The battle for market share.
Competition among businesses can be an exciting thing to watch.
IBM vs. Apple in the 90s for desktop computers.
Microsoft vs. AOL in the late 90s for the dominant internet browser.
Samsung vs. Google vs. Apple in the last decade as the top mobile phone.
In the crypto world, we’ve witnessed an epic battle for market share among many layer 1 blockchains since Ethereum's launch in 2016.
And in 2020-21, we watched a battle between Uniswap and Sushiswap (among others) to see who would win out as the dominant DEX (decentralized exchange) in crypto.
Since 2022 however, there has been no hotter battle in web3 than the one between NFT marketplaces. Competition is fierce.
It includes everything from technological innovation, feature rugs and of course, plenty of tokens. It’s been a fun story to keep up with.
But, do you know what’s really cool about the market share wars in Web3? 🤔
We can watch it unfold in real-time, on-chain!
We don’t need to wait for a company's quarterly earnings report or trust their PR team, we can stay up-to-date on the minute by 👀🔛⛓️
The chart below tells an incredible 3 year story about the adoption of NFTs and the marketplaces that enable this budding economy to exist.
If the chart above makes little sense to you, don’t worry…
In this report, I’m going to use the chart above and many more to walk you through the heated competition between NFT marketplaces over the last few years.
I’ll share some launch and growth tactics that some of the marketplaces have used to gain market share as well as some of the shady moves that have been pulled to gain an edge on competitors.
Buckle up friends, we’re going for a ride down memory lane! 🚀
By the way, this NFT marketplace war is far from over. If anything, we’re right in the heart of it now as you read this report. So this will get you up to speed on where we are and how we got here.
Plus we’ll speculate a little on where this will all go.
Let’s get into it 👇
Part 1: The Battle Begins
OpenSea launched in 2017 and stood alone in the market all the way until Foundation launched in February of 2021. At the time, monthly volumes for NFT sales were reaching $100 Million USD for the first time.
However, it didn’t last long as OpenSea quickly squashed the market share gains that the niche marketplace Foundation was making by the end of Q2 2021.
For the rest of 2021, OpenSea dominated the market with 98% market share in transactions, users and volume traded. During the same time, each of these metrics grew significantly, as you can see in the chart below.
What’s interesting about the NFT marketplace wars and a big reason as to why OpenSea remains the dominant player today is that basically every other marketplace launched at the top of the NFT bull market in early 2022.
These marketplaces have been fighting for a shrinking pie of NFT sales and volumes since the beginning of the war.
The good news today however is that while volumes are way down, it seems that they have bottomed out, and as we can see below, transactions are actually pushing up against reaching new all time highs.
LooksRare, The First Real Competitor?
The last time the NFT industry was pushing through all time highs was January 2022, when LooksRare entered the market with a bang.
LooksRare didn’t just launch a decentralized version of an NFT marketplace to compete with OpenSea, they also shocked the industry by airdropping millions of dollars worth of $LOOKS tokens amongst those who bought or sold at least 3 ETH worth of NFTs on OpenSea.
The catch however, was that in order to claim the tokens, users needed to transact at least once on the new LooksRare marketplace.
In addition, LooksRare incentivized users to continue to use the platform by creating a rewards program, effectively giving away $LOOKS tokens on an ongoing basis to those who used the platform.
So, how did it work, you may ask?
Within 2 weeks of launching LooksRare controlled 82.5% of the entire NFT sales volume! 🤯
This was the first time OpenSea felt any real hint of potential competition.
If you look a bit closer on-chain however, something didn’t appear right about these numbers.
How did the total NFT market go from $2.5 billion in volume up to $16 Billion in 1 month?
Meanwhile, NFT transactions only marginally increased and transaction numbers on LooksRare paled in comparison to OpenSea.
It turns out that many NFT traders were gaming the system and performing what’s called “wash trading” to earn $LOOKS tokens.
Traders would simply buy and sell the same high value NFT back and forth to wallets they owned. Some would go as far as to buy the NFT off the other for extremely high prices that made no sense at the time.
This was happening so much in the beginning that the numbers show at least 95% of all trading volumes on LooksRare were considered wash trading.
