Should OpenSea Create A Token?
Breaking down the pros & cons of OpenSea creating a token for its community...
In today’s edition of the Ground Floor we will be breaking down the pros and cons of OpenSea creating a token for its community.
Should OpenSea Create A Token?
OpenSea was once valued at $13 billion.
During this time OpenSea would receive 2.5% of each NFT transaction on its platform, with $4.8 billion in transaction volume in January 2022 ~ providing OpenSea with $120 million.
⬅️ The Past
The 2.5% transaction fees OpenSea charged resulted in several competitors taking small percentages of market share from OpenSea as they offered lower transaction fees.
This loss of market share was not an existential threat to OpenSea, until Blur arrived.
Prior to Blur, OpenSea had successfully retained its majority market share (by transaction volume), however, by offering 0% fees accompanied with the lure of collectors receiving Blurs then upcoming airdrop by listing NFTs on the platform ~ Blur took the lead.
In response to this growing competition, OpenSea announced they would be temporarily lowering transaction fees to 0% with a similar optional creator royalties for collectors.
Many thought this move would be too little too late for OpenSea, however, with Blur receiving much criticism from the NFT community of late ~ OpenSea has an opportunity.
Let's Talk Tokens
Tokens allow projects to reward the people that use their products.
To date, we have seen a number of blockchain projects provide the people that used their products with substantial rewards in the form of tokens.
Projects can also proactively communicate their intention to reward certain actions, with Blur employing this strategy to incentive collectors to list and bid on NFTs on Blur.
✔️ The Pros
What are the pros vs cons of OpenSea creating a token for its community?
If OpenSea were to launch a token tomorrow, the Web3 world would benefit by:
Providing NFT collectors with a valuable token = new liquidity= increased NFT sales.
This increase in NFT sales would likely result in the floor prices of projects increasing.
For the next 2 weeks, OpenSea would receive positive endorsements from all corners of the NFT community on Twitter, in addition to being the #1 marketplace by transaction volume.
❌ The Cons
Blur has lost significant brand equity since they started season 2 of its reward program.
This backlash Blur is receiving exemplifies that good intentions don't always = a good outcome when it comes to tokenomics ~ Blur is seeking to create deeper liquidity pools to make it easier to sell NFTs, however, collectors aren't happy with the second order effects.
Creating sustainable tokenomics is far from easy ~ particularly when OpenSea is without a clear revenue model, and the resources required to do so presents an additional challenge to OpenSea as they navigate the biggest battle the company has experienced to date.
NFTs As Rewards?
It has been hinted that OpenSea will reward people with NFTs for using its platform.
This strategy would conceivably involve OpenSea purchasing NFTs and gifting these NFTs to the people using its platform ~ a very different strategy than Blurs reward program.
Having raised $420+ million to date, OpenSea certainty has the war chest required to implement this strategy which could be used to great effect in the short term without having to take on the long term commitment of creating sustainable tokenomics.
📡 Looking Forward
Should OpenSea create a token?
Yes, this strategy would work wonders in the short term, however, the Web3 world has a short memory, and the benefits OpenSea will receive in the form of good will from the NFT community doesn't outweigh the increased risks of creating unsustainable tokenomics at a time whereby OpenSea are without a clear long term revenue strategy.
Without a clear revenue strategy, any and all attempts to provide value to its community will be short lived as OpenSea needs to generate profits to pay its team members ~ without which any token they create will loose value over time.
It's possible OpenSea will create a token in the future as an alternative to going public, however, I'm not betting on OpenSea creating a token anytime soon.
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See you next week ~ Mattob.eth / OB1👋
This newsletter is for purposes only and does not constitute financial or business advice to any person or entity.