✦ The eBay of NFTs

✦ The eBay of NFTs
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Hi Quartz members,

Imagine that you’re global pop sensation Justin Bieber. You’re fresh off another hit album, the R&B-infused Justice, and eager to spend your hard-earned cash on something really, really expensive. Instead of a diamond-encrusted Family Guy necklace—because really, who needs two of those?—you’re looking for something sensible, something sophisticated, something like… a digital image of a cartoon ape wearing a gray t-shirt and a five-o’clock shadow. Where would you, Justin Bieber, go to make such a purchase?

If you really were Bieber, you’d go to OpenSea, and you really would spend $1.29 million on a JPEG of a monkey.

Justin Bieber's bored ape NFT

OpenSea is the leading peer-to-peer marketplace for non-fungible tokens (NFTs). At their core, NFTs are an ownership model for virtual “stuff” on blockchains, a corollary to cryptocurrencies—but also a thing to buy with them. NFTs are essentially a string of unique numbers, recorded on a blockchain, that point to something: maybe a digital trading card, a virtual character in a video game, or a JPEG of an artwork.

Founded in 2017, OpenSea has in the past year become the NFT marketplace of choice for Bieber and tens of thousands of other collectors. Out of the $2.7 billion spent on NFT marketplaces in December, OpenSea handled $2.2 billion, good for 84% of the market, according to data compiled by The Block. The remaining $500 million was spent on Nifty Gateway, Magic Eden, Solonart, and other marketplaces. In January, OpenSea facilitated $5 billion in sales—a record for the company—according to Dune Analytics.

Ironically, OpenSea’s success also represents something possibly broken in web3, a vision for the internet pushed by crypto proponents. Web3 is supposed to be decentralized, and enable decentralized control of power, speech, and money online—a sea change from the current internet that’s effectively controlled by large companies like Alphabet, Apple, Amazon, and Meta. But OpenSea is a big VC-funded company that relies on other centralized companies, like API providers and crypto wallets, to enable the trade of NFTs. It’s an excellent business, but one that itself runs afoul of crypto’s guiding philosophy.

By the digits

471,000: OpenSea users each month

70: OpenSea employees as of February 2022

2.5%: OpenSea’s cut on all sales

$13.3 billion: OpenSea’s current valuation

$5 billion: January sales on OpenSea

$2.2 billion: Trading volume for CryptoPunks NFTs, the top-ranked collection

$261 million: OpenSea’s biggest sales day ever, on Jan. 13, 2022

NFT sales on OpenSea

A brief history of OpenSea

December 2017: OpenSea launches in beta.

January 2018: The company raises a pre-seed round with Y Combinator.

December 2018: OpenSea acquires real-time trading company Atomic Bazaar.

March 2021: Street artist Banksy sells an NFT on OpenSea.

April 2021: OpenSea raises $23 million in a Series A round led by Andreessen Horowitz.

January 2022: After a Series C round, the company is valued at $13.3 billion.

January 2022: OpenSea acquires DeFi wallet company Dharma Labs.

Dirty rotten scammers

OpenSea is the leading NFT platform—it even became the de facto NFT database for Twitter’s new NFT profile pictures—but it isn’t immune to crypto’s scams and scammers. Already at the company:

  • Scammers were able to buy valuable NFTs at old list prices, making off with hundreds of thousands of dollars worth of images.
  • 80% of NFTs minted using a free tool were plagiarized. The company then limited free minting to 50 items per user, but reversed the decision after complaints.
  • Scammers impersonated OpenSea employees on the company’s official Discord server and stole valuable NFTs.
  • An actual OpenSea employee allegedly traded NFTs on “insider information,” which violates the site’s terms of service.

Preventing fraudulent activity in crypto is tricky for a few reasons:

💸  Cryptocurrencies and NFTs are not regulated securities, so it isn’t illegal to make promises to collectors and then abandon a project, or to participate in “insider trading.”

🧾  While there are many verified accounts on OpenSea, many accounts are not. That means it can be hard to tell who is really selling the real version of an NFT.

😬  Transactions on the blockchain are permanent and irreversible. Once a scam transaction has been completed, it’s already too late.

Keep learning

Have a non-fungible end to your week,

—Scott Nover, emerging industries reporter (and resident NFT skeptic)

One 🙃 thing

OpenSea is the front-runner in the NFT arms race, but it does have competition. Data from DappRadar shows that the platform LooksRare has become a major force in NFT trading, but industry reports indicate that it’s filled with wash trading—fake trading between a set of buyers and sellers to artificially inflate the volume of certain assets.

A more serious challenge comes from Coinbase, the popular crypto exchange, which is getting into the NFT business. Interestingly, Coinbase will let people buy NFTs with credit cards, not just crypto stored in specialized wallets. That’s both more user-friendly and, of course, another shock to the promise of a decentralized web3.