NFT marketplaces are driving billions of dollars in revenue, taking in fees on every sale, and the competition for second place behind industry leader OpenSea continues. As the NFT market cap saw a dramatic tick up in the last year, many new companies are launching ambitious NFT marketplaces where buyers and sellers can meet.
Collectors connect their Ethereum wallets to these sites in order to show the NFTs they own. They can list or buy NFTs via the marketplace. Collectors spend a lot of time on these marketplaces, as they are secure ways to facilitate an NFT purchase.
For the most part, collectors and artists want to go where the most buyers and sellers are located.
The dominant marketplace OpenSea has come under fire for ignoring user feedback, locking assets (reported as stolen), and not rewarding users with their own ERC-20 token. Competitors aim to take some market share away over time, with marketplaces such as LooksRare and X2Y2 popping up.
The entire NFT marketplace industry is still young and ripe for innovation.
How do NFT Marketplaces Make Money?
NFT marketplaces earn money from a variety of sources, but most of it is from a trading fee that they charge sellers (and sometimes buyers) with every transaction. This ranges from 0 to 5 percent — it’s 2.5 percent on OpenSea.
Some also charge account registration fees, a one-time small fee to enable selling on an account. Credit card transaction fees, minting fees, and other fees also drive revenue for NFT marketplaces. Marketplaces continue to try new things as their business model evolves, especially newer entrants like LooksRare and X2Y2.
Marketplaces like Rarible, SuperRare, LooksRare, and X2Y2 all have their own governance tokens (cryptocurrency tokens) issued to supporters. They can also be earned for selling, buying, and even listing NFTs on these platforms. These tokens can be staked to earn rewards (from trading fees) and provide liquidity or and they can also be exchanged for USDC or other crypto.
What is Wash Trading in NFTs?
Of the three major NFT marketplaces, OpenSea has nearly 94 percent of the active users (as of July 2022). LooksRare and X2Y2 have eaten a little bit into the NFT volume share of OpenSea. However, about 75 percent of this volume is “wash trading” in order to farm the token rewards from those platforms (note: OpenSea does not have an ERC-20 token).
Wash trading is when the buyer and the seller of the NFT is the same person. This can serve to artificially inflate the value by showing it sold for that price on the blockchain. It can also serve to farm tokens from NFT marketplaces.
These traders focus on zero-royalty collections (like Terraforms, Loot, formerly Meebits) to maximize their profits. While the ethics of this is still up in the air, much NFT volume (specifically outside of OpenSea) is unfortunately wash trading.
The Block has a monthly chart to show sales volume of various marketplaces, filtering out wash trading (keep in mind there are various quantitative methods to do so).
#1 NFT Marketplace: OpenSea
OpenSea was founded in 2017 by entrepreneurs Devin Finzer and Alex Atallah. In January 2022, after a massive NFT interest spike, the company was valued at $13.3 billion.
OpenSea’s service fee is 2.5 percent, which all goes back to the company. It is by far the largest NFT marketplace in terms of users and number of trades, and likely one of the most profitable businesses in NFTs. The primary payment for transactions is in Ethereum or Wrapped Ethereum, and Polygon is supported, and there are other methods for payment, such as USDC, DAI, or credit cards.
The platform is also compatible with Solana NFTs, but has yet to break into much of the Solana NFT user base (dominated by Magic Eden, which recently added Ethereum NFTs).
Many have criticized OpenSea for their lack of innovation, lack of communication, and the complete inability to dispute “flagged” items that freeze them in user’s accounts forever on OpenSea. But many NFT collectors are familiar with the platform, and so it has a distinct first-mover advantage, and far and away the most buyers and sellers.
In April 2022, the company acquired Gem.xyz, an NFT aggregator marketplace. Still, it has generally been slow to launch new features to find what best fits the NFT community.
In January 2022, OpenSea made $82 million in revenue with only 70 employees. Even with past security issues and a frustrated user base, it is still driving over $500 million in sales per month with about 45,000 monthly active users. Without wash trading volumes of other marketplaces, it has about 85% market share. Not bad for a bear market.
#2 NFT Marketplace: LooksRare
In January 2022, a team of 11 anonymous founders released LooksRare as a more decentralized option to OpenSea. It distinguished itself with a free airdrop, staking, and rewards in its $LOOKS token. Those who were active on OpenSea over a certain period of time were eligible to claim this airdrop.
Since LooksRare does reward people for listing, trading, buying, and selling, a massive amount of volume on the platform is wash trading (as mentioned above) — between the same buyer and seller. Regardless, some argue that this volume still pushes the $LOOKS token forward and adds value for the community as a whole.
The community accounts for 75 percent of the token distribution through the airdrop and rewards.
LooksRare does not take down unofficial derivatives of projects, and does not lock any NFT that is claimed to be stolen. OpenSea does both of these things as it aims to protect users; however, this can backfire as we in the community have seen.
LooksRare aims to remain as decentralized as possible in the spirit of Web3. Collectors can sell on both LooksRare and OpenSea simultaneously.
