Non-Fungible Token Marketplace Primer

Disclaimer

Cryptocurrencies.Ai may take a buy or sell a position in any cryptocurrency it writes about, at any given time. None of the information contained in this article is financial advice.

Non-Fungible Token or known as NFT is the hottest new trend in the crypto space. It utilizes blockchain technology to link a unique digital identity with a digital asset that cannot be replicated. NFTs allow users to purchase unique digital assets/collectibles, which can be bought, sold, or even invested later in the marketplace.

Most NFTs are built on Ethereum under the ERC-721 standard. At its core, the unique feature of an NFT is fungibility, which refers to an asset’s ability to be exchanged with a similar asset without sacrificing its value. For instance, an Apple stock is fungible. If you trade your Apple stock for another Apple stock, it will be exactly the same, whereas every single NFT is unique (non-fungible).

NFT is popular in the gaming industry, can be used as digital assets, ideal for fighting identity theft invites more conventional collectors to be part of the crypto space and many more. Those are examples of NFT use cases. It also has the advantages of being transferable, authentic (impossible to create counterfeits with a decentralized immutable ledger), and preserving ownership rights.

As NFT is quickly rising in popularity, there are many new marketplaces for NFT that vie to be the dominant exchange platform. In this issue, we will go over the top three NFT’s marketplace such as OpenSea, Nifty, and NBA Topshot.

OpenSea

OpenSea is one of the first and the largest peer-to-peer marketplace for NFT secured by a blockchain. On OpenSea, anyone can buy or sell these items through a smart contract. It was founded in January 2018 by Alex Attalah and Devin Finzer. OpenSea has raised just over $4 million in donations, most recently with a round of $2.1 million, led by Animoca Brands, Stanford StartX, and David Pazdan of MetaMask. Previous rounds were supported by YCombinator, Founders Fund, Coinbase Ventures, 1Confirmation, Blockstack, and Blockchain Capital.

OpenSea charges no single fee from using their platform, but they charge a 2.5% fee on the seller’s final sale price when they have successfully sold their NFTS. There is no service fee for the buyers. Additionally, there are various types of methods to sell your NETS on OpenSea, with the most famous ones being Fixed Price Listing and Dutch auction.

NBA TopShot

NBA Top Shot is not a company built by the NBA, but it was first launched by Dapper Labs (creator of CryptoKitties) and backed by the NBA. NBA Top Shot allows everyone to procure a collection of digital basketball highlights. Collectors can collect this NBA’s highlights by purchasing a digital pack from NBA Top Shot or by auction. There are five tiers on NBA Top Shot’s collections, which includes:

Common, which are moments that can have over 1,000 digital copies: These moments can be purchased in Common Packs, starting at $9 for nine moments, for example.

Rare (150–999 digital copies): These moments can be found in Rare Packs and above, starting at $22. The example Top Shot gives of this kind of pack contains seven common moments and one rare moment.

Legendary (25–99 digital copies): These can be found in Legendary Packs, starting at $230. The example Top Shot gives contains six common moments, three rare moments, and one legendary moment.

Platinum Ultimate (3 digital copies): These are only available through auction.

Genesis Ultimate (1 digital copy): These are also only available through auction.

There is a revenue-sharing agreement between the NBA and NBPA with the Top Shot. For every single transaction of NBA moment on Top Shot, there will be a 5% fee accrued. This fee will be shared between the NBA, NPBA, and Top Shot without a specific amount of allocation disclosed between those three.

Nifty Gateway

Nifty Gateway is an NFT Marketplace with a goal for the customers to be able to purchase NFT with a credit card. Founded in 2018 by twins Duncan and Griffin Cock Foster, and in 2019 acquired by twins Cameron and Tyler Winklevoss. Right now, besides credit cards, NFTS on Nifty Gateway can be purchased with Ethereum as well. Gemini’s publicity has made Nifty become a high-profile marketplace, and able to invite some famous crypto artists such as Trevor Jones to join the platform.

Nifty Gateway charges 5% for service fee and charges a 10%(not fixed, can be in the range of 5–50 percent) fee for the commission to the art artist.

Key Metrics

The tables above show the number of volumes and users at the end of every month from October 2020 to February 2021. As we can see, the volumes and users started to peak at the beginning of January 2021. In 2020, OpenSea was the number one marketplace for NFTS, but since 2021, NBA Top Shot ranked one on volume and users’ scale. Those two entities dominate the NFT marketplace; meanwhile, other players in the space have a significant gap in the number of volumes and users compared to the top two.

Data as of March 10, 2021, shows that the total volume of NFT is more than $500M without even counting those facilitated by traditional auction houses such as Christie. The highest record is currently being held by Beeple, who sold his “Everydays — The First 5000 Days” digital art for $69M.

Beware of Market Trends

Recently, a report from Messari stated that NFT marketplaces are charging much lower fees on average compared to traditional marketplaces such as eBay, Farfetch, RealReal, and others.

We respectfully believe that comparing the NFT marketplace with the traditional marketplace isn’t effective. The logistics cost associated with a traditional marketplace that ships physical goods is a lot higher than the NFT marketplace. Selling digital collectibles is much cheaper and scalable.

This also means that they can undercut each other a lot faster and branding/partnership is much more important than ever because it’s difficult to add value from the logistical side.

Nonetheless, 2021 is just the beginning of the NFT era. The market capitalization of NFT related assets kept increasing since 2018, from $40.96 million in 2018 to $338.04 million in 2020. This means there was an increase of more than 800%, and as we can see, the number of volume and users just started to increase highly in the beginning of 2021 for the two largest NFT marketplaces.

Most trends’ in the market are valid but market participants are almost always too early during the hype cycle. We have seen this from the tech industry in the 2000s, Bitcoin is 2017, and many more. We believe that the concept and future potential of an NFT is legitimate and it will continue to disrupt existing business models. However, the NFT market is currently looking rather frothy, despite a few exceptional 5n infrastructure players.

In the future, we believe NFTS can represent actual ownership over real-world assets such as a house title, intellectual properties, and others.

Join DeFi with Cryptocurrencies.Ai

Aldrin’s mission is to simplify DeFi and create powerful tools to help all traders succeed, leading to more equality. aldrin.com