OP Research: The Final Battle of NFT Trading Platforms

Written by: Jam, OP Research

Edited by: Vincero, YL, CloudY

Reviewed by: Natalia

The uniqueness of digital assets allows them to prove ownership and scarcity of digital items, thus providing new sources of income for digital artists and creators.

Blur has surpassed Opensea by combining various methods such as airdrop incentives, order incentives, self-built trading markets, and aggregators. Although Opensea was previously the most liquid NFT market, Blur's comprehensive strategy has garnered increasing attention in the market. Currently, Blur's liquidity solutions are the best, and the combination of its market and aggregator provides users with a wider range of choices. This is very important because liquidity is often key in the NFT market, and Blur's liquidity solutions have proven to be very reliable.

In response to the impact, Opensea has reduced its fees to 0%, indicating its seriousness about competitors. However, this strategy may negatively affect Opensea's sustainability. Optional royalties are another strategic area. This allows Blur to offer more choices in the market, thus attracting more users. Segmented marketplaces are unlikely to have further opportunities.

While there are still many opportunities in the NFT market, segmented markets like X2Y2, LooksRare, and Uni V3 (Genie) have found it difficult to gain traction. This is because these markets have been occupied by large companies and strong competitors, and new entrants will face significant challenges.

Blur's comprehensive strategy in the NFT market has proven to be very successful. Although competition is fierce, Blur's performance in the market is improving, indicating the feasibility and practicality of its strategy.

We will explore possible paradigms for the future by combining the past development trajectory of NFT marketplaces.

Crypto Kitties Market is the Original NFT Trading Platform

Crypto Kitties Market is one of the earliest NFT trading platforms, 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, using NFTs to ensure its uniqueness and liquidity.

Its ecosystem consists of platforms, users, digital cats, and trading markets. The platform provides services for creating, buying, breeding, and selling digital cats, as well as showcasing, social interaction, and trading markets for digital cats. Users buy, breed, and sell digital cats while participating in social interactions and promotional activities. The variety of digital cats, breeding seasons, and competition events also add fun and interactivity to the platform. The trading market provides users with services for buying and selling digital cats, along with transaction history and price trend analysis. Thus, the original intention of establishing Crypto Kitties Market was to enhance the monetary and asset attributes of digital cats.

The development of Crypto Kitties Market was very rapid, attracting more and more users and collectors, driving the development of the NFT trading market. In addition to Crypto Kitties, the platform also began to support other types of digital assets, such as digital artworks and game items.

Although the trading speed of Crypto Kitties Market is very slow, mainly because it is built on Ethereum, which has limited transaction speed and processing capacity, and offers a limited variety of transactions. However, Crypto Kitties Market has made significant contributions to the development and promotion of the NFT market. Its emergence paved the way for the development of the NFT trading market and provided inspiration for other more advanced and convenient NFT trading platforms.

Crypto Kitties Market UI

NFT Summer Marks Explosive Growth and Popularization of the NFT Market

In the summer of 2021, the NFT market experienced a rapid growth and popularization period. During this time, both NFT trading volume and prices reached historic highs. Opensea rapidly developed during NFT Summer and became one of the largest NFT trading platforms. During this period, OpenSea's trading volume and user numbers significantly increased, and the prices of NFTs on the platform reached historic highs.

The total NFT trading volume in 2021 reached approximately $20 billion, setting a historic high. This figure represents an increase of about ten times compared to 2020. Major platforms in the NFT market include OpenSea, Nifty Gateway, Super Rare, Foundation, and others. During NFT Summer, some projects were particularly popular, such as CryptoPunks, Bored Ape Yacht Club, and Art Blocks.

During NFT Summer, various PFP (Profile Picture) projects rapidly emerged, attracting a large number of users and investors. PFP refers to avatar images presented in digital form, which can be used in social media, games, or other online scenarios. However, these PFP projects are not just simple avatars; they symbolize identity recognition and community building, similar to fashion items worn in real life.

Thus, a frenzied buying spree unfolded in the NFT market. Investors and collectors joined in, purchasing various PFP artworks for millions of dollars to showcase their identity and social status. Even if some designs appeared somewhat strange, they could still fetch high prices in the NFT market. Some individuals even spent thousands of dollars in transaction fees just to acquire their desired PFP.

