Text/Jeff Kauflin
Image credit: SASHA MASLOV FOR FORBES
In theory, startups should specialize in a certain field, but instead the founders of OpenSea created an open marketplace for people to create and trade all types of digital collectibles (NTFs), including art, music, games, and more. Today, openSea's founders are billionaires and are on the verge of crossing the threshold of a billion dollars. However, they also worry about issues such as competitors, scammers, and the next crypto asset crash. And when the bubble bursts, how will OpenSea respond?
In March 2020, as the COVID-19 pandemic spread, OpenSea founder Devin Finzer and Alex Atallah held a heart-pounding conference call. Previously, they built a platform on which users could create, buy, and sell various NFTs. However, 26 months after going live, there are only 4,000 active users and monthly transactions hovering at $1.1 million. Considering that OpenSea charges a 2.5% commission on every transaction, this means that the company earns only a meager $28,000 per month.
Chief Technology Officer Alex Atallah recalled that the NFT market at the time had a "dead" feel. At the time, New York was in lockdown, so he moved to work at his parents' home in Colorado and attended the conference call in his basement there. At the time, One of OpenSea's more well-funded direct competitors, Rare Bits, had just announced the collapse, which seemed like an ominous signal. So the two co-founders simply set themselves a desperate goal: to double the business by the end of the year. They did it in September of that year.
The year of the NFT explosion: OpenSea co-founders Alex Atallah (left) and Devin Finzer (right) in the company's new office in New York City's SoHo district. Founded in 2018, OpenSea is expected to surpass $300 million in revenue this year, compared to less than $1 million in 2020. Image credit: SASHA MASLOV FOR FORBES
In February 2021, the NFT market woke up from hibernation and began to become fanatical. In July, OpenSea processed a $350 million NFT transaction and secured a $100 million funding round led by A16z, with a post-investment valuation of $1.5 billion. In August, as the NFT boom (and its "fear of missing out") increased further, OpenSea's business volume quickly soared tenfold to $3.4 billion — meaning $85 million in commission income for OpenSea, while its expenses could be less than $5 million. Although the platform's monthly trading volume later fell back to around $2 billion, it still has 1.8 million active users, dominating the NFT market. The company now has 70 employees and is hiring dozens of new employees, including a customer service team that is in dire need of expansion as the business grows.
Good things about OpenSea seem to follow. There have been recent rumors that a new round of venture capital injections could value it at $10 billion. Devin Finzer, 31, and Alex Atallah, 29, each hold a 19 percent stake in OpenSea, are already billionaires who are likely to rise to the latest billionaire in crypto assets again.
In November, at a restaurant in New York's Margaritaville Resort Times Square, Alex Atallah looked humbled as he sat next to a 32-foot-tall replica of the Statue of Liberty, next to whom he held not a torch but a cocktail. Alex Atallah was there for the third annual NFT Conference in New York, which had 5,500 attendees and 3,000 people on the waiting list. At the event, young NFT enthusiasts walked around the hotel wearing sweatshirts printed with the Bored Ape Yacht Club, a tribute to the 10,000 NFTs based on these ape images.
In the eyes of some, humility may be a central factor behind the success of Devin Finzer and Alex Atallah. Business consultants have suggested that they specialize in a certain NFT segment, such as art, games, or music, but they chose to create an NFT trading platform that does not classify others because they thought they were not prescient enough to predict which type of NFT would become popular.
Devin Finzer said that OpenSea has been able to thrive not only because it has been in the right place at the right time" and listened to the needs of users. The platform tracks NFTs on Ethereum and other blockchains, and all transactions on the platform are made through cryptocurrencies. Sellers can choose to sell NFTs at a fixed price or as an auction, and artists can set themselves a percentage of the price they get in each resale. Devin Finzer argues that the verification model of NFT ownership applies to all areas, including concert tickets and real estate, and he's just not sure when this phenomenon will become widespread. "My views on the future are always bleak."
Despite its sudden success, OpenSea still faces huge and diverse risks, including fraud, another NFT market crash, and new competition. In October, Coinbase, the original investor in OpenSea, the largest cryptocurrency trading platform in the United States, announced that it would launch its own NFT P2P market. Within weeks, Coinbase had 2.5 million people waiting to register. The company's CEO, Brian Armstrong, predicts that the scale of this new business "could be as big as, or even bigger, than its core cryptocurrency trading business."
