NFTs have made their breakthrough. In the last two years, burgeoning awareness and adoption of NFTs has spurred billions worth of transactions. Even with the arrival of a bear market, NFTs remain a priority for creators, traders, brands, and web3 communities.
NFT marketplaces are aggressively competing to attract users and grow the volume traded on their platforms. OpenSea currently dominates the market, but an increasing number of new marketplaces have emerged with distinct value propositions and growth strategies.
NFT marketplaces are some of the first web3 platforms to acquire massive user bases, and analyzing their development and growth tactics can provide insight into the most effective go-to-market strategies in web3.
OpenSea is the overwhelming leader among NFT marketplaces by key metrics like volume traded and unique users. Launched in 2017, OpenSea was well-positioned to capitalize on 2021’s surge in NFT activity.
A quick glance at monthly fees earned by OpenSea paints a clear picture of its astounding growth.
This success has been driven by a first-mover advantage. OpenSea also attracted hundreds of thousands of monthly active users thanks to the marketplace’s inclusion of diverse assets and its usability for both minting and finding NFTs.
OpenSea is facing growing competition from new marketplaces. With significant weakness in overall crypto and NFT markets, OpenSea has seen a significant decrease in activity, including in monthly fee revenue, which fell to $12.5M in August 2022.
Magic Eden is an emerging NFT marketplace that launched in September 2021. Magic Eden started on the Solana blockchain where it could reach people drawn to Solana’s fast transactions and minimal gas costs.
New users have been attracted to Magic Eden by low transaction fees and tools to easily mint NFTs and promote collections. The marketplace emphasizes specific verticals, including gaming, rather than trying to list all types of NFTs.
This approach has paid off as Magic Eden generated $2B in volume in its first year. The marketplace controls over 90% of NFT volume on Solana, giving the project a foundation for expansion to other blockchains.
As it grows, a community-centric approach powers Magic Eden’s product development and user retention. A retroactive airdrop of Magic Ticket NFTs were distributed to users, allowing them to join the Magic DAO and receive benefits like invitations to IRL events, whitelists, and a voice in governance.
LooksRare launched in January 2022 with a smart airdrop targeted at users of OpenSea. To distinguish itself from OpenSea, LooksRare features community ownership that pays rewards to users of the marketplace and stakers of the LOOKS token. Additional selling points include reduced transaction fees and a novel tool for making offers across collections.
Within days of its launch, LooksRare eclipsed OpenSea’s daily volume, generating enormous awareness of the project. However, over the next few months, OpenSea retook its top spot in the market.
While LooksRare’s airdrop and tokenomics attracted early adopters, many creators and traders migrated back to OpenSea when LOOKS rewards were gradually reduced. Nevertheless, LooksRare’s go-to-market strategy quickly carved out a strong position among NFT marketplaces on Ethereum.
SudoSwap was first built as a platform for the 0xmons NFT project, but after multiple rounds of development, it relaunched in July 2022 with a vastly different model for an NFT marketplace.
SudoSwap is an automated market maker (AMM). An AMM is a decentralized trading platform that adjusts asset prices in real-time based on transaction history and available liquidity. AMMs like Uniswap are common in DeFi, but SudoSwap has helped pioneer their use for NFTs.
As opposed to marketplaces built for NFT creators, SudoSwap appeals primarily to traders because of its elimination of royalties for creators as well as low gas, low fees, and deep liquidity for transactions. This liquidity facilitates dynamic trading and price discovery without the friction that can occur on centralized exchanges that must match specific sellers and buyers for each NFT.
SudoSwap has grown rapidly since its launch, reaching nearly $40M in volume, 96,000 transactions, and 38,000 unique users in less than three months.
As part of its growth plans, SudoSwap recently announced an airdrop of the SUDO governance token. The token will be distributed to holders of the project’s current XMON token.
Coinbase, which has over nine million monthly transacting users on its cryptocurrency exchange, announced plans for an NFT marketplace in 2021. After multiple delays, the project kicked off with a limited beta in April 2022 and a full launch a few weeks later.
Despite Coinbase’s brand awareness and existing user base, weak performance has plagued its NFT platform. While millions signed up on a waitlist for access, only 150 users made trades on the day that the marketplace first went live.
Within a few months post-launch, Coinbase NFT had just 8,668 transacting users, and its $2.9M in volume paled in comparison to OpenSea, which claimed $5B in volume during the same period.
As a result of its delayed and limited rollout, Coinbase has failed to convert users to its NFT marketplace. In addition, the marketplace is designed as a social network, but Coinbase lacks the users needed for network effects that can spin up growth on a social platform.
The early competition among NFT marketplaces highlights a handful of takeaways about growth and go-to-market strategies for web3 communities.
Although many companies and projects have sought to take advantage of the frenzy around NFTs, these NFT marketplaces show that those with the strongest product-market fit can unlock meaningful growth.
In contrast, Coinbase struggled to find product-market fit for its NFT platform. Their marketplace launched late and failed to offer distinguishing features. A lack of success in acquiring new users has short-circuited potential growth from the platform’s social component.
For NFT marketplaces, targeted reward programs, including airdrops, can build brand awareness, draw in new users, and retain existing customers.
For LooksRare, a smart airdrop was a targeted strike to pull users away from OpenSea. This delivered huge immediate benefits by driving both attention and trading volume.
Magic Eden and SudoSwap have deployed retroactive airdrops to early adopters and existing users. These rewards can provide value to users, reinforce their loyalty, and encourage ongoing participation in the community.
To fend off new competitors, NFT marketplaces will have to transition from temporary to sustainable moats.
Temporary moats include low fees, chain-specific integrations, and engaging features. These can generate growth initially but are easily copied. Even first-mover benefits can wear off.
Instead, long-term market leadership comes from sustainable moats. In web2, sustainable moats are built with advantages like network effects, scale, brand loyalty, and switching costs. In web3, there’s still debate about how sustainable moats can be created.
NFT marketplaces will provide a real-time case study. As OpenSea looks to consolidate its position, projects like Magic Eden and LooksRare are building communities to try to establish a durable advantage. For SudoSwap, decentralization and a focus on traders provide a marked difference from OpenSea and other platforms. With its governance token, SudoSwap also appears to be gesturing toward a community-driven moat that could ward off forks using its code.
As competition unfolds, optimizing each stage of the customer funnel will be vital for the healthy growth of NFT marketplaces.
At the top of the funnel, for example, OpenSea and Magic Eden are expanding to new blockchains to tap into larger pools of potential users. Promoting popular collections and verticals can raise brand awareness. Marketplaces are also forging partnerships with celebrities and influencers for NFT drops that can bring new users into web3.
In the middle of the funnel, all of the marketplaces are improving product features and often offering lower fees to encourage conversions and acquire customers.
And at the bottom of the funnel, fast-growing marketplaces like Magic Eden and SudoSwap have deployed retroactive airdrops to incentivize retention while LooksRare, as a community-owned marketplace, offers token rewards to stakers and active users.
With improved performance across the funnel, even Coinbase’s NFT platform could reverse its fortunes. Rekindling interest among Coinbase’s crypto exchange users and motivating them to convert could provide a tailwind for growth of the social component built into the marketplace.
While NFTs are just one element of web3, the emergence of NFT marketplaces offers an early look at the growth levers available to web3 communities. It will be years before we know the ultimate winners and losers in the battle for NFT dominance, but today’s web3 projects can leverage lessons learned from the launch of NFT marketplaces to more successfully build their own communities.