Another pro for LooksRare: the platform has a trading fee of 2 percent compared to OpenSea’s 2.5 percent. It only offers NFTs on Ethereum for now. The community-first marketplace innovated many powerful features like listing rewards and trading rewards in $LOOKS, collection offers, trait offers, and more.
For more about $LOOKS tokenomics, check out the whitepaper.
#3 NFT Marketplace: X2Y2
On the heels of LooksRare, X2Y2 launched in February 2022. The name is from a math formula which creates a perfect circle. Similar to LooksRare, the X2Y2 token airdrop rewarded OpenSea users as a way to get them to try a new platform, but it wasn’t as straight-forward.
In order to get the claim, users had to list a certain amount of NFTs on the platform first. This helped add collections and listings on the platform from the very start.
The platform is coming after LooksRare’s market share, although much of their volume is also wash trading to earn the $X2Y2 token. X2Y2 implemented a popular bulk selling feature to save on gas fees, and has accomplished many other items on their roadmap.
Private listing fees are currently 0 percent, which is one of the most popular features on the platform. Many use X2Y2 for selling a high value NFT securely to a specific person. For more about the X2Y2 tokenomics, check out the whitepaper.
Other NFT Marketplaces
Foundation
Foundation is an invite-only marketplace which launched in 2021 and specializes in 1-of-1 art. Artists must get an invite code in order to mint on Foundation, and codes can only be sent by artists who have sold an NFT on the platform. It is very artist-centric in this way, as it acts as a network of artists.
The marketplace is only for NFTs on the Ethereum blockchain. It’s auction-driven, and has hosted sales for Edward Snowden’s NFT and the Nyan Cat animation NFT. Foundation was also the first platform to enable 3D NFTs, which can be viewed in augmented reality spaces.
Rarible
Rarible was founded in 2020 and has focused on becoming a multi-chain, community-centric NFT marketplace. It doesn’t just offer Ethereum NFTs, but includes Polygon, Tezos, Solana, and Flow as well. It used to have one of the highest trading fees, but now has a fee of one percent. This fee applies to both buyers and sellers.
Rarible has features like expiring bids, true decentralized IPFS storage, and community marketplaces. They also offer a multi-chain messenger. The governance token $RARI was launched in 2021. Holders can vote on new features and submit proposals for this centralized marketplace to become more decentralized over time.
SuperRare
SuperRare targets digital artists and photographers for its social-forward platform, founded in 2018. In 2021, they got a Series A funding round of $9 million. The platform charges a 3 percent trading fee for buyers.
SuperRare works with a curated group of artists. They only offer 1-of-1 edition pieces, unlike most other NFT marketplaces — many of which have sold for over $1 million. These unique works of art make them “super rare.”
As of now, the platform only is for the Ethereum blockchain. The platform has its own governance token $RARE to onboard more artist to the platform, using independently curated storefronts.
Nifty Gateway
Nifty Gateway was founded in 2018 and acquired in 2019 by the Winklevoss twins. This centralized marketplace collaborates with brands and artists to launch NFTs on their platform.
They offer exclusive drops with artists like Beeple, FEWOCIOUS, Deadmau5, and many more. These drops often include unique drop mechanics that can scale to new artists on its platform.
Although it is possible to buy and sell NFTs on the platform in crypto and credit card, users can also export their NFTs to Ethereum mainnet. This allows users to sell their NFTs on other marketplaces like OpenSea, while still allowing anyone with a credit card to get involved in NFTs — no crypto or wallet required.
Coinbase NFT
Coinbase NFT was a highly anticipated launch due to the fact that Coinbase has such a massive user base. Many NFTs initially pumped on the news that they would be a Coinbase NFT launch partner. Then it seemed as if every NFT became announced as a partner with them, leaving the NFT community puzzled before the launch.
Some questioned how in-touch Coinbase was with the daily NFT degen as they waited to get access to it. However, reaching Coinbase’s beginner NFT audience remains a giant opportunity to push NFTs more mainstream. But merging the two worlds is a challenge.
The platform aims to be more social than others by implementing a comment system on each NFT and a social feed for NFTs. It hasn’t been successful, with few users on the site.
The volume on Coinbase NFT is currently low. Since its launch in April 2022, Coinbase NFT has done a total of $5 million in sales volume. For comparison, OpenSea does around $15 million in one day, in this bear market. Coinbase NFT has 0 percent platform fees as they aim to draw new users.
The Best NFT Marketplaces — TL;DR
In 2022, OpenSea has faced more competition than ever with the launches of LooksRare and X2Y2. Many features have been launched on these new marketplaces which are very helpful for power NFT users. Their native tokens and token rewards also aim to create a loyal user base, keeping some NFT collectors away from using OpenSea.
Some NFT collections like CryptoPunks have their own exclusive marketplace, keeping all the funds and fees within the collection itself. We have seen others like Chimpers do the same, but they also allow trading on other marketplaces.
Smaller marketplaces do well with niche audiences like 1-of-1 art or photography. Coinbase NFT is still figuring out how to connect NFT beginners and degens alike.
Despite better features and lower fees, the highest number of users and most overall market share still lies with the original marketplace that launched in 2017. It’s still unclear when or if OpenSea will be dethroned.
The image accompanying this article was made entirely using Dall-E 2 by Open AI.