GM frens,

In today's edition of The Ground Floor we will be breaking down the ever increasing competition OpenSea is facing, and what this competition means for Web3 marketplaces.

The Billion Dollar Prize

Breaking down the increased competition OpenSea is facing in 2022...

OpenSea is the most valuable software company specifically focused on NFTs.

Founded in December 2017 by Devin Finzer & Alex Atallah, OpenSea is currently the leading NFT marketplace that boasts 5x the number of users vs its biggest competitor.

🔨 Building In The Bear

OpenSea's dominance today is in large part due to the way they worked to build a product consumers loved during the NFT bear market in 2017.

By 2021, when the bull market began, OpenSea had successfully established itself as the leading NFT marketplace globally, and was perfectly positioned to capture the exponential increase in the demand for NFTs.

As OpenSea continued to acquire new customers in the bull market of 2021, its valuation surged to reflect the seismic shift the Web3 World has experienced in the demand for NFTs — with OpenSea capturing 2.5% of every transaction on its platform.

With this success story, OpenSea raised $300 million at a $13.3 billion USD valuation.

From Bull To Bear

Last month, OpenSea's monthly transaction volume was $250 million.

When OpenSea last raised capital in January 2022, OpenSea's monthly transaction volume was $4.85 billion — 19.4x last months figures.

This 95% decline in transaction volume can largely be attributed to the overall decrease in consumer spending on NFTs that we have seen from June 2022 onwards.

That said, while the NFT market is contracting, OpenSea's overall market share is simultaneously shrinking as they face competition from Magic Eden, Blur & Looksrare.

🏁 Competition Is Coming

Today, we would identify Blur as being OpenSea's biggest competitor.

Despite having a fraction of OpenSea's users — Blur has successfully captured a significant chunk of OpenSea's customers, customers who spend significantly more on NFTs when compared to the customers OpenSea has retained.

In the last 3 days, Blur counted 25% of OpenSea's active users, however, the 2,000 - 3,000 users choosing Blur have spent more than 2x the total amount of ETH OpenSea's 8,000 - 14,000 users have spent purchasing NFTs.

Why Is Blur Winning?

On OpenSea, consumers can only purchase NFTs listed on OpenSea — whereas on Blur consumers can purchase NFTs from every marketplace thanks to the platform aggregating listings from every major marketplace, in addition to its own listings.

Perhaps more importantly, Blur charges 0% creator & marketplace fees compared to OpenSea whereby consumers are accustomed to paying upwards of 7.5% in total fees.

These fees have provided OpenSea with millions in revenue in the short term, however, it's concurrently costing OpenSea their competitive edge with the biggest buyers continuing to favor marketplaces such as Blur that offer significantly lower prices.

How Is OpenSea Responding?

OpenSea isn't sitting still as competitors capture its market share.

In the race to remain the #1 marketplace, OpenSea recently provided creators with the tools needed to block marketplaces such as Blur from listing their assets, however, OpenSea's roll out of these tools has been met with strong criticisms from creators who expressed their frustration with OpenSea's approach.

The following comments from Zeneca (Chief Zen Officer at Blur) in regards to why his own collection ZenChest is restricted from trading on Blur perfectly captures the problems creators have identified with OpenSea's new tools:

In essence, creators have the choice between earning royalties on OpenSea and blocking every other platform from being able to list their NFTs, or allowing other marketplaces to list their NFTs & earning 0% creator royalties on OpenSea.

📡 Looking Forward

In the short run, OpenSea is very effectively using its dominance to deter projects from allowing consumers to list NFTs on other marketplaces that don't enforce creator royalties.

While this strategy is working well in the short term, I'm not convinced OpenSea will be able maintain such a strategy in the long run as many consumers, myself included, have grown dissatisfied with the need to pay OpenSea 2.5% of every transaction.

It's my outlook that OpenSea will soon shift its strategy by lowering its marketplace fees to compete with Blur, however, such a move will likely prove to be little too late as the consumers with the deepest pockets continue to embrace 0% transaction fee marketplaces.

✔️ The Lessons Learned

1) Building Web3 products in a bear market can pay off generously in bull markets.

2) OpenSea is using its dominance to deter projects from allowing their token holders to list NFTs on other marketplaces such as Blur.

3) Consumers preferences has put the Web3 world on a path whereby 0% marketplace fees & 0% creator royalties will potentially become the norm.

4) On Chain Data: Use the following link to review the data used in today's TGF.

Web3 Roundup

1) Bad News For BAYC: Both the founders of BAYC, Beeple, Jimmy Fallon and a host of other celebrities are facing a class action law suit that alleges BAYC worked with a long list of celebrities to promote BAYC without proper disclosures.

2) Starbucks Web3 Program: Starbucks, the $116 billion dollar coffee chain went live with its blockchain-based loyalty platform and NFT community earlier this week.

3) The Bull Market Is Back? Check out this amazing graph from Punk9059 highlighting how total NFT transaction volume exceeded 30,000 ETH for the first time since May. 🤯

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See you next time! — OB1 👋