However, NFT Summer was not a calm season. As speculative sentiment heated up, prices of some PFP projects began to plummet, leading investors and collectors to sell off their holdings, causing market sentiment to become turbulent. Some PFP projects could not survive due to a lack of sufficient community support, akin to small boats in the ocean ultimately being overwhelmed by large waves. After NFT Summer, people began to reflect on this frenzy of digital art; some viewed it as merely a transient speculative behavior, while others believed it marked the beginning of a new chapter in the digital art market.

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

Ethereum Monthly Trading Volume

PFP Ignites NFT Trading

The cumulative trading volume of NFT assets is approximately $40 billion, with PFP trading amounting to over $25 billion, accounting for more than 62.5%. This data indicates that PFP occupies a significant proportion of trading volume and value in the NFT market, reflecting people's emphasis on personal identity and digital image. At the same time, this also means that PFP is one of the most popular and active assets in the NFT market, becoming one of the main driving forces of the market.

From an economic perspective, the popularity of PFP is primarily 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 NFTs and are willing to pay high prices for them. Second, the supply of PFP in the market is relatively limited, as PFP is designed and issued by individuals or teams, and their numbers are usually restricted. Therefore, the supply of PFP is relatively low, but demand is high, leading to continuously rising prices. However, as the PFP market expands, more designers and teams are emerging, bringing more choices and competition to the market, further driving market development.

From a sociological perspective, the popularity of PFP is also related to social factors. PFP not only displays personal style and identity recognition but also serves as a form of social capital. Many people choose designs related to their identity or interests when purchasing PFP, in order to gain more attention and recognition in their social circles. Additionally, due to the limited supply of PFP, some designs tend to be more popular, so owning these sought-after PFP can also become a form of social capital. As the PFP market develops, people's understanding of PFP as social capital is also continuously increasing, further driving the market's popularity.

This has some implications for the development and future of NFTs. First, as the degree of digitalization continues to increase, the demand for digital identity and digital assets will grow, thus the market potential for NFT assets such as digital artworks and digital collectibles will continue to be released. Second, with continuous technological advancements and widespread adoption, more people will be able to participate in the NFT market, further driving market development. Finally, PFP, as one of the main assets in the NFT market, also indicates some preferences and trends in the market, providing some references and guidance for NFT market investment and operations.

Accumulated Trading Volume by Category (as of 20230320)

OpenSea Becomes the Leading Marketplace of NFT Summer

First-mover advantage. Opensea is one of the earliest established NFT marketplaces, founded in 2017, and has received support from some well-known capital, achieving a high valuation of $13 billion in early 2022. This allowed Opensea to establish a large user base and collector audience before the NFT boom began, enabling the platform to quickly attract more sellers and buyers. Opensea offers the widest variety of NFTs, including collectibles, PFPs, virtual real estate, game items, music, movies, and other collectibles. This allows the platform to attract users with diverse needs and enables them to trade on the same platform.

Bridge between Web2 and Web3. Opensea's user interface is very simple and easy to use, allowing those unfamiliar with blockchain technology to easily conduct transactions, which lowers the entry barrier for the NFT market and even the crypto industry to a certain extent, bringing in incremental funds. At the same time, Opensea also provides some trading tools and resources to help users better utilize NFTs.

Multi-chain layout. Although Ethereum NFTs are the largest NFT ecosystem, Opensea's early layout on multiple public chains has built a stronger moat for itself. Opensea supports various blockchains, including Polygon, Arbitrum, Fantom, etc. This allows users to choose the blockchain that best suits them for trading and enjoy lower transaction fees.

Opensea provided the earliest solutions for NFT marketplaces but is limited by traditional operating models. From the beginning, Opensea has made it clear that it would not issue tokens, as it adopts traditional equity financing methods, and the exit strategy for shareholders will also be traditional rather than token-based, so its capital operations fall within the realm of traditional finance. Additionally, its revenue primarily comes from transaction fees, which remained at a high rate of 2.5% until Blur emerged, prompting a reduction to 0% in response to Blur's market impact. Overall, Opensea resembles a preacher applying Web2 operational models in the Web3 world, but it seems that Opensea's development status is somewhat "out of place."

