The unicorn created by NBA Top Shot: How Ethereum competitors profit from the NFT wave?

This article was published by Blockchain Knight, original title: "Will the Frenzy of NBA Top Shot Make It a Competitor to Ethereum?", author: Brett Knight, employed at Forbes Magazine

NBA Top Shot has processed over 3 million transactions and reached $460 million in sales on the secondary market just five months after entering its public beta. Now, as collectors' interest in NFTs has reached a fever pitch, the platform's creators have achieved a staggering level of development.

Dapper Labs raised $305 million in its latest funding round, led by tech-focused investment firm Coatue, which valued the three-year-old startup at $2.6 billion. This funding round was recently announced, bringing the total funding for the Vancouver-based startup to $357 million.

Dapper Labs CEO and founder Roham Gharegozlou stated, "There's more fuel in the tank," with Forbes describing this funding as "a big bet on open platforms."

This is a bet on NFTs, unique digital assets enabled by blockchain technology through ledgers. For NBA Top Shot, this means selling highlights from NBA games packaged as digital sports cards. The price of the packs varies based on the rarity of the clips they contain, ranging from $9 to $230 for three to ten minutes of footage.

Meanwhile, Dapper Labs can take a cut from transactions between users, charging a 5% transaction fee on each trade in the secondary market. However, the prices on NBA Top Shot are volatile, influenced by player performance, injuries, and trades, leading to varying transaction volumes.

But overall demand is surging, in the past 30 days, NBA Top Shot has reached over $200 million in transaction volume in the secondary market, meaning Dapper Labs could collect $120 million in transaction fees annually, in addition to revenue from initial pack sales.

So far, this figure is close to $49 million. At the same time, the company shares revenue with the NBA and the National Basketball Players Association.

With the positive sentiment around cryptocurrencies like Bitcoin, the NFT primary market nearly quadrupled in value in 2020, surpassing $250 million. According to a report from retailers and entertainment companies, this is just the beginning.

Music artists including Mike Shinoda and the band Kings of Leon have released songs and albums in NFT form in recent weeks. The NFT frenzy peaked this month when a digital composite work created by digital artist Beeple, Mike Winkelmann, sold for $69.3 million at a Christie’s auction.

As the leading application in the field, NBA Top Shot now has over 800,000 registered accounts, with 338,000 users owning at least one moment, making the platform an order of magnitude larger than other NFT projects.

Miami Heat player Andre Iguodala said, "You couldn't predict that NBA Top Shot would develop to this point; if someone told you that back then, you would definitely say they were lying." Iguodala began investing in Dapper Labs last summer and joined this new funding round.

Other investors in this round include Andreessen Horowitz, Chernin Group, Union Square Ventures, and VenRock, as well as Charlotte Hornets owner and basketball legend Michael Jordan and Sacramento Kings' Vivek Ranadive. Additionally, over 30 professional athletes, including Brooklyn Nets forward Kevin Durant, St. Louis Cardinals third baseman Nolan Arenado, and Buffalo Bills' Stefon Diggs, are involved.

This is not Gharegozlou's first attempt at the NFT business. Earlier, he designed a game called "CryptoKitties" that allowed users to collect and breed cats as NFTs.

This game nearly overwhelmed the Ethereum blockchain it operated on, as the cost of completing a transaction was related to the traffic on the system, causing prices to soar from 1 cent to several dollars, quickly diminishing user interest.

Gharegozlou founded Dapper Labs in 2018, leading the IP, team, and technology of CryptoKitties into a new venture, but he quickly decided to build his own blockchain platform, Flow, rather than repeat the experience on Ethereum.

NBA Top Shot launched last spring, initially selling through a limited private beta before opening to the public in October. So far, it has proven capable of handling a significant user base, with Gharegozlou stating that the user count has grown 20 times in just the past two months.

35-year-old Gharegozlou remarked on the differences between NBA Top Shot and CryptoKitties, saying, "The transaction volume we did in the past year was achieved in a single day on NBA Top Shot."

With the crypto art market VIV3.com operating on Flow, companies like Warner Music Group and game developer Animoca are also developing products on the platform.

For NBA Top Shot, challenges still exist. Users have complained about delays in pack releases, website outages, and the lack of intelligence in customer service bots, which are common issues in e-commerce, leading some potential collectors to be left empty-handed. For instance, a pack release attracted 400,000 users, the vast majority of whom walked away with nothing.

The process of cashing out NFTs has also drawn criticism, as the company requires users to go through customs clearance before withdrawals. This regulation aims to prevent money laundering and ensure compliance with financial regulations, but the recent surge in user numbers has led to significant backlogs in the approval team, meaning tens of thousands of users have funds in their NBA Top Shot accounts that cannot be transferred to the real world.

Gharegozlou stated that in the past two weeks, NBA Top Shot has reduced the number of service tickets by 90% and quadrupled the size of its anti-fraud and compliance team, with plans to double it again next week.

The company noted in a blog post released on Saturday that the number of users who have received withdrawals has exceeded 28,000, growing 450% in four weeks. Dapper is also trying to limit the number of new users and transaction frequency to address some issues caused by the influx of users.

The new funding will be used to further address these issues and add new features to NBA Top Shot, but Gharegozlou also hopes to attract third-party developers to partner with other intellectual property holders in sports or entertainment to replicate the ordinary NBA Top Shot. The company has already announced partnerships with the WNBA and UFC.

Gharegozlou said, "We are not focusing on rushing things and copying and pasting. We believe that NBA Top Shot's appeal lies in its potential to become a sustainable economic system, which is indeed a hallmark of basketball."

Gharegozlou added, "We hope it can become the currency of choice for advocates of the cryptocurrency market."