OpenSea is a peer-to-peer marketplace backed by a blockchain where goods such as gaming items, trading cards, domain names, and digital art can be purchased. The company was founded by Devin Finzer and Alex Atallah after Finzer noted the popularity of the NFT CrypoKitties phenomenon. OpenSea makes the bulk of its revenue through a 2.5% service fee. The fee is collected whenever a NFT is sold on the platform. OpenSea charges gas fees to buyers and sellers to cover the cost of applicable blockchain transactions. There are also account registration and contract approval fees when a new account is opened and a new cryptocurrency is used, respectively.
History of OpenSea
The company was founded in 2017 by Devin Finzer and Alex Atallah at a time when non-fungible token (NFT) projects were just starting to attract interest. Finzer became interested in NFTs after witnessing the CryptoKitties project, a tech culture phenomenon where people were paying hundreds of thousands of dollars for collectible video game cats. More broadly speaking, Finzer also wondered if there was more to crypto than simply finance and currencies.
A few months later, he teamed up with software developer Atallah, a Stanford graduate who also had a burgeoning interest in cryptocurrency. They presented a rough idea to a Techcrunch Hackathon in September and were then accepted into the Y Combinator program to take the project further. After an initial pivot, Finzer and Atallah returned to CrypoKitties and its underlying infrastructure. Using something similar, they decided to build a digital marketplace where users could buy or sell NFTs in multiple categories. The OpenSea platform launched in February 2018, describing itself as “eBay for cryptogoods.”
Initially, the OpenSea marketplace relied on game developers to drive business – though new categories were continuously added. The company managed to secure a $2 million round of funding early and in December, acquired competitor marketplace Atomic Bazaar. By the end of 2019, OpenSea was considered to be the leading NFT marketplace.
This position was solidified after the COVID-19 pandemic forced people to stay at home, with the NFT market itself experiencing rapid growth. In fact, NFT sales for 2020 were $94.8 million, equivalent to 30,000% year-on-year growth. During this time, the company had just seven employees and struggled to scale its operations to meet demand.
OpenSea revenue generation
The company makes most of its money by charging service fees whenever a digital asset is sold on its platform.
The service fee is 2.5%, which means an NFT selling for $200 earns OpenSea $5.
OpenSea also charges gas fees which cover the cost of the computing energy required to process and validate Ethereum blockchain transactions.
Buyers pay the gas fee when purchasing fixed-price items, while sellers pay the same fee when accepting offers.
Gas fees are also payable when canceling a listed NFT, canceling a bid, converting WETH to ETH (and vice versa), and freezing metadata.
Account registration fees
New sellers to the OpenSea platform must pay an account initialization fee before they can list.
Ostensibly, these fees are charged to enable trading between the seller’s wallet and OpenSea. The fee also allows the company to access transfer items after a sale occurs.
Contract approval fees
Users wishing to sell an item minted through a custom NFT contract will also need to pay a one-time approval fee for authorizing transactions.
This fee is also payable whenever a new cryptocurrency is used for the first time and includes currencies such as DAI and USDC.
Therefore, there are two sides to the platform.
On the one hand, the underlying platform is a marketplace enabling users to list their NFTs. On the other hand, in order for users to list, purchase or exchange NFTs, they have to connect their crypto wallets.
Therefore, OpenSea interacts with the blockchain through the crypto wallet, which is a sort of browser for crypto businesses.
For instance, some popular wallets comprise MetaMask, which enable users to connect their accounts, and therefore interact with the blockchain at various level (from purchasing, exchange to accessing various services).
At the same time, OpenSea enables creators to mint their NFTs (thus saving their ownership into the blockchain) when closing the sales.
Connected Business Concepts
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