OpenSea UI Interface

LooksRare and X2Y2 Use Vampire Attacks to Capture Market Share

LooksRare and X2Y2 launched successively, adopting a strategy of airdropping tokens to Opensea users to gain initial traffic accumulation. They then introduced their respective mining rewards in an attempt to capture market share. However, the continuous reduction of reward mechanisms ultimately led to a sustained decline in real trading volume.

Despite this, LooksRare and X2Y2 remain strong competitors to Opensea, as they achieve this by providing a better user experience than Opensea. In addition to basic NFT buying and selling transactions, they also introduced features such as bulk listing and bulk purchasing, integrating other trading tools to facilitate users in querying the rarity of NFTs. Compared to Opensea, these two platforms have lower transaction fees, making them more user-friendly for those engaging in real transactions and transfers. However, this may also lead to a certain degree of wash trading on the platforms.

Overall, the design philosophy of LooksRare and X2Y2 is to model the marketplace as a "Taobao Mall," providing more convenient and comprehensive services while charging lower fees.

When it comes to low-priced NFT trading, bulk trading is a more suitable trading method. This is because bulk trading can reduce the time and labor costs required for individual NFT transactions, thereby lowering transaction costs and fees. Additionally, bulk trading can increase the efficiency and speed of transactions, making them quicker and more efficient.

However, when conducting bulk trading, it is important to charge appropriate fees to maintain the normal operation and development of the platform. The collection of fees should be within a reasonable range, ensuring that it can sustain the platform's operations while remaining affordable for traders. During the bulk trading process, wash trading is also an issue that needs to be addressed. The occurrence of wash trading can lead to a continuous decline in real trading volume, thus affecting the normal operation of the entire trading market. Therefore, measures need to be taken to prevent and combat wash trading behaviors, maintaining the healthy and stable development of the trading market.

Overall, LooksRare and X2Y2 do not start from functional differentiation but rather approach from the perspective of token economics, seizing the obvious shortcoming of Opensea's lack of a platform token, implementing a more Crypto Native strategy. However, as marginal rewards decrease, the business becomes unsustainable. This also laid the groundwork for Blur's success.

LooksRare UI Interface

The Story of Aggregators

Gem is an NFT aggregator project and was the largest aggregator before Blur launched. It provides a platform for users to easily discover and purchase NFTs from different NFT markets and platforms. Similar to Blur, Gem aggregates traffic from multiple mainstream NFT markets and enables bulk purchases of NFTs at lower costs. This can help users obtain the best deals across different marketplaces while also bringing more traffic and revenue to Gem itself. Gem has a traffic directing function, guiding users from various NFT markets and platforms to its own platform, which may create a certain traffic hijacking effect, making Gem a center for aggregating a large amount of NFT traffic. In April 2022, Gem was acquired by Opensea but continues to operate independently. This means Gem will become part of Opensea and receive support and resources from Opensea while continuing to provide its unique features and services to meet the needs of different users. As part of Opensea, Gem can better serve Opensea's users and expand its influence and market share.

Genie is one of the earliest NFT aggregator projects, with similar functions and positioning to Gem. Compared to Gem, Genie aggregates a smaller number of NFT markets and platforms but still provides users with a convenient platform to easily discover and purchase NFTs from different markets and platforms. In June 2022, Genie was acquired by Uniswap, becoming part of Uniswap. Uniswap is a decentralized exchange based on the Ethereum blockchain that facilitates asset swaps and liquidity provision through smart contracts. Acquiring Genie can help Uniswap expand its service offerings and provide users with more NFT-related tools and services. This means Uniswap can leverage its leading position in the decentralized trading space to attract more users and offer them more NFT services. Additionally, using Genie as a tool, Uniswap can provide a better NFT browsing and purchasing experience. Furthermore, collaborating with emerging NFT markets can help Uniswap expand its user base and increase revenue sources.

Overall, Gem and Genie have relatively simple functions and are highly substitutable. Additionally, neither platform has issued tokens, making it impossible to leverage tokens to drive the sustainable development of their businesses. However, after the acquisitions, both Gem and Genie can expand their service offerings with the support and resources of their parent companies. This will help them maintain competitiveness and achieve long-term development in the fiercely competitive NFT aggregator market.

