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We may be down bad on our NFTs…
But guess who made big money from them in the last few years?
OpenSea and ETH holders/stakers… of course!
By now, I hope you’re beginning to understand the trend of these value accrual PRO reports.
Activity onchain generates value back to the protocol layers (Ethereum, L2s, Solana, etc.).
The key to this industry's success however is finding apps that facilitate onchain activity that is sustainable.
Secondly, the app itself needs to be sustainable to remain in business.
Blur is currently achieving neither of those.
OpenSea, on the other hand, has generated almost $1 Billion in total revenue since inception. As you can see below, value is being created all over the place from OpenSea.
OpenSea managed to become one of the highest revenue-generating businesses in web3 to date, albeit, most of that revenue came in 2021 during an unsustainable market with unsustainable activity and volumes.
The numbers these days aren’t so pretty, but I’m confident there’s still lots of growth ahead for the NFT industry.
In today's PRO report, we're going to:
Look at where value accrues from NFT marketplaces, but more specifically OpenSea.
Share predictions of how this value accrual will change (or already has changed)
Discuss some new innovations in the NFT industry that are about to change everything!
And finally, we’ll top it off with some serious innovations coming to the industry.
Let’s take a look under-the-hood (or shall I say on-the-chain).
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The last few years have been a wild ride for NFT marketplaces like OpenSea.
If you haven’t followed the NFT Marketplace wars from 2022-23, I highly recommend you first read this PRO report to get up-to-speed.
TL;DR: OpenSea remains the dominant general-purpose NFT marketplace (aka the Amazon of NFTs).
Sure, over the last year, Blur managed to steal some market share in terms of trading volume. But most of this was just wash trading to farm the Blur airdrop, so it’s not “real” volumes. Come November when Season 2 ends (the ability to farm the Blur token), I imagine Blur's volume will shrink significantly.
But all along, you could simply look at the transactions across marketplaces to see that OpenSea has remained the clear leader for NFT marketplaces.
Even more so when you look at users…
What’s really interesting though is looking at the chart below and understanding how much more revenue OpenSea has made vs. any other NFT marketplace. Notice that Blur is not on this chart as they have still generated $0 in revenue 🤯
OpenSea is the clear leader in this space and has managed to create a sustainable business model along with it. While the numbers are “down-bad” across the board for OpenSea and the NFT marketplace industry at large, let’s take a look at what OpenSea has achieved thus far.
$1 Billion in revenue is pretty incredible, considering OpenSea has only a total of 5.8 Million wallets to ever interact with the platform (remember, that’s wallets, not unique humans!)
For some context, OpenSea currently has 225,000 monthly active wallets and at its highest point back in January of 2022 reached just 730,000 monthly active wallets (...we’re SO early)
From those users, the platform has facilitated more than 47 Million transactions…
And over $37 Billion in trading volume…
When you look at the monthly results, I know it looks like it’s all going to 0. But, for a platform that only surpassed 10,000 transactions/month and $1 million in monthly volume for the first time in January of 2021, today’s numbers are still pretty impressive.
The monthly numbers today are still more than 10x what they were this time in 2020, that’s a 1000%+ growth in just 3 years!
And finally, what was once a really incredible story was that OpenSea also managed to generate more than $1.8 Billion in revenue for creators.
However, since the NFT marketplace wars began and most platforms have removed royalties or made them optional, OpenSea is now only facilitating around $1 million/month in creator revenue.
Before we get into where things will go next for OpenSea and NFT creators, let’s first take a look at the revenues generated to the Protocol Layer from OpenSea.
L2s have little to gain so far from OpenSea, with just above $350K in revenue across Optimism, Arbitrum, and Base. This is mainly because they’ve only launched on OpenSea within the last year, during a time where NFT activity has been hit the hardest.
Ethereum has been the biggest beneficiary to date, accumulating almost $900 Million in fees from OpenSea. Though with L2s and Solana (more on this later) offering much cheaper real estate for NFTs to exist on, I’m not sure we’ll ever see NFTs trade with the sort of fees we saw in 2021 on Ethereum.
