Forbes Dialogue with Blur: How a 10-Person Team is Changing the NFT Market Landscape?

Original Title: 《Forget Art, Let's Trade: How A 10-Person Startup Came To Dominate NFT Markets》

Interviewee: Tieshun Roquerre, Co-founder of Blur

Author: Maria Gracia Santillana Linares, Forbes

Translation: Kxp, Rhythm BlockBeats

As the NFT buying frenzy of the past year subsides, a new trader-centric NFT marketplace has quietly overtaken OpenSea to become the market leader.

Tieshun Roquerre, the 24-year-old co-founder of NFT trading company Blur, recalls the Vestaboard hanging on the wall of his home office, remembering how just a few months ago, the noisy sounds coming from this display were unbearable. This cloud-connected split-flap display, designed to resemble a retro train station departure board, was programmed by Roquerre to alert him whenever an NFT was bought or sold on his emerging NFT marketplace, with each flip of the board representing a new transaction on Blur.

When Blur first launched in October 2022, the threshold for flipping a display board was 0.1 ETH, equivalent to about $130 in NFT value. But as traders flocked in, even when Roquerre raised the threshold to 1, 5, or even 10 ETH, it did not dampen people's enthusiasm for trading.

Roquerre admits, "It was really noisy, we had to turn it off." He self-deprecatingly added, "I was annoyed, but I was also happy to be annoyed."

In the past six months, Roquerre and co-founder Anthony Liu (who was only recently known by his online name "Galaga") have built the largest NFT marketplace based on trading volume, surpassing the market leader OpenSea. The latter was valued at $13.3 billion in January 2022, making its co-founders Devin Finzer and Alex Atallah among the first NFT billionaires. In March, the small company Blur, with only 10 employees, reached a trading volume of $1 billion, while OpenSea's trading volume was $260 million.

Like other digital assets, the NFT market has seen a decline since peaking in January 2022, when sales reached $5 billion. However, March's monthly trading volume hit $1.7 billion, and year-to-date trading volume has exceeded $4.7 billion. Some of the most popular NFTs, such as Bored Apes, often sell for over $100,000.

Blur's rapid rise, based in San Francisco, has shocked industry experts as it has managed to surpass New York-based OpenSea, despite other well-funded startups failing to do so. OpenSea dominated the NFT market in the summer of 2021, and even as competitors sprang up, it still held a 75% market share by the end of 2022. According to Dapp Radar, it generated $472 million in revenue from $18.8 billion in trading volume, with a transaction fee of 2.5%. A year ago, Coinbase launched its own marketplace to compete with OpenSea, but the results were dismal, recording only $6 million in sales to date.

There are many reasons for Blur's rapid rise. First, while OpenSea has catered to retail NFT buyers and art enthusiasts, Blur has taken a completely different approach. Blur borrowed growth strategies from Robinhood, targeting active NFT traders and supporting its business and growth through venture capital raised from crypto investors like Paradigm and Cozomo de Medici, thus overwhelming competitors on platform fees. Similar to Binance, Blur also rewards customers with its own minted token, while OpenSea has yet to launch a similar initiative. Blur's timing was impeccable. For user-friendly OpenSea, casual purchases of NFTs by retail customers and collectors have essentially disappeared. However, profit-driven NFT traders continue to trade digital assets in large volumes daily.

Blur's alternative model and sudden emergence have shaken the entire NFT ecosystem, prompting many participants to reassess audience targeting, creator royalties, and NFT utility.

Roquerre, the son of a bed-and-breakfast operator in Cambridge, Massachusetts, developed a love for tech startups in 2013 when, at the age of 15, he landed a summer job as a software engineer at the rapidly growing T-shirt startup Teespring. This internship evolved into a full-time job after Roquerre dropped out of his private high school in Boston and, with his mother's help, moved to a San Francisco apartment shared with a roommate he found on Craigslist.

After a year at Teespring, Roquerre founded his own recruiting startup, StrongIntro, in 2015. A year later, he left the company to become a freshman at MIT, while Anthony Liu was already a sophomore. As a local from San Francisco, Liu always knew he wanted to enter the startup industry. He said, "To a large extent, the reason I chose to come to MIT was the valuable network here."

Anthony Liu, who leads the seven-engineer team at Blur, only publicly used his real name until today.

In 2018, during his junior year, Liu met Roquerre at a tea party hosted by a mutual friend. The tea party was an opportunity for students interested in startups at MIT to get to know each other. "We were both very conscious in our choices while looking for partners," Liu said.

In May of that year, Liu graduated with a degree in computer science, while Roquerre decided to drop out of MIT to co-found a blockchain startup called Namebase. Namebase operated a blockchain-based domain name marketplace. After three years of development, they sold it to Namecheap, the second-largest domain registrar globally after GoDaddy.

During the NFT boom in 2021, Roquerre began collecting and trading digital art, but he was dissatisfied with the services of existing marketplaces for traders. He said the existing marketplaces "viewed NFTs as a retail shopping experience," which was not ideal for experienced collectors looking to make more and faster trades. Meanwhile, Liu, who had been creating and selling digital collectibles online since high school, was a firm believer in the idea. Thus, in January 2022, Liu and Roquerre wrote the first line of code for their new NFT startup, focusing on traders.

Marketplace platforms, where a company provides a venue and infrastructure for buyers and sellers to communicate, are difficult to disrupt. If a good trading venue has already emerged, it is very challenging for a new venue to attract enough buyers and sellers, and the larger the existing market, the harder it is to break into. For example, although Craigslist's website has remained unchanged for over 20 years, its revenue in 2021 still reached $660 million; and Coinbase, which has been around for 11 years, remains the most popular place in the U.S. to buy crypto. There are dozens of marketplaces globally for buying and selling NFTs.