You can see the numbers below by comparing the first chart of total daily volumes on LooksRare, measured in the 100s of millions per day.
To the second chart below which filters all suspected wash trades, which is now measured in the 10s of millions per day.
It’s safe to say that most of LooksRare’s 83% market share in volume was fake.
While it may seem that LooksRare gave away millions of dollars incentivizing users to trade on their platform for no reason, in the end they did manage to hold about 10-15% market share of the total NFT Volume after “fixing” their wash trading problem.
FYI: I will be sharing more on the $LOOKS tokenomics and incentive program in next week's PRO report, as well as the same for $BLUR, which I will get to later in this report.
Solana NFTs Enter The War
The next big catalyst in the NFT Marketplace war was Solana NFTs and the launch of its marketplace, Magic Eden.
Previous to this, almost all of the NFT activity happening in marketplaces occurred on Ethereum, which is slow and extremely expensive.
Magic Eden decided to enter the market with a different tactic, which was to launch solely on top of Solana, an extremely fast and cheap blockchain with a community, user base and token price that was growing quickly.
In terms of transactions, it worked extremely well. Magic Eden launched in January 2022 (same as LooksRare) and by June it was facilitating more than 50% of all NFT transactions.
By October, Magic Eden had taken the market share of 40% of unique NFT buyers.
And 38% of unique NFT sellers.
As great as the numbers look, in terms of USD volumes however, Magic Eden never managed to take more than 12% market share.
It’s important to note that volume is not everything, as many NFTs will be low value in the future, rather than the highly valued speculative NFTs from 2021-22 on Ethereum.
However, volume is how NFT marketplaces earn revenue (via charging a % service fee), so in the long run, volumes definitely matter for the business model.
Since Solana’s recent struggles, – after the FTX fallout – Magic Eden’s market share has shrunk to < 3%.
That said, Magic Eden has recently integrated into Ethereum and Polygon, in addition to creating some rewards programs to incentivize growth, so we will wait and see if Magic Eden can fight to remain a viable contender in the NFT marketplace war.
By the way, when we look at the chart below – comparing total NFT transactions across blockchains – the move to Ethereum and Polygon seems like a very wise choice, as transactions on SOL are incomparable with the other respective blockchains.
X2Y2… More tokens… More Wash Trading
Crypto people love tokens. That’s why the most popular strategy to try and dethrone OpenSea so far has been to simply launch a token.
In 2021-22 the NFT market was (...still is?) dominated by traders and speculators trying to capitalize on new financial assets.
As a Web3 Academy reader you know that we see this industry as something much bigger, but that’s the reality of the average NFT user in the last 2 years.
So it only makes sense for new marketplaces to give the people what they want… tokens!
X2Y2 is a decentralized NFT marketplace which also launched in January of 2021. It uses the X2Y2 token for governance as well as a means to distribute trading fees back to its token holders and users.
After also using a token airdrop tactic, X2Y2 managed to take 45% market share of total NFT volume by the middle of 2022.
And 6% market share of total NFT transactions.
This is a bit more reasonable versus the numbers of LooksRare. However, users gamed this system as well. So when we account for wash trading, X2Y2 market share isn’t as solid as we originally thought.
That said, it is seeing better success than LooksRare, which is likely due to X2Y2 having cheaper service fees amongst the top NFT marketplaces (...until Blur came along).
Part 2: The Creator Royalty Rug
Sudoswap was the next NFT marketplace to enter the war, launching its new platform in July of 2022. Sudoswap shocked the market with its launch, however not through launching a token or an impressive airdrop.
Instead, Sudoswap decided to undercut the market by charging only .05% trading fees (OpenSea is 2.5% for comparison), but more importantly, removing the enforcement of creator royalties.
This created a big buzz across the industry as most people in the NFT space at the time didn’t realize that creator royalties weren’t actually enforceable.
Of course, the profit driven NFT traders enjoyed the cheap service and quickly Sudoswap gained 6.6% of all NFT transactions.
