What every crypto buyer should know about OpenSea, the king of the NFT market

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Startups are supposed to specialize, but the founders of OpenSea thrived by creating a wide open market for the creation and trade of all kinds of NFTs, whether art, music, or games. Now that they are centimillionaires and on the verge of becoming billionaires, they have other worries: the competitors, the scammers and the next crypto crash.

In March 2020, as Covid-19 began to spread, OpenSea founders Devin Finzer and Alex Atallah made a verification phone call. Their five-person startup had built a platform where users could create, buy and sell all kinds of non-fungible tokens (NFTs) – computer files used to track ownership of unique digital assets like art and music. music on a ledger called blockchain. Yet, 26 months after it went live, they only had 4,000 active users making $ 1.1 million in transactions per month, which translated into (considering the 2.5% sales commission OpenSea) with a derisory monthly turnover of $ 28,000. The NFT market had a “sense of death,” recalls technical director Atallah, who made his side of the call from the basement of his parents’ house in Colorado, where he had gone to work while New York was locked up. Worryingly, Rare Bits, a direct and better funded competitor, had just announced that it was pulling back. The couple set a goal of doubling business by the end of the year and hit it in September.

Year of the NFT: Co-founders Alex Atallah (left) and Devin Finzer in OpenSea’s new office in SoHo. The company, launched in 2018, is on track to surpass $ 300 million in revenue this year, up from less than $ 1 million in 2020.

Sasha Maslov for Forbes

Finally, in February 2021, the NFT market came out of hibernation and went crazy. In July, OpenSea processed $ 350 million in NFT transactions. That same month, in a round led by Andreessen Horowitz, he raised $ 100 million in venture capital for a valuation of $ 1.5 billion. In August, as the NFT (and FOMO) hype peaked, the volume increased tenfold to $ 3.4 billion, a windfall of $ 85 million in commissions for OpenSea in one month as it probably burned less than $ 5 million in expenses. Although transactions have since declined to around $ 2 billion per month, the platform now has 1.8 million active users and a dominant market share. She has up to 70 employees and is looking for dozens more, including must-have customer service reps.

Recently, there has been talk of another round of venture capital investing at a valuation that could reach $ 10 billion. With a 19% stake each, CEO Finzer, 31, and Atallah, 29, are centimillionaires on the cusp of becoming crypto’s newest billionaires.

Still, Atallah was humble as he chatted in November at a restaurant in New York’s new Margaritaville Resort Times Square, seated near his 32-foot replica of the Statue of Liberty, which hoists a cocktail instead of a torch. . He was present for the third annual NFT.NYC convention, which had 5,500 registered and 3,000 on the waiting list. Young enthusiasts roamed the hotel wearing Bored Ape Yacht Club sweatshirts, a tribute to a collection of 10,000 NFT simians whose owners see it as a social club as much as a collector’s item or an investment.

You could say that humility was at the heart of Finzer and Atallah’s successful strategy. Some advisers had urged them to specialize in an NFT niche, such as art, games or music. But they chose to create a category-independent platform because they didn’t think they were prescient enough to predict what types of NFT were going to come out on top.

Beyond broadcasting a large network, says Finzer, OpenSea has thrived simply by “being in the right place at the right time” and listening to users on what they want. The platform tracks NFTs on Ethereum and other blockchains, and all purchases are made in crypto. Sellers can opt for a fixed price or auction format. Artists can reserve a percentage of each resale price. Ultimately, Finzer sees the NFT property verification model working for everything from concert tickets to real estate, he just doesn’t know what will succeed when. “I’ve always had a rather gray vision of the future,” he says.

Despite its sudden success, OpenSea faces significant and varied risks, ranging from fraud and another collapse of the NFT market to new competition. In October, Coinbase, the country’s largest crypto exchange and an original investor in OpenSea, announced it would launch its own peer-to-peer NFT marketplace. Within weeks, Coinbase had 2.5 million signups on its waiting list, and CEO Brian Armstrong predicted that the new business “could be as big or bigger” than its core crypto trading business.

