Get In Loser, We’re Unbundling Again
OpenSea as crypto's "shopping mall," aggregated liquidity, web3 loyalty programs, curating the buyers, and more... some high-level thoughts around The Current Thing
The timeline has seen a lot of talk around creator royalties and the broader NFT marketplace wars recently. Without commenting on current events too directly, I wanted to share some high-level thinking around marketplaces, beginning with the following excerpt from my partner Peter Chernin’s conversation with Patrick O’Shaugnessy on Invest Like the Best:
“The other great example of [aggregation] is the shopping mall. I don’t know when they exactly started, I guess ‘50s, ‘60s. The shopping mall seemed like Oh my god, this is heaven. I can’t believe there are 150 stores in this place. And I can go buy clothes, I could go buy sporting equipment, I could go buy electronics, I could go buy anything. It’s amazing. You go to [the shopping mall] now, and it just seems really middle. It’s not the best clothes. It’s not the best sporting goods. It’s not the best sneakers. It’s not the best electronics. Consumers have moved on from those sorts of things. It’s a really broad thesis. But it goes back to that notion of: technology gives you choice and control.
It used to be that the only place you could get any choice was to go to the shopping mall. You were happy with the 100 stores that were there. You wake up today, you can click on Amazon, basically purchase every single thing that’s ever been made. And when you want it, then get it delivered. You don’t have to drive, you don’t have to navigate your way through the mall. So this notion of choice and control is inexorable.” —Peter Chernin, Invest Like the Best (25:34)
Listening back to this podcast, I can’t help but think of OpenSea as crypto’s shopping mall. When NFTs first took over consumer mindshare, OpenSea really was the best of everything: consumers would go to OpenSea to both search and discover new projects, and NFT creators would gladly “pay rent” to OpenSea the same way stores would to the shopping mall.
Of course, that’s not the case anymore. As crypto has continued to evolve, technology has increasingly become a commodity, and liquidity has no loyalty for consumer businesses. More specifically, aggregators like Reservoir, Firstmate, and Snag Solutions1 allow us to replicate liquidity across marketplaces, allowing NFT project creators to spin up their own verticalized marketplaces while leveraging aggregated liquidity.2 In retrospect, it never quite made sense why these NFT projects would spend huge amounts of upfront time and capital to build a beautiful mint site for primary sales, and then immediately let go of their customers by allowing them to move to third-party marketplaces (like OpenSea) for secondaries. With better tooling, these projects & companies now have a greater ability to own the vertical business — and as marketplace fees continue to trend towards zero, the moat becomes verticalized, too: brand, community, experience, and trust are all currency.3
We’re beginning to see this take hold with major NFT projects. Some examples include Pudding (built specifically for the PROOF ecosystem), Sound Market (for music NFTs), and Truth Labs’ Goblintown marketplace. My favorite example these days is gmoney’s 9dcc.market, which launched in August of last year on top of Reservoir, aggregating listings from the major marketplaces and putting them in one place to make it easier to buy and sell 9dcc assets. The primary innovation is the incentivized loyalty program for the 9dcc network, which focuses in part on encouraging the payment of royalties:
Collectors who honor royalties (on any platform) will receive loyalty rewards. Buyers who trade on a platform that doesn’t honor royalties will receive zero points and will be ineligible for benefits.4 I’m a fan of this framework and am excited to see how it plays out over the next few months.
Another way of thinking about this is that most marketplaces focus on curating the sellers, but the real opportunity (especially now) may be in curating the buyers instead. Most NFT creators want collectors, not traders. No marketplace today differentiates the two, and it’s frankly difficult to segment usage between these two distinct groups.5 As I wrote back in October, I see a world where a new artist-focused NFT marketplace is spun up featuring top artists and up-and-coming projects, and the only buyers allowed on the site are those who have opted in to paying royalties on competing marketplaces. For what it’s worth, this is very similar to the system employed by high-end auctions in the traditional art world. Galleries curate their buyers and do quite a bit of diligence to select which collectors actually get to participate (more on this here6 and here).
Using a tool like Guild, you could get really granular with this, segmenting users into different groups based on wallet activity. These discrete user groups could receive different levels of permissioning on the application itself (this could even be done on the protocol level, to provide access to a whole suite of tools based on on-chain activity & reputation). But I digress…
If you’re building in or around this space, I’d love to chat with and learn from you. As always, my DMs are open.
Thank you to David Phelps, Dariya Khojasteh, and smac for informing my thinking on this piece.
I view these on a spectrum: something like Wordpress (easy to use, inflexible) on one end and Webflow (more complex, flexible) on the other.
From major NFT marketplaces (OpenSea, X2Y2, Foundation, etc.)
As an aside, I do believe there is a world where consumers are willing to pay fees so long as they’re being directed back to some communal treasury to further develop the community/brand/IP. Tangentially related tweet here.
I don’t know what these benefits are, but feel strongly that they need to be incredibly compelling to change consumer behavior.
Of course, volume largely comes from traders (not collectors), but this moves with the market as opportunities for airdrops become available.
Specifically: “Control over the market is so important to galleries that they won’t sell to collectors who will flip the art in the secondary market.”