What role will NFT marketplaces play in the future of the digital asset ecosystem?
How the rise of verticalized NFT marketplaces is poised to fundamentally disrupt the digital asset ecosystem.
In January 2022, >90% of NFT trading volume passed through one marketplace alone: OpenSea. Today, OpenSea’s dominance has eroded significantly amidst fierce competition between NFT marketplaces battling for their slice of the market.
Where once OpenSea was once the de facto generalist marketplace for NFTs, Blur has unequivocally taken over as the major breadwinner of the non-fungible ecosystem, monopolizing over 50% of the industry's total sales volume since the beginning of the year.
As more platforms emerge to cater to an increasingly diverse customer base, it’s difficult to see a path forward for just one marketplace to maintain so much market share. This isn’t a new phenomenon: something not too similar happened for web2 generalist marketplaces as a new swath of specialized players came to supplement their dominance. We are beginning to see a very similar paradigm play out in the Web3 space.
The verticalization of NFT marketplaces
To understand how the NFT marketplace ecosystem might be unbundled, it’s helpful to look at how a very similar trajectory unfolded in Web2. Let’s take things back to a humble website that did it all with just Times New Roman test and a whole lot of honesty: Craigslist.
If you’re not familiar with Craigslist, it’s basically a really famous classified advertisements service that lets users post ads for a diverse array of items and services, including house listings, online retail, job vacancies, gigs, and even personals. Searching for a new apartment? Go to Craigslist. Looking for work? Go to Craigslist. Need an escort for an upcoming wedding? You get the idea.
The website dominated in a broad range of categories until some entrepreneurs realized they could better serve some of their individual niches. That’s when the unbundling started. In 2010, Andrew Parker documented this phenomenon in an article entitled “The Spawn of Craigslist”. He explained how vertical marketplaces spun out from Craigslist over time. Entrepreneurs carved out sections of the site and created businesses for these specific verticals that could be better managed.
Where users had once migrated to one platform for all their needs, they increasingly scattered across a number of specialist marketplace verticals including accommodations (AirBnb, StreetEasy, Zillow), Transportation (Uber, Lyft, Revel) and Dating apps (Tinder, Bumble, Match.com).
How does this apply to NFTs?
When NFTs started to gain mainstream momentum in 2017, most marketplaces specialized in the digital art market (SuperRare, KnownOrigin, MakersPlace, Foundation, etc.), which closely resembled traditional art galleries with a focus on discoverability, marketing, and community building.
OpenSea took a broader approach and became the generalized marketplace on the Ethereum blockchain. It’s often considered the industry’s default secondary market and the “eBay of NFTs”. At its peak, the legacy incumbent commanded a market share of 89.7% as trading volumes reached an all-time high of $5.19 billion in January 2022.
Over the past year, with increasing competition and numerous NFT marketplace developments, OpenSea’s market share has steadily declined from 89% in January 2022 to plateau around the 30% range in May through June 2023. We’ve seen a massive shift in the NFT ecosystem during this period, most notably with the emergence of BLUR who have been able to pick up a considerable percentage of buyers by aggregating listings from various marketplaces in one consolidated platform.
As it stands, BLUR and OpenSea’s competition for market leadership has crowded out the other top marketplaces. However, as new categories emerge catering to an increasingly diverse user-base, we are likely to see a Craigslist 2.0 situation happen here. It’s already happening.
A few clear verticals where NFT specialists are already emerging include Gaming (Fractal, DMarket, Axie Infinity), Digital Fashion (The Dematerialized, Artisant, RSTLSS), Art (Foundation, Sloika, SuperRare), Sports (Sorare, Sportium), and Music (Royal, Catalog, Glass). In the coming years, we are likely to see even more specialized niches emerge to serve a variety of users and utility end-cases.
What does the future hold for NFT marketplaces?
Today, we are in the “Craiglist era” of NFTs, with the largest NFT purveyors aggregating a broad range of categories into grids of products, focused on transactions. Just like in Web2, these generalized marketplaces tend to exhibit winner-takes-all dynamics, meaning that once a single platform achieves scale, it becomes nearly impossible for competitors to overtake it.
However, as the range of products expands and NFTs eat all of digital media — from digital fashion to metaverse land to game assets — there becomes a need for verticalized experiences, better discovery, and marketplaces that connect the dots for users. Over time, more builders will come with additional use cases, additional categories will emerge, and new brands will start offering NFTs to consumers as a way to supplement their existing offerings. A one-size-fits-all isn't doesn't work for everyone.