Blur/OpenSea
I haven’t written about crypto in a while. The banking system seems to be rejecting the industry, and I think almost everything is going to 0 at this point. I wanted to write about this particular situation because 1) I wrote about OpenSea previously and seemingly got it wrong 2) this is a unique-to-tech business strategy situation and 3) the NFT world is still quite odd to me.
A short summary
OpenSea is (was) the VC-backed juggernaut of the NFT space. It is a sort of ebay/Amazon for NFTs, enabling trading and taking a fee.
OpenSea’s valuation surged to $10b during the NFT bubble
‘OpenDao’ attempted (unsuccessfully) to launch an OpenSea clone
Blur has successfully attacked OpenSea (so far)
Blur is ‘the NFT marketplace for professional traders’. Daily trading volume on Blur is currently 4-5x the volume on OpenSea. Blur is attacking OpenSea on two fronts: they cut fees from 2.5% to 0 and they have done an ‘airdrop’. The resulting market-share shift is below. Combining this with an already anemic NFT market is an utter disaster for Opensea.
The business strategy
This excites me because it is reminiscent of one of my favorite strategy ideas: Netflix vs Blockbuster. A few of the things Blur has done are easily imitated: professional features for the serious trader, tit-for-tat tactics on platform exclusives, etc. Opensea, the market leader, should be able to match and sustain here. Arguably the two most important moves are moves that Opensea cannot match.
The first move was driving royalties to 0. Opensea is paying salaries to 840 employees. It isn’t immediately clear who works for Blur on LinkedIn, but I’d venture its a team of ~10. An NFT marketplace can be run fairly efficiently. OpenSea appears relatively over-staffed, they have one undiversified revenue stream, and have a very lean competitor with no need to make revenue for now.
The second move was the airdrop. This is a very crypto-native move (great for attracting whale/pro traders), but the problem is the legal uncertainty. It is very unclear to me that any credible company can offer tokens without attracting attention from the US government right now. Blur may be able to run that risk. Opensea justifying a 10 billion valuation requires a real cash return. Coinbase is imploding, and Binance is a shady actor. No one will buy them at any reasonable price. The only realistic route out is to go public, which makes the legal risk of an airdrop hard to stomach.
Just like Blockbuster’s fees were too crucial to abandon, Opensea cannot indefinitely forgo revenue or engage in legally dubious airdrops.
Other notes on NFTs
I need to consider why OpenDao failed and Blur succeeded, considering both have similar token airdrop strategies. My best guess now: Blur built a killer product, garnered meaningful momentum, and only then leveraged airdrops. OpenDao attempted to start with the airdrop and build its marketplace.
Blur is succeeding by peeling off the hardcore traders. Many markets resemble a Pareto 80-20 distribution. In this case, I would be worried if I were involved in NFTs. It sure seems like a small number of crypto whales (rich from the prior run-up) are most of the market. These astronomical crypto valuations depend on sustained consumer adoption.
NFT volume has imploded, perhaps permanently. This is a sharp contrast to the AI boom right now. More legitimate innovation and developer adoption is happening monthly in AI than has occurred in the history of NFTs.