Non-fungible tokens (NFTs) represent ownership of digital items by storing the non-interchangeable unit of data on a blockchain. Each token here is uniquely identifiable, as such, they differ from cryptocurrencies like Bitcoin and Ethereum.
After the strong success in 2021, NFTs are off to a great start this year as interest in them continues to increase. Amidst this mainstream adoption of NFTs, several specialized NFT marketplaces have stormed the market, but OpenSea remains the leader in the space, while the latest entrant LooksRare emerges as a strong competitor.
Founded in 2017 by Alex Atallah and Devin Finzer, OpenSea is the broadest and most established NFT marketplace that hosts art, collectibles, photography, music, sports, virtual worlds, and other types of NFTs.
Since then, OpenSea has raised a total of $427.2 million in funding over nine rounds, according to Crunchbase. The latest funding was raised in January 2022 in a Series C round. It pushed its valuation to a massive $13.3 billion, nearly 9x from the previous valuation just six months before that.
The widely used NFT marketplace supports more than 150 cryptocurrencies as payment options and boosts the gas-free marketplace through cross-blockchain support. Besides Ethereum, the most popular blockchain for NFTs, OpenSea supports Ethereum side-chain Polygon, which provides cheaper and instant transactions. Klaytn, a blockchain developed by a Korean internet company, Kakao, is yet another one.
OpenSea charges a flat rate commission of 2.5% on every buy and sell. The platform also charges an initialization fee, a one-time fee that is charged through a smart contract and is not fixed but rather varies depending on the price of the gas on the Ethereum network.
Users can also set a royalty of up to 10% on OpenSea, which is encoded right into the smart contract allowing creators to be rewarded fairly and automatically as their works get re-sold.
While OpenSea continues to rule the market, several competitors have emerged to take on the market leader. Late last year, YFI creator Andre Cronje launched an OpenSea competitor, Artion, an NFT marketplace built on Fantom.
The open-source and inexpensive marketplace claimed to have 0% commissions on sales and near-zero transaction costs. Then, Infinity made an attempt at a vampire attack on OpenSea by airdropping 60% of its governance token supply to existing OpenSea users.
The largest crypto exchange in the US, Coinbase, also announced an NFT Marketplace, which has been called an “OpenSea Killer.” The marketplace saw “insane” interest, with one million users signing up for its waitlist in just 24 hours of its announcement.
While Coinbase’s marketplace is yet-to-be-launched and Artion didn’t really catch up, the latest entrant LooksRare is creating a lot of buzz.
Co-founded by pseudonymous Zodd and Guts, LooksRare is a decentralized NFT marketplace that launched a vampire attack on OpenSea in January 2022. The project, which claims to be a community-focused marketplace, indexes all NFTs so that they can be traded straight away. It offers support for both Ether (ETH) and Wrapped Ethereum (WETH).
The latest platform is leveraging its LOOKS token to attract existing users from OpenSea as well as onboard new ones to the platform. LooksRare offered eligible users (who have traded over 3 ETH) of OpenSea to claim free LOOKS tokens and is rewarding buyers and sellers on its own platform with 2.8 million LOOKS tokens per day for a month.
The new marketplace charges a 2% fee on all trades, all of which goes to those who stake their LOOKS tokens in the form of WETH. OpenSea, on the other hand, takes a 2.5% cut which goes to the team.
Volume on OpenSea has been on an incline since August 2020 and peaked two years later after that. But since December, the NFT activity has been picking up again, hitting $200 million in daily volume on the Ethereum blockchain on Jan. 9.
CEO Finzer also said that the platform’s transaction volume increased more than 600x last year.
Such high volumes on OpenSea led the platform to be the biggest gas guzzler on the Ethereum network, accounting for more than 11.6% of all the Ether burned (1.64 million ETH) so far. OpenSea is all set to hit 200k ETH burned in gas fees.
In January 2022, OpenSea hit a new record high in monthly volume, surpassing the $3.4 billion high of August 2021, and is now nearing $4 billion, before the month’s even over, according to data provided by Dune Analytics.
However, despite these volumes, OpenSea’s market NFT share has fallen under 30%, from a 99% high in early 2022. In the first half of 2021, OpenSea’s share increased from just 35% to 95%.
OpenSea’s market share took a big hit after LooksRare came into the market, which now accounts for the majority of the share at 69.6%, down from its 78.3% peak just after a week of its launch.
While daily volume on LooksRare is still higher than OpenSea, it is constantly dwindling, unlike OpenSea, whose volume somewhat remains constant. Moreover, total transactions on LooksRare haven’t been more than 30k, while OpenSea boasts almost 2 million.
OpenSea also has 17x more total users than LooksRare. As for daily users, LooksRare is attracting between 1k to 3k users compared to 40k-75k people using OpenSea.
