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OpenSea’s Struggles Embolden Rivals with New Ways to Play Booming NFT Market

The insider buying scandal at OpenSea has hit just as a crop of rivals are circling the NFT marketplace leader. 

On Sept. 15, a startup called NFTX launched what it called “the world’s most liquid decentralized marketplace,” meaning the exchange operates “on chain.” It also permits buyers and sellers to make deals without the need of finding a counterparty. NFTX is betting its model will offer NFT collectors a different way to play the market. It allows users to earn a yield when they deposit their NFTs in what are called vaults, which is a unique feature. 

NFTX’s approach differs from that of OpenSea, which partially relies on off-chain mechanisms such as servers to facilitate trades. Crypto diehards tend to believe the more on-chain, the better, which might give NFTX an edge. OpenSea’s servers have been overwhelmed at times, and become something of a running joke — a vulnerability that may embolden serverless exchanges like NFTX to gain ground.

Gaining Steam

“We don’t really have any servers,” NFTX’s protocol lead, who goes by Kiwi, told The Defiant. “Everything we do is directly with a smart contract.” 

NFTX is just one of several challengers gaining steam. Shōyu is backed by SushiSwap and is set to launch with a host of features including a mechanism which kicks back 2.5% of fees on the platform to xSUSHI holders. Users who stake SUSHI get xSUSHI which already accrues 0.5% of trades on SushiSwap. 

As anyone can stake SUSHI to receive Shōyu’s fees, the SushiSwap backed marketplace may draw massive interest in its success. This differs from OpenSea where revenue is confined to the company.

Yearn Finance founder Andre Cronje is also jumping in the NFT marketplace mix. Cronje teased a GIF of a new product, called Artion, which looked a lot like OpenSea, on Sep. 16 on Twitter. In the GIF, Artion’s homepage said that, unlike OpenSea, it takes no platform fees. Needless to say, this would be a big selling point if Artion goes live.

There are other more established contenders battling for marketshare too — Tezo’s Hic et Nunc, and Ethereum’s Rarible, SuperRare, and Foundation, rank second through fifth in terms of seven day volume among marketplaces, according to DappRadar. But with all four marketplaces under $5M in the past week, none have even a hundredth of the volume OpenSea does at over $500M. 

The four-year-old OpenSea has a firm grip on the market. It facilitates the buying and selling of some of the most coveted NFTs on the market, including CryptoPunks, Art Blocks Curated, and Sneaky Vampire Syndicate.  OpenSea facilitated over $3.4B in NFT sales last month, according to a Dune Analytics dashboard. The exchange takes 2.5% of every transaction, meaning OpenSea’s revenue was at least $85M in August. In July, venture capital powerhouse a16z led a $100M round in OpenSea, providing it with ample capital to build out its capabilities and offerings. 

Off-Chain

OpenSea sustained some serious blowback this week when news broke on Wednesday that an employee had used inside information to purchase NFTs in advance of their public listing on the site. Founder and CEO Devin Finzer vowed to bring in a third party to conduct an investigation of the incident, and implemented policies barring employees from buying or selling NFTs featured on the site. 

Even so, taking on the market leader won’t be easy. Tony Sheng, co-founder of Cozy Finance, an application designed to protect DeFi users against smart contract failures, pointed to all the things OpenSea does off-chain as the reasons for the marketplace’s success.

Sheng told The Defiant that OpenSea’s customer service, content moderation, even the much maligned devops teams in charge of servers, let alone its trading mechanics, will be hard to compete with. 

“Will be super interesting how it all plays out,” Sheng told The Defiant. “Lots of competition showing up.”

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