The ‘take off’ of the NFT OpenSea platform, despite the fears of a bubble

By Jeff Kauflin

In March 2020, as coronavirus began to spread around the world, OpenSea co-founders Devin Finzer and Alex Atallah had a telephone conversation about “strong stomachs.” Their five-person start-up had developed a platform where users could create, buy and sell any kind of digital ownership certificates or NFTs – digital files that track the ownership of unique digital assets, such as art and music, on the blockchain.

However, 26 months after the launch of the platform, they had just 4,000 active users trading $ 1.1 million a month, which translates (with a 2.5% commission on OpenSea sales) to a whopping $ 28,000 a month. . The NFT market was “dead”, recalls chief technology officer (CTO) Atallah. Competitive – and best-funded – Rare Bits had just announced that it was folding. the end of the year – he did it by September.

Finally, in February 2021, the NFT market came out of its slumber – and exploded. In July, OpenSea traded $ 350 million in NFTs. In the same month, in a round of financing led by Andreessen Horowitz, it raised $ 100 million in assets valued at $ 1.5 billion in August, as the NFT fever spread The volume increased tenfold to $ 3.4 billion – bringing $ 85 million in profits to OpenSea in less than $ 5 million a month. Although trading has fallen by about $ 2 billion a month since then now has 1.8 million active users and a dominant market share, already employs 70 people and is looking for dozens more, mostly customer service managers.

Recently, there was talk of a new round of financing that could raise the company’s valuation to $ 10 billion at 19% each, with 31-year-old CEO Finzer and 29-year-old Atallah (Forbes’s Under 30) ”For 2022) is well on its way to becoming billionaires.

However, Atallah was very modest when he attended the third annual NFT.NYC conference in November, which was attended by 5,500 registered delegates, with an additional 3,000 on the waiting list.

One could say that humility is at the heart of Finzer and Atallah’s successful strategy. Some consultants had encouraged them to specialize in one type of NFTs – e.g. art, games or music. However, they chose to build an agonizing platform as they did not believe they could predict exactly which classes of NFTs would be successful.

According to Finzer, the success of OpenSea is due, in addition to the wide “net”, to the fact that it is simply “in the right place, at the right time” but also to what “listens” to the wishes of its users. The platform monitors NFTs in ethereum and other blockchain chains and all transactions are done using cryptocurrencies, sellers can choose through a fixed price or auction, and they can keep a percentage of each resale. to work for everything from concert tickets to real estate – he just does not know when.

Despite its sudden success, OpenSea faces many and many risks – scams, a new collapse of the NFT market and competition. In October, Coinbase, the largest US cryptocurrency exchange and initial investor in OpenSea, announced that it would launch its own NFT market. In a matter of weeks, Coinbase had 2.5 million people on its waiting list, and CEO Brian Armstrong predicted that the new activity “could reach or exceed” the core activity of cryptocurrency trading.

OpenSea’s open market approach also increases the risk of counterfeiting and fraud – as Amazon or eBay knows – for example, a scammer can copy someone else’s artwork and sell it as NFT to OpenSea. Finzer says the site is preparing an automated way to detect counterfeits and has administrators checking for suspicious bids, but people can also be a problem. discovered that through a wallet of cryptocurrencies linked to it he was buying NFTs shortly before they appeared on the OpenSea homepage.

As humble as they may seem, the founders of OpenSea are far from ambitious. Growing up in the San Francisco Bay Area as a mother doctor and software engineer father, Finzer says he “crashed” when he was rejected by Harvard, Stanford, Princeton and Yale. (Settled with Brown University.) Pinterest software engineer founded his first start-up, Claimdog, in 2015, which he sold to Credit Karma a year later.

Atallah, the son of Iranian immigrants, grew up in Colorado and as a child made spreadsheets to compare things from birds to browsers. After graduating from Stanford, he worked as a programmer before working with Finzer. In January 2018, they joined the Y Combinator startup accelerator thanks to the idea of ​​paying cryptocurrency users to share their Wi-Fi. But by then, CryptoKitties – digital cat cartoons based on blockchain ethereum – had captivated audiences. “It was the first time that people indifferent to the field of cryptocurrencies suddenly became interested in digital currencies but not. I found it extremely interesting,” says Atallah. They soon founded OpenSea and later moved to New York.

CryptoKitties, however, proved to be cheap as collectibles for investment – their high supply reduced their value. Following the surge in interest in cryptocurrencies and NFTs in early 2018, the market fell into “dormancy”.

What sparked the market in early 2021 was not OpenSea. Platforms like the Nifty Gateway of billionaire Winklevoss twins caught the eye with high quality art. Last March, Christie’s auctioned the NFT for Beeple’s “Everydays: The First 5000 Days” for $ 69 million, the third highest price ever paid for a living artist’s work.

With NFTs reaching unrealistic prices, more and more ordinary people decided to become creators, collectors or speculators – and turned to OpenSea because of its philosophy that anyone could become an artist, with its integrated secondary market and ease of use. For example, the site has an advanced filtering system so that users can find NFTs with the rarest – and theoretically most valuable – features. When a new NFT is created and registered on ethereum, the site automatically creates a webpage that displays it – a popular service since NFTs became a status icon, and people share their pages on OpenSea or change their Twitter profile picture with NFT owned by them. “OpenSea has captured the spirit of the market,” explains Richard Chen, venture capital partner 1Confirmation and early investor in OpenSea.

Dani, a 27-year-old former Georgia fashion designer, turned a $ 17,000 investment in NFTs like World of Women into a $ 715,000 portfolio. AJ, 37, a former North Carolina gambling company executive, has invested less than $ 10,000 in NFTs and now owns $ 1.3 million worth of digital assets. He recently persuaded his brother to start buying NFTs. The brother, in turn, convinced his own friends.

Sounds like a bubble, of course, and raises the question of what will be the fate of OpenSea when it pops up. “We have a lot of fat in case we need to spend a winter,” Finzer replies.

Sounds like a bubble, of course, and raises questions about the fate of OpenSea when it pops up. “We have a lot of fat in case we need to spend a winter,” Finzer replies.