTs with the intention of later profiting from their resale). Essentially, the primary focus of most OpenSea users lies in the opportunity for arbitrage across various platforms, overshadowing their pursuit of superior platform performance. In response to this user segment, Blur has implemented airdrop plans accompanied by robust expectation management.

Overall, these factors imply that OpenSea may encounter difficulties in competing within a rapidly evolving market, imparting valuable insights for nascent projects. To uphold its competitiveness, OpenSea ought to prioritize the enhancement of platform functionalities and user experience. Establishing a token economy as a means to incentivize user participation should be considered. (Acknowledging that while the likelihood of OpenSea issuing its own token is low, there exists a noteworthy possibility of token issuance through its subsidiary, Gem.) Furthermore, fostering robust customer relationships is essential for augmenting user loyalty.

How far can Blur go?

Valuing NFTs presents a fundamental challenge within the market. Diverging from traditional assets, NFTs possess unique attributes and lack intrinsic value foundations, making the determination of a minimum price or fair value a laborious task. This opacity impedes the facilitation of derivative and secondary market transactions, as participants often struggle to reach a consensus on asset valuation. Platforms like OpenSea and Blur aim to alleviate this predicament by providing a transparent and dependable marketplace for NFT transactions.

OpenSea stands as one of the pioneering NFT marketplaces, renowned for its facilitation of NFT creation and cultivation of a communal atmosphere. OpenSea's triumph has served as a guiding model for subsequent marketplaces, including LooksRare and X2Y2, which have embraced similar frameworks while integrating token economies to bolster the promotion of their respective offerings.

Blur emerges as an alternative NFT marketplace that prioritizes speculation over collecting. Users on Blur are primarily motivated by monetary gains, exhibiting minimal interest in the specific nature of the held NFTs as long as they meet a minimum price threshold. Regarded as a speculative platform, Blur attracts individuals primarily seeking value exploration and profitable trading opportunities, with less emphasis on curating personal collections.

Hence, our assessment suggests that the NFT marketplace has a relatively shallow moat.

Where will the next groundbreaking project emerge?

Currently, NFT marketplaces can be categorized into specialized platforms involving market makers, LPs, and traders, with Blur serving as a representative project. Conversely, retail-oriented platforms that offer fundamental functionalities like Mint, Collect, Buy, and Sell can be exemplified by Opensea. The competition in the NFT marketplace primarily revolves around these two categories. Specialized marketplaces should prioritize providing traders with stable trading depth and professional tools. Meanwhile, retail-oriented marketplaces must focus on platform empowerment and sustaining a steady flow of traffic, as initial traction plays a pivotal role in the success of an NFT marketplace.

Based on the aforementioned analysis, we derive the following conclusive predictions:

• A prominent trajectory in the future progression of the NFT market is the proliferation of vertically specialized platforms. These platforms will center their operations on distinct asset categories or market domains, encompassing domains like gaming NFTs, sports NFTs, or music NFTs. By directing their focus towards specific market segments, these platforms can furnish customized services and allure user communities that align with their respective domains.

• Another notable trend is the emergence of novel trading assets within the NFT market. Going beyond the realm of PFP (Profile Picture NFTs), as the market undergoes ongoing evolution and advancement, new categories of assets will emerge, captivating the attention of speculators.

• Technological advancements in the NFT market call for more efficient and comprehensive marketplaces. Presently, the majority of NFT platforms utilize similar AMM/Bonding Curve Protocols that are susceptible to manipulation and inefficiencies. The emergence of new protocols offering enhanced transparency and efficiency in trading mechanisms is expected.

• Finally, the network effects and established user community of the Ethereum blockchain present challenges for multi-chain NFTs and L2 NFTs in competing with ETH NFTs. However, as other blockchains progress and emerging technology, possibilities for cross-chain transactions and interoperability may arise.

Reference

• [1] Kunal Goel, "Meessari: How will OpenSea's Acquisition of Genie 'Break the Mold'?" WeChat Public Account, 2022, 05(7): https://mp.weixin.qq.com/s/ph8vNngMgU8344xNYsxxOQ

• [2] Karen, "Understanding Genie and Gem: Pioneers of NFT Marketplace Aggregation," Foresight News, 2022, 12(2): https://www.defidaonews.com/article/6729148

• [3] Alastair, "The Rise of NFT Finance (NFTfi) and Over-the-Counter Trading," OFR, 2022, 13(6): https://mirror.xyz/0xe70628e0E8e15F222AAdb406ce93fea713d6c30e/1LT5liPLgVCoWx8fVxudYVQYg-L-E7wKJWYVkdV-tUI

• [4] 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/

• [5] Alex Atallah, "Creating NFTs for Free on OpenSea," Opensea Blog, 2020, 29(12): https://opensea.io/blog/announcements/introducing-the-collection-manager/