While the chart below shows that Sudoswap has never made a big dent in terms of NFT volume (about 2.5%), if we were to remove the wash trading volumes of LooksRare and X2Y2, Sudoswaps volumes would look a lot more significant, especially when you consider it wasn’t paying users to use its platform.
Part 3: Blur Enters the Chat
The final piece to the NFT marketplace puzzle is Blur, which is a story still developing as you read this report.
Blur is a no-fee, royalty optional marketplace designed for pro traders which launched in October 2022. Since launch, Blur had promised an airdrop of their native token $BLUR, however had set specific parameters to be eligible to claim, in hopes of limiting wash traders and airdrop farmers.
The token was airdropped just a few days before this writing, on February 14th, 2023 and has generated some serious buzz across the industry.
Since launch, Blur has grown significantly in market share as seen below.
In fact, since the token launched, Blur has surpassed OpenSea as the #1 marketplace for market share of NFT trading volume.
While we don’t have the data to confirm yet, my assumption is some of this volume is from traders farming the airdrop. Therefore, we’ll have to see how volumes hold up in the next few weeks to months now that the airdrop is complete (more airdrops coming so we may not know for while).
In the meantime, if we look at weekly users, OpenSea still remains king, however Blur is making moves quickly since the recent airdrop.
While I don’t think anyone beats OpenSea anytime soon, Blur seems to be the clear winner of the #2 spot right now, at least in terms of user activity. They are also putting up a strong fight against OpenSea, going as far as recommending NFT creators block OpenSea to ensure they receive royalties on their platform 🤦
…update just before publishing! OpenSea is feeling the heat and just removed fees too as a result of Blur's moves.
The war often takes to Twitter for some fun too. In this regard, LooksRare is winning this battle:
Final thoughts
This NFT marketplace war has been wild, happening in such a short period of time and I see no reason why it slows down anytime soon.
As we look into the future and wonder “who's going to make it?”, the big thing to look at is who’s actually making money here. Ultimately, for these businesses to continue to innovate or even incentivize their users, they need to make money.
In terms of revenue, OpenSea is the clear winner in this battle. Below is a chart comparing marketplace revenue by market share.
To put it into perspective, below is the cumulative revenues of the NFT marketplaces since the end of January. OpenSea is inching close to $1 Billion in total revenue, whereas Blur has earned $0 🤷.
Remember, Blur is a NO-fee NFT marketplace, so it has no revenue… for now. (Tech companies run unprofitably all the time, so it may not be as bad as it sounds).
There’s a lot of money to be made in this industry and also plenty of room for growth. The size of this market will grow so large in the coming years that all of these marketplaces will have plenty of pie to take a piece out of. 📊
Will it be tokens, creator royalties or low-to no fees that wins out? Honestly, I have no idea. I think this industry is changing and adapting way too fast to predict which features win but it seems as though fees are going to zero.
So how will Marketplaces monetize? Maybe we will see ads or the free/premium model (aka memberships). Let’s see where this goes.
My assumption is that there will be infinitely more NFT marketplaces in the future, so one to a few will likely win out as the generic marketplaces and the rest will need to niche out and solve specific problems for specific users.
The one opportunity I see right now is Polygon, who’s onboarding millions of new users into NFTs at the moment, most of which have never used any of these marketplaces before.
This means there is no brand recognition and that market is up for grabs.
If we compare blockchain activity across OpenSea, to ensure we remove all wash trading and airdrop farming, we can see just how fast Polygon is taking over market share against Solana and Ethereum.
Even if we consider NFT volume, Polygon activity is beginning to break out!
If I were an NFT marketplace I would be looking to tactically drop some tokens or somehow create a buzz for the new Polygon users. It seems like some ripe land for the next stage of the NFT marketplace war! 👀
Well friends, thanks for reading this one and I hope you enjoyed the story. Next week, I plan to break down a few of the tokens being used by NFT marketplaces to understand the sustainability of their tokenomics.
This will give us some insight into who has the best chance to make it long-term as well as tactics for new NFT marketplaces (or other protocols) looking to enter the space with a token.
See you in the next one!
ABOUT THE AUTHOR
Kyle Reidhead
Founder of Web3 Academy and Impact3
Find him: Twitter
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