Gem UI Interface

The Emergence of Blur

Blur's target audience includes professional NFT traders, whale players, and ordinary users (though the number of ordinary users is small), which sets it apart from other platforms in the market from the very beginning. The platform's model is Marketplace + Aggregator, aiming to aggregate multiple markets and platforms together to provide users with a more convenient experience, so NFT market makers and LP providers will benefit to some extent.

In addition, its economic model is also worth mentioning, which includes airdrop incentives, royalty fee incentives, and order incentives. These measures aim to reduce order gaps and provide stable liquidity for NFT orders. However, the author believes that Blur's best strategy is managing expectations. For example, the goal of the platform's first-quarter airdrop was to incentivize smart orders, the second-quarter airdrop aimed to incentivize the Bid pool, and the third-quarter was to incentivize market making. The core point of this series of operations is that the rules are vague, and expectations are eternal.

Moreover, Blur's fee rate is 0, and the gas fees are also very affordable. Users can easily shop, and the trading tools are comprehensive (including data analysis panels). Additionally, compared to other aggregators, Blur's trading speed is faster, providing users with a quicker trading experience. The functional differentiation distinguishes Blur's user base, with more professional trading depth charts and tools for monitoring liquidity and floor prices being more suitable for professional traders.

Through unique product positioning, product design, and airdrop distribution methods, Blur has initially created a positioning different from Opensea, addressing the issue of insufficient differentiation and standing out among numerous NFT trading markets. However, the real problem that Blur solves is the issue of insufficient liquidity.

Overall, Blur has achieved functional improvements through differentiation and has also implemented expected incentives through tokens, which to some extent improves the shortcomings of insufficient NFT liquidity.

Average Daily Trading Volume and Market Share of NFT Marketplaces in the Last 3 Months

When we think of Amazon in the context of Web 2.0, we envision a wide array of products, efficient logistics, and user-friendly after-sales service. NFTs are essentially consumer goods/products, and the characteristics of platforms providing buying and selling venues for NFTs are similar to those of e-commerce platforms. Therefore, we believe that the NFT market can be seen as the Amazon of Web3.

First, e-commerce has several key business features that enable businesses to sell their products online. These include online category and product information, shopping cart 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 robust online malls, efficiently sell products or services, manage orders and inventory, build customer relationships, and optimize marketing and sales strategies.

Additionally, NFTs can be considered a type of commodity. Commodities are defined as raw materials or primary agricultural products that can be bought and sold, such as gold, oil, or wheat. On the other hand, NFTs are unique digital assets that represent ownership or authenticity proof of specific digital items (such as artworks, music, or even tweets). They can be bought and sold like other commodities, with their value determined by market supply and demand.

Similar to traditional commodities, the value of NFTs can fluctuate due to various factors, such as the popularity of the underlying digital asset, the reputation of the artist or creator, or the rarity of the NFT itself. Furthermore, NFTs can serve as a means of diversifying investment portfolios or as speculative assets with potential economic returns.

In summary, while NFTs are a unique type of digital asset, in terms of their buying and selling in the market, they can be viewed as a commodity, and their value is determined by market forces. Thus, it can be said that NFTs are primarily commodities and secondarily assets with investment attributes.

Two key factors contribute to the success of NFT marketplaces: liquidity and user stickiness. In terms of liquidity, a market needs a sufficient number of buyers and sellers to ensure transaction depth and smooth trading. As for user stickiness, this is largely driven by token economic models, and strategies from this perspective may not necessarily translate into deep "loyalty" among users. However, once the platform's liquidity improves, combined with the catalytic effect of token economic models, the platform's liquidity will continue to form a positive feedback loop until 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 is slow to update its platform and features to meet the ever-changing demands of the market. Opensea initially led the market with good liquidity depth and a wider variety of NFT assets. However, the NFT market is highly volatile and easily affected by sudden changes in demand; platforms that cannot keep up with these changes may lose customers to competitors. Essentially, Opensea cannot surpass other projects in trading performance, as there will always be forked products in the market.