Roquerre stated that competing with OpenSea's dominance in the retail NFT buyer market was almost "impossible," but he believed there was an opportunity among the customer base that OpenSea served less well: the active traders who sometimes traded NFTs worth hundreds of thousands of dollars daily.

To meet the needs of traders, Blur designed its user interface to be completely different from OpenSea's, which emphasizes NFT artworks and presents them in a gallery-style display. Blur borrowed from active stock trading interfaces, displaying important trading data such as price per minute, trading volume, and ownership information in a simple NFT collection list with sortable columns. Users can also delve deeper into information such as "depth," showing trading volumes at different price levels, and its "bidding pool" allows traders to bid on multiple items at once and bulk purchase NFTs with a single click.

This contrasts sharply with the previous era of Blur, where traders had to list large numbers of NFTs one by one to sell them on OpenSea. Ovie Faruq, co-founder and artist of the NFT collection Rektguyz, stated, "That was just painful."

To lower the costs for these traders, Blur adopted a controversial strategy: paying royalties to artists became optional. On OpenSea and other marketplaces, NFT creators typically have the right to receive royalties on secondary sales of their works, often up to 2.5%. However, royalties were never embedded in the underlying low-level code of NFTs on the blockchain, so they can only be enforced by software built on top of the blockchain (like OpenSea's marketplace). Blur's move angered artists, leading OpenSea to lower its royalty fees, and by February, both marketplaces agreed to adhere to a minimum royalty fee of 0.5%.

"Blur has stated that they don't care about artistry and just want to build an exchange where people can create a market for these works without caring what these NFTs actually look like," said Shane Cutra, a former Chicago options trader who is now retired and passionate about NFT trading. Since he began trading in December 2020, the 53-year-old Cutra claims to have made about $400,000 trading NFTs.

Blur has also attracted customers by issuing its native Blur Token, which is deposited (or airdropped, as it is known in the crypto space) into traders' wallets based on their activity levels. Creating such "loyalty" tokens (which can be used for discounts in the case of Blur) and distributing them for free based on usage is a common marketing strategy in crypto to attract and retain customers. Blur's token, like Binance's token, does not represent ownership of the platform but does provide voting rights, allowing token holders to voice opinions on platform software changes.

Blur's first round of token airdrops took place in February, targeting users who had been using the platform since its launch last October, providing additional tokens for traders who switched from competitors. It also found an innovative way to reward trading activity with tokens, minimizing "wash trading," a common phenomenon in crypto trading where people trade with themselves to gain trading incentives or manipulate the market, effectively only rewarding customers for certain types of bids. NFT marketplaces Looksrare and X2Y2 both launched in early 2022 in an attempt to disrupt OpenSea but were plagued by significant wash trading and never captured more than 15% of the NFT trading market share.

Roquerre declined to disclose how many Blur Tokens he holds (with a total issuance of 342 million), only stating that 29% belong to Blur's founders and employees. Of the remaining loyalty tokens, 51% are allocated to Blur's traders, and 20% to investors and advisors. According to CoinGecko, the circulating market cap of Blur's tokens is approximately $250 million, with each Blur Token valued at around $0.58.

The cumulative effect of Blur's strategy has had a significant impact on the NFT market. In February, OpenSea announced it would temporarily waive its 2.5% platform fee—its business model that earned nearly $500 million in revenue last year. In April, OpenSea launched OpenSea Pro, an NFT trading platform with a 0% fee and trading tools similar to Blur. When Forbes reached out to OpenSea for comment, they declined to discuss Blur, changes in fee structures, or whether they plan to launch their own loyalty token. "I've seen a lot of competition fail in my lifetime," said Erick Calderon, artist and founder of the well-known NFT studio ArtBlocks, "and this one is the most astonishing to me."

In the chaotic and sometimes confusing world of crypto and NFT trading, establishing sustainable barriers around a business model is nearly impossible. Since its launch last year, Blur has replaced OpenSea as the market leader in less than six months, but it faces many challenges if it hopes to maintain its lead. First, it does not charge any fees, relying primarily on its $11 million in venture capital funding. It needs to adopt fees or find other revenue sources to sustain its expenses, currently with only 10 employees, most of whom are software engineers. In August, Blur's token holders will vote on a proposal to implement a 2.5% platform fee, but if these fees are enabled, it could quickly lose a significant number of users. Although Blur has been far ahead of OpenSea in trading volume for the past seven weeks, OpenSea still has more monthly users than Blur, with OpenSea having 90,000 traders weekly compared to Blur's approximately 40,000, according to data from Dune.

There is also discord between Blur and NFT artists, as it boldly cut all royalties given to creators. Betty (a pseudonym), founder and CEO of the popular Deadfellaz series, recently tweeted, "How can you expect the economy to thrive when you don't acknowledge or support the people who create what you trade?"

Then there are regulatory issues: the U.S. Securities and Exchange Commission (SEC) has been ramping up enforcement against crypto companies and increasingly views NFTs as potential securities. A lawsuit against popular NBA Top Shot creator Dapper Labs alleges that the company's NFTs are securities, and the SEC is reportedly investigating leading NFT studio Yuga Labs for the sale of NFTs (like Bored Apes) that are allegedly unregistered securities.

Tokens like Blur's reward token may also come under scrutiny, as Adam Pollet, a partner in securities enforcement and litigation practice at Eversheds Sutherland, stated that even if the tokens are used solely as governance tokens to improve and fund platform development, Blur could still face regulatory action.

He added, "This reduces the risk of violations, but it certainly does not eliminate it." Roquerre stated that Blur is working closely with its legal team and partners at Paradigm to ensure they are on the right side of the law. He said, "From day one, we have been focused on ensuring that everything we do complies with regulations."