Startups are meant to be specialized but the OpenSea founders made it work by creating a market that was wide-open to create and trade any kind of NFTs including gaming, music, or art. Right now they're cent millionaires, and on a way to becoming billionaires soon, they are faced with additional challenges such as competition as well as fraudsters, and the next cryptocurrency crash.
In March of 2020, Covid-19 began to spread all over the world
OpenSea founders Devin Finzer and Alex Atallah held a gut-check phone call at that time. The five-person business had developed an online platform where users could make, purchase and sell all kinds of non-fungible tokens (NFTs)--computer files that keep track of ownership of exclusive digital assets such as music and art in a ledger referred to as a Blockchain. However, 2 years and 2 months after the platform went live, there were only 4,000 active users who were doing $1.1 million in transactions every month, translating (given the OpenSea's 2.5 percent commission on sales) to a meager annual revenue of $28,000. The NFT market felt a "dead feeling," recalls the CTO Atallah who conducted his portion of the call in the basement at his parent's Colorado house, which is where the company was based while New York was locked down. Unfortunately, Rare Bits, a competitor with a stronger and more well-funded financial backing just announced that it was closing. The duo set a do-or-die target of double sales by the end of the year. It was achieved in September.
In February 2021, the NFT market was reactivated from its hibernation and became wildly active.
As of July OpenSea handled $350 million of NFT trades. In the same month, an investment led by Andreessen Horovitz raised $100 million of venture capital at $1.5 billion prices. In August, when NFT excitement (and FOMO) increased to a fever and the number of transactions jumped tenfold, in the range of $3.4 billion--a cash windfall of $85 million in commissions for OpenSea in a month where it was likely to have burned just $5 million in expenses. Even though transactions have slowed to about $2 billion each month, it has 1.8 million active users and has a large part in the marketplace. There are 70 employees and is looking for hundreds of more employees, including the much-needed customer service representatives.
Recently there's been talk of another venture funding with a value that could be as high as $10 billion.
With a 19% stake in ownership, each CEO Finzer 31, and Atallah 29 are both millionaires and are on the brink of becoming the world's most prestigious billionaires in crypto.
However, Atallah was humble when the two of them gathered in November in an eatery in the trendy newly opened Margaritaville Resort Times Square, near the 32-foot Statue of Liberty replica, which carries a drink instead of a torch. The restaurant was hosting the 3rd Annual NFT.NYC convention, which had 5,500 attendees with 3,000 waiting on the list. A crowd of young enthusiasts walked around the hotel in Bored Ape Yacht Club sweatshirts, a nod to a collection of 10,000 NFTs, whose owners view the club as a social one as well as a collectible or investment.
It is possible to say that humility was at the core of Finzer and Atallah's strategy that was successful. A few advisors had advised the pair to concentrate on some NFT specific areas like music, gaming, or art. However, they chose to build an open platform that was able to be used by any category since they weren't sure they had enough insight to know what NFT kinds would be popular.
Beyond the wide-ranging web, Finzer says, OpenSea has been able to thrive simply because of "being at the right place in the perfect time" and listening to its users about their needs. The platform monitors NFTs on Ethereum as well as other blockchains and all purchases are done using cryptocurrency. Sellers can choose auctions or fixed prices. Artists can reserve a certain percentage of the price they sell. The main goal is that Finzer believes that their NFT ownership verification model going to use for everything including concert tickets and the real estate market. He's uncertain about what's going to be the case at what point. "I've been a person who has always held a fairly dark perspective of the future," he declares.
Despite its rapid growth, OpenSea faces big and various risks
From fraud to an NFT market collapse to the emergence of new rivals. The month of October saw Coinbase as the largest crypto exchange, and the initial investor in OpenSea announced that it was planning to create its own NFT peer-to-peer market. In a few weeks, Coinbase had 2.5 million people who signed up for their waiting lists, while its CEO Brian Armstrong was expecting the new venture could be just bigger than its main trading in the crypto market.
OpenSea's open market approach increases the possibility of scams, counterfeits, and fraud.
Ask Amazon and eBay. For instance, a fraudster could copy an image from another artist and then market this as an NFT via OpenSea. Finzer claims that the website is currently working on a system that can automatically identify fakes and has moderators that look into suspicious transactions. However, some can cause problems as well. The issue was raised in September when Finzer demanded the removal of OpenSea's chief of product following Twitter users found an account linked to the executive's account was purchasing NFTs just before they were displayed on the price-changing OpenSea website. In other words, Finzer was believed to be in charge of the decisions of his employer.
Although they appear modest, the OpenSea founders aren't lacking in ambition
Born in California's Bay Area to a physician mother and dad who worked as a software engineer, Finzer says he was "devastated" to be turned down at the hands of Harvard, Stanford, Princeton, and Yale. (He chose Brown.) After a brief time as a Pinterest engineering manager, he founded his first company, Claimdog, in 2015 and then sold the company for Credit Karma a year later.
The market's awakening in the first quarter of 2021 wasn't something OpenSea was doing. Instead, platforms such as those of the Winklevoss twins, billionaires' Nifty Gateway captured the attention of consumers through curated, top-quality artwork. In March of last year, Christie's auctioned the NFT for Beeple's digital art "Everyday"The First 5000 days" for $69 million. the third-highest amount ever paid for work created by an artist living today.
As NFTs see mind-blowing prices, more ordinary people get attracted and decide they too want to become creators, collectors, or speculators and turn to OpenSea, with its sits anyone can be an artist ethos motto, built-in secondary market, and helpful features. For example, the site has an advanced filtering system so users can find NFTs with the rarer and ideally most valuable attributes. (Only 46 Bored Apes have solid-gold fur and command an astronomical price.) If a brand new NFT is recorded and created on Ethereum, the website instantly creates a website that displays it. It's a wonderful feature, as NFTs were status symbols that people would share with their OpenSea websites and change the profile photos to reflect an NFT owned by them. "It was a circular feedback loop motivated by envy and desire. Then, OpenSea truly tapped into this market," observes Richard Chen, a partner at the VC firm 1 Confirmation as well as one of the first OpenSea investors.