No token economy. Token economy refers to a system that uses tokens as a means of exchange and incentives. Opensea currently lacks a token economy, which may limit its ability to attract and retain users interested in earning or using tokens on the platform. The vampire attacks by LooksRare and X2Y2 that attracted a batch of users are direct examples of this.

Weak user stickiness. User stickiness refers to the loyalty of users to a specific platform or brand. Opensea's user stickiness is weak, meaning users may not be loyal to the platform and may be more interested in speculative investments (i.e., buying NFTs with the hope of selling them later for profit) than in the platform itself. In other words, most users using Opensea prioritize their need to arbitrage across different platforms over the pursuit of the platform's performance. Blur specifically targets this segment of user demand with a token airdrop plan that has strong expectation management.

Overall, these factors indicate that Opensea may struggle to compete in a rapidly evolving market and provide insights for later projects. To remain competitive, Opensea may need to focus on improving its platform features and user experience, create a token economy to incentivize user participation (while the likelihood of Opensea issuing tokens is low, it is very likely to issue tokens through its subsidiary Gem), and establish stronger customer relationships to enhance user stickiness.

Market Share of NFT Marketplaces in the Last 2 Years

How Far Can Blur Go

One of the biggest challenges facing the NFT market is determining the value of NFTs. Unlike traditional assets, NFTs are unique and lack intrinsic value support. Therefore, determining the floor price or fair value of an NFT can be difficult. This lack of transparency makes it challenging to conduct additional derivative trading or secondary market trading, as buyers and sellers may struggle to agree on the asset's value. Platforms like Opensea and Blur attempt to address this issue by providing transparent and trustworthy markets for NFT trading.

Opensea is one of the earliest NFT markets. The platform allows users to build different NFTs and cultivate community culture. This approach successfully established a loyal user base, and Opensea's success provided a paradigm for other markets like LooksRare and X2Y2, which adopted similar models but added token economies to promote their products.

Blur is another NFT market that focuses more on speculation than collection. The underlying goal of these users is to make money on Blur; they do not care about the type of NFTs they hold as long as they have a floor price. Blur is seen as a platform for speculators, who are more interested in value discovery and profitable trading than in building collections.

Therefore, we believe that the moat of NFT marketplaces is not deep.

Where Will the Next Phenomenal Project Be

Currently, we can view platforms involving market makers, LPs, and traders as specialized NFT marketplaces, represented by Blur; while those that only provide the most basic Mint, Collect, Buy, and Sell functions can be seen as retail NFT marketplaces, represented by Opensea. In fact, the competition in the NFT marketplace is also concentrated between the two. For specialized marketplaces, the key focus should be on providing traders with more stable trading depth and more professional trading tools. For retail marketplaces, the focus should be on how to empower the platform and bring continuous traffic input. Because the initial traffic input is a key factor in whether an NFT marketplace can take off.

In summary, we make the following conclusive predictions:

• One trend in the future development of the NFT market is the emergence of vertically segmented platforms. These platforms will focus on specific types of assets or markets, such as game NFTs, sports NFTs, or music NFTs. By concentrating on specific markets, these platforms can offer more tailored services and attract corresponding user groups.

• Another trend is the emergence of new trading assets. Not just PFPs (Profile Picture NFTs), as the NFT market continues to develop and evolve, new types of assets will emerge and become objects of speculation.

• In terms of technological development, there is a need for more efficient and feature-rich NFT marketplaces. Currently, most NFT markets use the same AMM/bond curve protocols, which may be subject to manipulation and inefficiency. New protocols may emerge that offer more transparent and efficient trading mechanisms.

• Finally, due to the network effects and established user base of the Ethereum blockchain, multi-chain NFTs and L2 NFTs may face challenges in competing with ETH NFTs. However, as other blockchains continue to develop and gain traction, there may be opportunities for cross-chain trading 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: Pioneers of NFT Market Aggregation Platforms, Foresight News, 2022, 12(2): https://www.defidaonews.com/article/6729148

[3] Kunal Goel, Messari: How OpenSea's Acquisition of Genie Will "Break the Game"?, WeChat Official Account, 2022, 05(7): https://mp.weixin.qq.com/s/ph8vNngMgU8344xNYsxxOQ

[4] Alastair, The Rise of NFT Finance (NFTfi) and OTC Trading, Old Fashioned 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/