What's Next for Web3 Marketplaces
What's Next for Web3 Marketplaces
What OpenSea's launch of the "Pro" version tells us about the future of NFT marketplaces and how they compare to shopping malls.
Hey, it’s Marc. I write about Bitcoin and Web3. ✌️
⏱️ Reading time: 3 min
Last week, OpenSea, now the 2nd biggest NFT marketplace behind Blur (according to volume), launched OpenSea Pro.
After losing ground to Blur in recent months, which lured in pro users with a trading interface, lower fees, and BLUR token airdrops, OpenSea now strikes back.
Similar to Blur, OpenSea Pro focuses on NFT traders, aggregating over 170 NFT marketplaces. It offers advanced order types and optimized gas fees, among others.
What’s happening?
As fees race to the bottom, marketplaces compete for market share and volume (which comes from traders), because that’s where they make money.
called it the “paradox of exchanges”:– go after the 1% of users who represent 99% of transaction volume.
– or go after the 99% of users who represent the 1% of transaction volume.
Meanwhile, some argue that the focus on traders and lower (royalty) fees destroy NFTs' artistic and cultural esteem and crowds out creators - the ones who have built all this.1
And they might have a point.
On the other hand, “flippers”, people who trade NFTs to make a quick buck, have always driven large parts of the volumes. One could argue that they're simply getting increasingly sophisticated interfaces for that.
But there are some bigger forces at play here.
Specialized marketplaces
Recently,
brought up a fantastic analogy, comparing NFT exchanges, such as OpenSea, to shopping malls.“It used to be that the only place you could get any choice was to go to the shopping mall. You were happy with the 100 stores that were there. You wake up today, you can click on Amazon, basically purchase every single thing that’s ever been made. And when you want it, then get it delivered. You don’t have to drive, you don’t have to navigate your way through the mall. So this notion of choice and control is inexorable.”
What does this mean for OpenSea?
A thesis could be that NFT exchanges we’ll start specializing their offering. Similar to how OpenSea launched a “Pro” version to cater to traders, they might set up other versions for different target groups, such as for artists or brands.
For brands, for example, current marketplaces lack ways of adequately presenting and filtering brand collections in ways that let them customize collection pages to be “on-brand” and set up filters according to the utility that is most relevant to their brand ecosystem.
Meanwhile, competing niche marketplaces popping up. Gaby offers some examples where this is already happening, such as Pudding (built specifically for the PROOF ecosystem), Sound Market (for music NFTs), and Truth Labs’ Goblintown marketplace.
Are there examples from the past?
An example of a Web2 marketplace that split up into specialized markets is Craigslist, which had long been a popular platform for general classified ads in the early days of the internet. Over time, niche platforms have emerged to serve specific segments, such as Upwork and Freelancer focusing on freelancers and gig workers.
Web2 vs Web3: Interoperability
But compared to Web2 marketplaces, Web3 marketplaces have one big difference.
In Web2 marketplaces/aggregators (e.g. e-commerce websites) goods (physical or digital) are dispersed across different merchants who all have their own stocks. Aggregation is hard, as it requires keeping an updated registry across potentially thousands of individual “stocks”. This involves building relationships with individual merchants, which takes time and resources.
In Web3, digital assets (aka NFTs) are stored on the blockchain, which serves as a universal registry for the stock of all digital goods. NFT marketplaces/aggregators are not much more than front-ends visualizing data they can find on the blockchain.2 In theory, all NFTs should therefore by accessible by anyone. By filtering, curating, or selectively integrating specific blockchains, tokens, or smart contracts, they can control which NFTs are accessible on their platform. In theory. In practice, it’s a bit more complicated than that and not all NFTs are accessible through every marketplace.
Again, in theory, this makes it much easier for niche marketplaces to set up their own front-end to serve niche segments with a curated offering.
Focus on buyers instead of sellers
Gaby offers a second intriguing perspective:
“Another way of thinking about this is that most marketplaces focus on curating the sellers, but the real opportunity (especially now) may be in curating the buyers instead. Most NFT creators want collectors, not traders. No marketplace today differentiates the two, and it’s frankly difficult to segment usage between these two distinct groups.”
In summary, the future of Web3 marketplaces is likely to see increased specialization and a shift in focus towards curating buyers, ensuring a more tailored experience for both creators and collectors in the rapidly evolving NFT landscape.
Talk soon,
– Marc
Artwork: “Markeplace” by MakersPlace
More background on the ongoing war on royalty fees here by Decrypt. Also a good piece on why NFT royalties are almost impossible to enforce on-chain from The Block.
While it's true that NFT marketplaces essentially act as front-ends visualizing what's on-chain, not all NFTs are accessible through every marketplace. This is primarily due to three reasons:
Marketplace Integration: Some marketplaces may choose to integrate only specific blockchains or tokens.
Curation and Moderation: Marketplaces often curate and moderate the NFTs they display to ensure the content aligns with their policies, user interests, and legal requirements.
Exclusive Arrangements: NFT creators or projects may establish exclusive partnerships with specific marketplaces, making their NFTs available only on those platforms. This exclusivity can help creators or projects maintain control over their NFTs' presentation and distribution, often providing a more tailored experience for users.
Furthermore, some marketplaces, such as OpenSea, offer minting features (cf. “lazy mint”) that prevent NFTs to be interoperable with other exchanges.
Anders Noren writes:
Listed NFTs in Opensea can have two different origins: a) NFTs minted by a smart contract owned by the creators following the ERC-721 or similar standards, or b) NFTs minted by the Opensea smart contract. Every time an NFT is lazy minted, it is actually Opensea’s smart contract minting an NFT.
OpenSea’s smart contracts usually assign a random ID to NFTs and and list them next to unrelated NFTs that were created using the same contract.
This is why alternatives such as Manifold have become a popular choice for creators who want to own their smart contracts, preserve on-chain provenance, and make their NFTs interoperable with all major NFT marketplaces. On Manifold, creators you have a choice of listing and selling NFTs using open libraries like the OpenSea SDK, or using their own marketplace.