Stephen Curry bought this Bored Ape NFT in August for $ 180,000. He’s not the only celebrity who owns a monkey: Jimmy Fallon and Mark Cuban have their own simians.

Stephen curry

OpenSea’s free market approach increases the risk of counterfeiting, scams and fraud. Just ask Amazon or eBay. For example, a scammer can copy an image of someone else’s art and sell it as an NFT on OpenSea. Finzer says the site is working on an automated way to detect fakes and has moderators who investigate suspicious offers. Yet people can also present with problems. In September, Finzer called for the resignation of OpenSea’s product manager after Twitter users discovered that a crypto wallet linked to that executive was buying NFTs shortly before they appeared on the page. home of OpenSea, in other words, he would have been at the forefront of his own employer’s decisions. .

Although they seem humble, the founders of OpenSea are not lacking in ambition. Raised in the Bay Area by a doctor mother and a software engineer father, Finzer says he is “devastated” to be rejected by Harvard, Stanford, Princeton and Yale. (He chose Brown.) After a short stint as a Pinterest software engineer, he co-founded his first startup, Claimdog, in 2015 and sold it to Credit Karma a year later.

As a child, Atallah, the Colorado-born son of Iranian immigrants, created spreadsheets to compare attributes of everything from birds to sailors. After graduating from Stanford, he worked as a programmer before teaming up with Finzer. In January 2018, they entered the Y Combinator startup accelerator with the idea of ​​paying crypto users to share their Wi-Fi hotspots. But at this point, CryptoKitties – the cartoonish virtual chats whose recordings of properties were digitally listed on the ethereum blockchain – had captured the public imagination. “It was the first time that people who didn’t really care about crypto suddenly took an interest in it for reasons other than flipping a coin. I thought it was really powerful, ”says Atallah. They quickly switched to OpenSea and then moved their operations to New York.

Much like Beanie Babies, their fabric and upholstery ancestors, CryptoKitties turned out to be duds as premium collectibles – the offer was too large for most to be worth much. After peaking in early 2018, interest in cryptos and NFTs has gone into hibernation.

It wasn’t OpenSea that woke up the market in early 2021. Instead, platforms like the billionaire twins Winklevoss’ Nifty Gateway have garnered attention with high-quality artwork. Last March, Christie’s auctioned off the NFT for “Everydays: The First 5000 Days” by digital artist Beeple for $ 69 million, the third highest price ever paid for the work of a living artist.

As NFTs fetched mind-blowing prices, more and more ordinary people decided that they too wanted to become creators, collectors or speculators – and turned to OpenSea, with its artistic philosophy, its market. integrated secondary and its practical characteristics. For example, the site has an advanced filtering system so that users can find NFTs with the rarest and theoretically most valuable attributes. (Only 46 Annoyed Monkeys have solid gold fur, and they command a hefty bounty.) When a new NFT is created and registered on ethereum, the site automatically generates a web page displaying it – a cool feature because NFTs are become a status symbol, with people sharing their OpenSea pages and changing their Twitter profile photos to an NFT they own. “It became this circular feedback loop, driven by envy and desire. And OpenSea has really conquered this market, ”observes Richard Chen, partner of venture capital firm 1Confirmation and one of OpenSea’s first investors.

Dani, 27, a former fashion designer living in Georgia, turned a $ 17,000 investment in NFTs like World of Women into a portfolio worth $ 715,000. AJ, a 37-year-old former CEO of a North Carolina games company, has invested less than $ 10,000 in NFTs and now values ​​his digital assets at $ 1.3 million. He recently convinced his gastroenterologist brother to start buying NFTs. The brother, in turn, hooked up his own buddies. “They pretty much do colonoscopies and then check their phones for new NFT drops,” says AJ.

It sounds like a bubble, okay, raising the question of how OpenSea will behave when it bursts. Finzer responds: “We have a lot of padding in case we need to get through a winter. ”

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