OpenSea became a $13 billion firm thanks to the NFT gold rush, but can it maintain its position at the top?
NFTs began to disappear on a frigid January day. However, despite having clear records of ownership, major platforms like MetaMask and Twitter were unable to show photos connected with newly uploaded tokens. Something had gone horribly wrong with the distributed, decentralised technology stack.
OpenSea, an NFT marketplace, was experiencing a database outage and was unable to process transactions. In the wake of the outage, any service that relied on the OpenSea API to upload tokens was rendered inoperable. A single corporation has found its way to the centre of practically every product in a scene full of staunch decentralizers. Vice discovered a user who had Photoshopped the company’s emblem to say “ClosedSea” while reporting on the chaos.
It was a tense and difficult situation, but it was also an opportunity to learn something new. After a year of the NFT boom, it’s difficult to mint a collection or post a token for sale without dealing with OpenSea in some way. As a result, the corporation has risen to the position of central broker and de facto enforcement of local laws. Rightful owners phone OpenSea when their apes are taken, and the platform has become a crucial chokepoint in stopping the sale. Whenever a token is listed, it is also the largest single market. Even if they aren’t created on OpenSea, tokens will ultimately end up there due to the laws of physics. Moreover, as the outage demonstrated, even Web3 projects that have no direct connection to OpenSea’s network are frequently extremely reliant on it.
An NFT business is in a weird predicament. Decentralized OpenSea is constructed on top of what appears to be an easy-to-use service (the ability to view and trade tokens), but it has significantly more complexity. While Coinbase (another prominent Andreessen Crypto investment) achieved a $85 billion IPO, it isn’t obvious if the same tactics would be successful in the wilds of Web 3.0.
A spokesperson for OpenSea, Abram Smith, was available for comment, and he stressed the company’s lofty goals when contacted. One day, Smith said, “almost everything we own will be accounted for on the blockchain.” Smith added that OpenSea’s opportunity lies in being the centre of these new economies.
Even so, the company’s position is viewed by many investors and analysts as more fragile than you may imagine. As a result of the recent surge in NFTs, it has emerged as the most successful company, processing billions of dollars in transactions every day. As the recent outage clearly shown, it is unavoidable from a technical standpoint. The token-drop culture that has spurred digital art’s recent boom is a far cry from OpenSea, and many doubt that Web3 will have room for an intermediary platform like that.
Asked by Brian Krogsgard, who conducts a crypto podcast called UpOnly, “I believe the question is, is OpenSea like an AOL or a Netscape, or are they going to be able to maintain their hold on the market?” That remains an open subject, in my opinion.
This isn’t the first time a tokenized blockchain project has started with a cat game. As one of the first significant non-fungible tokens (NFTs), CryptoKitties is a collection of trackable and breedable cat images stored on the Ethereum blockchain. Within a few months of its launch, the initiative had generated more than $10 million in sales. KittyHats and KittyExplorer (both from the same developer) are two of the many follow-up projects that have been created by third-party developers. Even while it was easy to scoff at, the potential was thrilling for those who truly believed in the cause
In December 2017, OpenSea was launched with the goal of capturing such potential. As the fee rate for CryptoKitties was 3.5%, OpenSea dropped it to 2.5% and began developing a wider platform. A millennial polling startup hired CTO Alex Atallah, and CEO Devin Finzer had developed and sold a claim-searching company to Credit Karma before starting their own.
But their timing was the true attraction. Known for its ability to code smart contracts directly onto the blockchain, Ethereum was introducing a new standard that would serve as the foundation for NFTs. As a result of this new standard, the blockchain now has a new type of object: the ERC-721 token, which can be bought and swapped like Bitcoin while still preserving the uniqueness of each token. When CryptoKitties launched, ERC-721 was just a few months away from being released from beta. For this new market, Finzer and Atallah set out to create tools, such as a marketplace where people could buy and sell these tokens in bulk. In Y Combinator’s winter 2018 accelerator programme, they were referred as as “Ebay for crypto assets” because of the quality of their idea.
“Our Interest In Cryptokities Brought Us To Opensea.”
According to Finzer, “the idea for OpenSea was born out of our enthusiasm in CryptoKitties.” However, despite the fact that digital products marketplaces have been for a long time, they tend to be self-contained ecosystems: unique marketplaces for certain games, marketplaces for domain names, marketplaces for tickets, and so on…” The introduction of ERC721 made it possible for the first time to consider such an idea.”
The Beeple and Bored Ape sales would not begin the current NFT boom for OpenSea for three years, and they were long, cold years for the company. For this new breed of blockchain assets, the internal credo was to become “the Amazon of Web3,” which required developing capabilities like buying, selling, and making offers. NFT proponents were left looking for ways to use the technology for a long time after the CryptoKitties bubble collapsed. For a long time, Finzer promoted OpenSea as a method to trade cards in Gods Unchained (an early NFT-based card game) or as a way to revolutionise software licences in NFT groups on Reddit. However, there were few individuals willing to take him up on his offer.
As a result, OpenSea was able to gain a significant advantage over its competitors in the NFT industry during those years. However, OpenSea was reimagining aspects that had been available for decades in an entirely new way. eBay can easily put an item up for auction and sell it to the highest bidder, but an NFT would need to rely on a complex network of smart contracts to manage offers, proof of ownership, and secure exchange. A lot of these contracts are being implemented by other organisations, but OpenSea has the greatest mechanism for it.
Opensea Raised $423 Million In A Few Months
At the same time, venture capital firms, such as Andreessen Horowitz, began exhibiting renewed interest in blockchain projects. A new venture from the founders of CryptoKitties, Andreessen participated in a $12.9 million Series A investment in February of this year. The VC group unveiled a new bitcoin fund in June of that year. Ex-Silk Road task force prosecutor Katie Haun, who was already a board member at Coinbase, joined the company to expand its cryptocurrency knowledge. OpenSea was busy producing tools while the rest of the market was expanding.
That market opened in 2021, and OpenSea was perfectly positioned to take advantage of it. As soon as Haun joined OpenSea’s board of directors in February 2021, the company’s fundraising efforts took off. They raised $423 million in three rounds of fundraising in less than a year. Andreessen Horowitz led the Series A round, which included Tim Ferriss and Mark Cuban, just one month after Haun joined the board. The company was valued at $1.5 billion three months later when it received a Series B round of funding. During the first quarter of 2022, the company’s value had risen to $13.3 billion, fueled by a large infusion of sales.
Tokenization of everything is what we’re talking about, in the end.
A general partner at 1confirmation, who invested in the seed round, believes Richard Chen’s funds were critical to the company’s expansion from a small group of developers to a full corporation capable of handling the demands of all its new users. “They were just fighting fires, a lot of technological debt,” Chen told The Verge of the platform’s exploding problems. “They had to generate money quickly in order to expand its workforce.”