Original title: "Forget Art, Let's Trade: How A 10-Person Startup Came To Dominate NFT Markets"
By Maria Gracia Santillana Linares, Forbes
Original compilation: Kxp, BlockBeats
As the NFT buying frenzy of the past year subsides, a new trader-focused NFT marketplace has quietly unseated OpenSea as the market leader.
Tieshun Roquerre, the 24-year-old co- founder of NFT trading company Blur, recalled the Vestaboard hanging on the wall of his home office and remembered that just a few months ago, the noise from this display was unbearable. The cloud-connected leaf display, designed to look like a vintage train station departure sign, has been programmed by Roquerre to remind himself that the display flips whenever an NFT is bought or sold on his fledgling NFT marketplace, And every click means a new transaction on Blur.
When Blur first launches in October 2022, the threshold for flipping a display card will be 0.1 ETH , equivalent to an NFT value of about $130. But as traders flocked, even if Roquerre raised the threshold to 1, 5, or even 10 ETH, it did not dampen people's enthusiasm for trading.
“It was such a hoopla, we had to turn it off,” Roquerre admits, mocking himself: “I’m annoyed, but I’m glad I’m annoyed.”
Over the past six months, Roquerre and co-founder Anthony Liu (until recently known under the screen name “Galaga”) have built the largest NFT marketplace by volume, displacing market leader OpenSea. The latter achieved a valuation of $13.3 billion in January 2022, making its co-founders Devin Finzer and Alex Atallah the first NFT billionaires. In March, Blur, a small company with only 10 employees, had a transaction volume of $1 billion, while OpenSea had a transaction volume of $260 million.
Like other digital assets, the NFT market has declined since peaking in January 2022, when sales hit $5 billion that month. However, the monthly transaction volume in March reached 1.7 billion US dollars, and the year-to-date transaction volume has exceeded 4.7 billion US dollars. Some of the most popular NFTs, such as Bored Apes, often sell for over $100,000.
San Francisco-based Blur's meteoric rise has stunned industry experts, as it was able to overtake New York-based OpenSea, even as other well-funded startups tried and failed. OpenSea dominated the NFT market in the summer of 2021, and even as competitors mushroomed, OpenSea still captured 75% of the market by the end of 2022. It generated $472 million in revenue from $18.8 billion in transaction volume, according to Dapp Radar, with a transaction fee of 2.5%. A year ago, Coinbase launched its own marketplace to compete with OpenSea, but the results have been terrible, recording only $6 million in sales so far.
There are a number of reasons for Blur's meteoric rise. First, while OpenSea has been catering to retail NFT buyers and art lovers, Blur has taken a very different approach. Borrowing from Robinhood 's growth strategy, Blur targets active NFT traders, backing its business and growth with venture capital raised from crypto investors such as Paradigm and Cozomo de Medici, thereby overwhelming competitors in platform fees. Similar to Binance, Blur also rewards customers with its own minted tokens, while OpenSea has yet to launch a similar initiative. Blur's timing is brilliant. Casual purchases of NFTs by retail customers and collectors have largely disappeared for the user-friendly OpenSea. However, for-profit NFT traders are still trading digital assets in large numbers every day.
Blur's alternative model and sudden emergence has shaken up the entire NFT ecosystem, prompting many players to re-examine audience targeting, creator royalties, and NFT utility.
The son of a family hotelier in Cambridge, Mass., Roquerre's love for tech startups began in 2013 when, at age 15, he landed a summer job as a software engineer at fast-growing T-shirt startup Teespring. The internship turned into a full-time job when Roquerre dropped out of his Boston private high school and, with the help of his mother, moved to a San Francisco apartment he shared with a roommate he found on Craigslist.
After a year at Teespring, Roquerre launched his own recruitment startup, StrongIntro, in 2015. A year later, he left the company to become a freshman at MIT, while Anthony Liu was already a sophomore. A San Francisco native, Liu always knew he wanted to be in the startup industry. "In large part, I chose to come to MIT because of the valuable network here," he said.
Anthony Liu, who leads Blur's team of seven engineers, did not use his real name publicly until today.
In 2018, during his junior year, Liu met Roquerre at a tea party with a mutual friend. The tea party was a chance for students on the MIT campus interested in startups to get to know each other. “We both made very conscious choices in our search for partners,” Liu said.
That May, Liu graduated with a degree in computer science, and Roquerre decided to drop out of MIT to join him in co-founding a blockchain startup called Namebase. Namebase operates a blockchain-based marketplace for domain names. After three years of development, they sold it to Namecheap, the second largest domain name registrar in the world after GoDaddy.
During the NFT boom in 2021, Roquerre began to collect and trade digital artworks, but for traders, he was not satisfied with the services of the existing market. He said the existing market "sees NFTs as a retail shopping experience," which isn't ideal for seasoned collectors who want to do more and trade faster. Meanwhile, Liu, who has been creating and selling digital collections online since middle school, is a big believer in the idea. So, in January 2022, Liu and Roquerre wrote the first line of code for their new NFT startup, focused on traders.
A marketplace, a place where a company provides a venue and infrastructure for buyers and sellers to communicate, is hard to disrupt. If a good trading venue already exists, it is very difficult for the new venue to attract enough buyers and sellers, and the larger the existing market, the harder it is to break it. For example, Craigslist's 2021 revenue hit $660 million despite its website still looking the same after more than 20 years; 11-year-old Coinbase is still the most popular place to buy Crypto in the US. There are dozens of marketplaces around the world when it comes to buying and selling NFTs.