Of course, as NFT activity moves from Ethereum to L2s, they will continue to pay Ethereum to settle their transactions. To date, these numbers are tiny, but I would expect this to grow significantly in the coming years.
Of the cumulative $897 Million in fees generated to Ethereum from all Opensea transactions, $839 Million worth of ETH was burned.
And the remaining $58 Million paid to validators (as well as miners pre-merge).
Ethereum, of course, is not the only chain to find profit in facilitating NFT trades, L2s are also profitable, albeit the numbers are not yet very meaningful, as you can see below.
While NFT metrics are currently down across the board, this industry is going to go through a massive growth phase in the coming years. That said, I believe it’s going to happen in a very different way than what we are used to.
First and foremost, gas fees are going WAY down. Like WAY WAY down.
NFT smart contracts have notoriously been a gas guzzler on Ethereum, which is where most of the action happened during the NFT bull market in 2021-22.
These fees were the crux of the issue with NFT adoption. When fees were $50+ to mint or trade an NFT, it outpriced most people and made low-cost NFTs impossible. This was a big reason that the focus of NFTs went to speculation and high-value items because it was the only use case that worked.
It priced out the ability for people to truly experiment and, more importantly, for businesses to utilize NFTs for various reasons and cover the fees for their users.
This is all changing rapidly…
Blockchains are a technology which are part of the “exponential age”. Meaning adoption is growing exponentially and the tech is improving exponentially too. This means that costs to use blockchains will only continue to go down, unlocking new use cases and innovations along with it.
Most of the readers of Web3 Academy are familiar with the innovations around L2s, making transaction costs from dollars to pennies.
And some of you may also be aware of the new EIP 4844 (proto-danksharding) coming to Ethereum in Q1 2024, which should decrease transaction costs on L2s by another order of magnitude, bringing fees from pennies to a fraction of a penny.
This alone should change the NFT industry as we know it and unlock many different use cases. But these numbers are nothing compared to what is happening on Solana.
On Solana, we already have the ability to mint 10 million NFTs for $200 (fractions of fractions of pennies). This is absolutely unheard of.
Teams on Solana have developed a new technology called compression NFTs, which makes the ability to mint NFTs at scale essentially free. The protocol Bubblegum has been minting millions of NFTs a week with no spike in fees.
But that’s not all…
Solana, in its current form, has the ability to process 65,000 transactions/second. This dominates most other blockchains but is still rather slow vs. a typical centralized database. In other words, Twitter still couldn't use Solana to process all of its platform interactions (comments, posts, messages, etc.) onchain.
However, Jump Trading, a huge crypto market maker, is about 12 months out from releasing a new validator client for Solana called Firedancer, which would push Solana’s capabilities to 650,000 - 1.1 million transactions/second!
If it works, this would put Solana’s tech at an unbelievable level and unlock just about any use case that exists off chain today (plus the unthinkable amount of new use cases that are now possible with blockchains).
It’s hard to even wrap your head around what we would use NFTs for in just a few years when it becomes essentially free to create and have more scalability than almost anyone could need.
I’m planning to do a PRO report in the coming weeks on Solana and this technology to get you up-to-speed, but for now I will leave it at that.
The NFT world is going to look very different than anything we saw in 2021-22, so it’s important that we don’t hold onto the “truths” of those times, as everything will be different this time.
Whenever that time comes.
Of course, as a PRO member, we will always keep you ahead of the curve so you remain on the forefront of web3 and can capitalize on the opportunity.
Thanks for reading. And remember, you're strong, you’re powerful, you’re alpha! ❤️
Kyle Reidhead
Founder of Web3 Academy and Impact3
Find him on Twitter
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Disclaimer: This article is for informational purposes only and not financial advice. Conduct your own research and consult a financial advisor before making investment decisions or taking any action based on the content.
Kyle Reidhead