When it comes to revenue, on a 30-day basis, LooksRare has OpenSea beaten with $165.9 million in revenue while the latter pulled in $106.1 million, according to TokenTerminal. In the last six months, meanwhile, OpenSea has generated $431.1 million in revenue so far, coming in 3rd place after Ethereum ($6.1 bln) and Axie Infinity ($1.1 bln).
While OpenSea has no token, the brand new user-centric NFT platform’s token LOOKS, which has a maximum supply of 1 billion LOOKS, is trading at $3.84, down over 45% of its all-time high, at $7.10, hit on Jan. 20. The token has a circulating supply of just under 175 million LOOKS.
The token is one of the driving factors for user adoption as it is used to reward for trading, staking, and providing liquidity. The token is currently available on CEXs FTX, Huobi, Gate.io, and Bybit, among others, as well as DEX Uniswap.
No doubt, OpenSea is the clear leader in the NFT space, but that is fast changing, given all the issues users and market participants have about the platform.
The dominant NFT marketplace is no stranger to criticisms, and its long-list of issues involves growing concerns about the centralization of the platform and OpenSea’s policies around delisting hacked or exploited NFTs.
“When OpenSea receives a credible report or learns that an item is stolen, we lock the item so it cannot be bought, sold, or transferred using OpenSea,” reads on the platform. According to some, this policy is a “bad precedent,” and will only attract more thieves.
The NFT community has also been urging the platform to release a token to reward its early customers and loyal users.
OpenSea received much flak after the newly hired (CFO) Brian Roberts said in an interview, “When you have a company growing as fast as this one, you'd be foolish not to think about it going public,” adding that it "would be well-received in the public market given its growth.”
Roberts, who previously worked at Microsoft and Walmart, was instrumental in his last company, Lyft's successful Initial Public Offering (IPO).
After the startup received backlash on social media, they soon took a back step, saying there's a “big gap” between thinking of an IPO and actively planning one. “We are not planning an IPO, and if we ever did, we would look to involve the community,” said Roberts.
Before this, back in September, OpenSea’s head of product Nate Chastain was accused of a form of NFT insider trading by a community member and later resigned from his position. In response, the company implemented policies, including the one prohibiting team members from using confidential information to purchase or sell any NFTs.
“We’re committed to doing the right thing for our users and earning back the trust of the community we serve,” said Finzer at the time.
Most recently, a bug on the marketplace allowed at least three attackers to buy NFTs at lower prices and sell them for a hefty profit. The market value of affected NFTs is estimated to be more than $1 million.
In response, OpenSea has taken several measures, including launching a new listing managed to mitigate the user interface flaw. The platform will also reimburse victims of what OpenSea says is not a bug but rather "an issue that arises because of the nature of the blockchain."
The company, however, is constantly working towards solving user grievances. In January, following its latest funding round, CEO Finzer said that the company will use the fresh capital for product development, recruitment, customer safety, and community investment.
“We’re actively expanding our efforts across customer support, trust and safety, and site stability and integrity,” he said at the time.
OpenSea, however, is not the only one weathering the criticism, LooksRare may not even be a month old, but it has already been accused of “wash trading.” Here, the market was manipulated by making it look like there’s more activity, by making numerous trades back and forth between the same two wallets, than that would be organic.
On LooksRare, traders are doing so to manipulate the rewards model of the platform and potentially boost their reward LOOKS tokens.
Meebits, the NFT collection from Larva Labs, which is also behind CryptoPunks NFT, is one of the NFTs used for wash trading. These NFTs were trading for as much as 30 ETH, while their floor price was about 2.5 ETH.
LooksRare didn’t officially comment on it but did retweet a thread about wash trading happening “by design” and calling it “genius,” with the caption “Discuss.”
According to the LooksRare documentation, the marketplace fee model makes wash trading tactics “extremely unprofitable.” Each trade on the platform incurs a 2% fee and a royalty fee between 5%-10%. Meanwhile, token rewards for trading each day are “fixed” and distributed based on the trading volume contributed by a trader.
“There’s no guarantee of the amount of rewards that a wash trader could earn in a day,” it adds.
As we detailed above, OpenSea is a very popular NFT marketplace with huge backing and tons of funding to expand and work on development. The platform charges a low fee and offers various types of digital assets. But it is to be noted that the platform is yet to have fiat support.
Over the past year, as OpenSea’s popularity rose, so did its criticism which has led several platforms to challenge it and try to extract its user base, though to no success so far.
LooksRare, on the other hand, offers its users lucrative opportunities through its reward and staking system. Furthermore, the platform has even lower fees than OpenSea. On top of that, all of this fee goes to the LOOKS stakers allowing anyone to earn a share of the marketplace’s revenue as opposed to OpenSea, where the team is the only one benefiting.
While OpenSea is the largest NFT marketplace, the decentralized LooksRare is giving it a good competition. However, NFTs are just getting started and have a lot of growth ahead of them, with their application to grow beyond just art and collectives to gaming, music, ticketing, metaverse, finance, and much more. As the space grows, more marketplaces will emerge, as well, with even better incentives for its users.