NBA star Stephen Curry bought the Bored Ape (#7990) NFT for $180,000 in August. He's not the only celebrity to own the Ape NFT — talk show host Jimmy Fallon and billionaire Dallas Mavericks owner Mark Cuban also have their own Ape NFT. Image credit: Stephen Curry
OpenSea's open marketing strategy increases the risk of counterfeits, scams and fraud, and just look at Amazon or eBay. For example, crooks can copy images from other people's works and then sell them on OpenSea as NFTs of their own creation. In response, Devin Finzer said that the company is working on a way to automatically identify fakes, and has hired a special administrator to investigate suspicious products. However, these administrators can sometimes be a problem. In September, Devin Finzer asked OpenSea's product executive to resign because a Twitter user discovered that a crypto wallet associated with the director was buying the NFTs shortly before some NFTs appeared on OpenSea's homepage — in other words, he had traded them before his employer could release the product.
While the two founders of OpenSea seem humble, their ambitions are not small. Devin Finzer grew up in the San Francisco Bay Area, where his mother was a doctor and his father was a software engineer. He said the experience of being shut out of Harvard, Stanford, Princeton and Yale university had "taken a hit" for him. (He eventually chose Brown University.) After working as a software engineer at Pinterest for a while, Devin Finzer partnered with others to create his first company, Cleimdog, in 2015 and sold it to Credit Karma a year later.
Alex Atallah, the son of a Colorado-born Iranian immigrant, made spreadsheets as a child to compare the attributes of everything from birds to browsers. After graduating from Stanford University, Alex Atallah worked as a programmer for a while before working with Devin Finzer. In January 2018, they entered the Y Combinator incubator with the idea of "users pay cryptocurrency to share Wi-Fi hotspots." At that time, Cryptoptokitties, a virtual cat-raising game logged into the Ethereum blockchain, sparked public concern and imagination. "For the first time, people who don't really care about cryptocurrencies have become interested in cryptocurrencies for reasons other than hitting by mistake, and I think that's really remarkable." Alex Atallah said. So they quickly shifted their focus to OpenSea and later to New York.
Like Beanie Babies, CryptoKitties eventually proved to be a Squib. Most of them are not worth much because of the supply. After peaking in early 2018, interest in cryptocurrencies and NFTs has fallen silent.
In fact, it is not OpenSea that will reawaken the NFT market in early 2021, but platforms like Nifty Gateway, the twin brothers of billionaire Winklevoss, which attract attention with carefully curated, high-quality artworks. Last March, Christie >39 s) Auctioned digital artist Beeple's NFT work everyday: the First 5000 Days for $69 million, the third highest price of a living artist's work.
As NFTs sold at staggering prices, more and more ordinary people wanted to be their creators, collectors, or speculators, so they turned to OpenSea because of its philosophy that anyone could be an artist, and it had a built-in secondary market and an easy-to-use interface. For example, the site has an advanced screening system that makes it easy for users to find NFTs on top of them that have the rarest – and therefore theoretically the most valuable – attributes. (For example, only 46 Bored Apes NFTs have pure golden fur, so their premium is high.) When a new NFT is created and recorded on Ethereum, the site automatically generates a web page that displays it — a great feature because the NFT becomes a status symbol where people can share their OpenSea pages and change their Twitter avatars to the NFTs they own. "Driven by envy and lust, this becomes a constant loop of feedback closed loops, and OpenSea has really captured this market." Richard Chen, a partner at venture capital firm 1confirmation and an early investor in OpenSea, said.
Among OpenSea's users, Dani, 27, a former fashion designer living in Georgia, turned her $17,000 investment in NFTs like World of Women into a $715,000 portfolio. AJ, another 37-year-old former game company CEO from North Carolina, has invested less than $10,000 in NFTs and is now worth $1.3 million in digital assets, and he recently persuaded his gastroenterologist brother to start buying NFTs, which in turn persuaded his good friend to join. "Now, they're almost doing a colonoscopy while pulling out their phones to see if there's a new NFT on the market." AJ said.
Does that sound like a bubble? That's right, so this begs the question: How will OpenSea respond when the bubble bursts? Devin Finzer replied: "We have a large number of buffers in case the market deteriorates."
Translated by Vivian