Roquerre said it would be near "impossible" to compete with OpenSea's dominance of the market for retail NFT buyers, but he sees opportunities in OpenSea's less well-served customer base: those that sometimes trade hundreds of thousands of dollars a day. Active trader of USD NFTs.
In order to meet the needs of traders, Blur has designed its user interface very differently from OpenSea, which emphasizes NFT artwork and displays it in a gallery style. Blur borrows from the active stock trading interface, displaying important transaction data such as minute-by-minute price, volume and ownership information in a simple list of NFT favorites and sortable columns. Users can also further view information such as "depth", showing transaction volume at different price levels, and its "bidding pool" allows traders to bid for multiple works at once and buy NFTs in bulk with a single click.
This is in stark contrast to the pre-Blur era, when traders selling large numbers of NFTs on OpenSea had to list them one by one. “That was a real pain,” said Ovie Faruq, an artist and co-founder of NFT collectible Rektguyz.
To lower costs for these traders, Blur has adopted a controversial tactic: making royalty payments to artists optional. On OpenSea and other marketplaces, NFT creators are often entitled to royalties on secondary sales of their creations, often as high as 2.5%. However, royalties are never embedded in the underlying, low-level code of the NFT on the blockchain, so they can only be enforced by software built on top of the blockchain, such as OpenSea's marketplace. Artists were angered by Blur's move, which led to OpenSea reducing its royalty fees, and as of February, both marketplaces agreed to abide by a minimum royalty fee of 0.5 percent.
"Blur once said that they don't care about the artistry, they just want to build an exchange where people can create a market for these works, and don't care what these NFTs look like." Former Chicago Board Options Exchange trader, now retired and passionate about NFT Shane Cutra of the trade said. Since he started trading in December 2020, Cutra, 53, said he has made about $400,000 trading NFTs.
Blur also attracts customers by issuing its native Blur Token, which is deposited (or AirDrop in the crypto world) into traders' wallets based on their activity level. Creating such "loyalty" tokens (which in Blur's case can be used for discounts) and giving them out for free based on usage is a common marketing strategy for Crypto to attract and retain customers. Blur's Token, like Binance Token, does not represent platform ownership, but does have voting rights, allowing Token holders to express their opinions on platform software changes.
Blur’s first round of token AirDrop took place in February, targeting users who have been using the platform since its launch last October, offering additional tokens to traders switching from competitors. It also found an innovative way to provide Token rewards for trading activities, minimizing "self-wash trading", a common phenomenon in Crypto trading, where people trade with themselves to obtain trading incentives or manipulate the market , essentially only rewarding customers for certain types of bids. NFT marketplaces Looksrare and X2Y2 both launched in early 2022 in an attempt to disrupt OpenSea, but both were plagued by a large number of self-wash transactions and never accounted for more than 15% of the NFT transaction market share.
Roquerre declined to disclose how many Blur Tokens he holds (342 million in total circulation), saying only that 29% of them belong to Blur founders and employees. Of the remaining loyalty tokens, 51% went to Blur traders and 20% went to investors and advisors. According to data from CoinGecko , the market value of Blur’s currently circulating Token is about 250 million US dollars, and each Blur Token is about 0.58 US dollars.
The cumulative effect of Blur's strategy has had a huge impact on the NFT market. In February, OpenSea announced it was temporarily removing its 2.5 percent platform fee -- a business model that brought in almost $500 million in revenue last year. In April, OpenSea launched OpenSea Pro, a 0% fee NFT trading platform with trading tools similar to Blur. When Forbes called OpenSea for comment, they declined to speak directly about Blur, changes to the fee structure or whether they plan to launch their own loyalty token. "I've seen a lot of failed competitions in my life," said Erick Calderon, artist and founder of ArtBlocks, a well-known NFT studio. "In my opinion, this one is the most amazing."
In the frantic and sometimes confusing world of Crypto and NFT transactions, building sustainable walls around business models is next to impossible. Blur has displaced OpenSea as the market leader in less than six months since launching last year, but it still faces a number of challenges if it hopes to maintain its lead. For starters, it charges no fees, so it relies mostly on its $11 million in venture capital funding. It needs to charge fees or find other sources of income to support its expenses and currently has only 10 employees, most of them software engineers. In August, Blur's token holders will vote on a proposal to enable 2.5% platform fees, but if these fees are enabled, it could quickly lose a large number of users. Even though Blur has held a distant lead in transaction volume over the past seven weeks, OpenSea still has more monthly users than Blur, with 90,000 weekly traders compared to Blur's roughly 40,000, according to data on Dune .
Blur also has feuds with NFT artists, as it has boldly cut all royalties it gives creators. Betty, founder and CEO of the popular Deadfellaz series
(pseudonym) said in a recent tweet: "How can you expect economic prosperity when you don't recognize or support the people who created your deal?"
And then there are the regulatory issues: The U.S. Securities and Exchange Commission ( SEC ) has been ramping up its enforcement against Crypto companies and is increasingly treating NFTs as potential securities. A lawsuit against popular NBA Top Shot creator Dapper Labs alleges the company’s NFTs are securities, and the SEC is reportedly investigating leading NFT studio Yuga Labs for alleged sales of NFTs like Bored Apes that are unregistered securities .
Reward tokens such as Blur could also come under scrutiny, with Eversheds Sutherland's securities enforcement and litigation practice partner Adam Pollet saying that even if the token is only used as a governance token to improve and fund the development of the platform, Blur could still face regulatory action.
“It reduces the risk of non-compliance, but it definitely doesn’t eliminate it,” he added. Roquerre said Blur is working closely with its team of lawyers and partners at Paradigm to make sure they are on the right side of the law. "From day one, our focus has been on making sure everything we do is compliant with regulations," he said.
