Game NFT Market: the most easily cut cake in opensea

Published on 5 Days ago   37 views   0 Comments  

Original author: Peter, iosg Ventures

This article is only for Industry learning and exchange, and does not constitute any investment reference

TL; DR

  1. Vertical NFT trading market will rise, eroding opensea market share
  2. Game NFT trading market is expected to become the first successful vertical platform
  3. At present, the game NFT trading market ecology has taken shape
  4. Game NFT trading market will occupy a more important niche in the future

The NFT market has been crazy in the past year. It seems that from a certain moment, familiar stars have bought NFT and replaced social media avatars such as twitter with cartoon animal pictures. In addition to the bull market hype and wealth effect, most people began to understand NFT and participate in it. Many companies also take NFT as one of the marketing means, such as Adidas, Li Ning, McDonald's, Louis Vuitton, etc.

NFT has become a cultural phenomenon. People buy NFT (especially avatar PFP NFT), join a community that fits their personality, and connect with people with similar interests through online and offline gatherings. NFT becomes the key to a community and fills the sense of belonging that people need. Stimulated by the star and wealth effects, it gradually has the characteristics of luxury goods and investment goods.

Numbers tell everything: according to nonfungible According to the data of www.nft.com, the transaction scale of NFT in 2021 was US $17billion. This figure is only US $82million in 2020, an increase of more than 200 times. In 2021, more than 2.5 million NFT addresses were held or traded, while this number was only 89000 in 20 years. Among them, most of the transactions took place in the general NFT trading market opensea, which once occupied more than 98% of the market share. With a transaction fee of 2.5%, its maximum monthly income exceeded US $350million.

However, with the explosion of NFT users, there will be different demands for NFT, and more types and functions of NFT will be further developed. On the premise of expanding the market value of the market segment, the general NFT trading market will be gradually replaced by the vertical market. This is not new. We have seen similar things happen in the web2 world. For example, eBay's market share is divided up by several vertical markets with core categories.

The next cycle is the split time of the general NFT marketplace represented by opensea. We will see more vertical trading markets start to grab opensea's share. The author believes that thanks to the real utility, the game NFT trading market is expected to become the first batch of successful vertical platforms.


Breakup time of general NFT trading market


The current blockchain ecology is just like the Internet Ecology in the 1990s. When eBay went public in 1998, its Gmv was only $105million, but it already had the largest number of users in the global e-commerce website. In the United States, at that time, less than half of adults had used the Internet, and fewer people used e-commerce platforms. It is hard to imagine that a platform could survive by selling a category alone. However, by 2013, eBay's Gmv had reached $83billion, and almost all people learned to use online stores to shop.

EBay is still an online store containing everything. It is a place where you can buy clothes, books, electronic products, furniture, real estate, hotels and even all kinds of strange things. Although it once occupied the leading position in the industry, its Gmv growth has slowed down significantly in the past few years. The most important reason is that more and more vertical platforms are slowly eroding eBay's market share and overturning the original dominant areas of eBay.

Source: disrupting ebay: the rise of vertical markets

Justine and Olivia Moore described eBay's spin off trend in 2018. Once consumers focused on eBay platform to meet all their needs, and then gradually moved to a more professional vertical platform. Among these vertical markets, Etsy, 1stdibs, airbnb, chegg and zillow have a total market value of more than US $130billion, several times the current US $30billion valuation of eBay. What can you see from this? In the early stage of e-commerce development, the number of users is not large, and eBay has been able to meet this part of the demand. With the influx of a large number of new users and the expansion of demand for specific categories, the vertical market can carry these users and create a larger cake.

Like eBay, opensea is also a general-purpose trading market occupying an absolute dominant position in the NFT field. It was established in the last bull market and became the leader of the market in this round. It once occupied 98% of the market share. If we look back at history, we can see that it took nearly a decade for the vertical platform to surpass eBay, but the business transformation within Web3 is faster. We are expected to see that the separation of NFT general marketplaces such as opensea in the crypto market will occur faster. The reasons are as follows:

1. Opensea's non exclusive content provider and commodity recommendation mechanism are relatively backward

First of all, all NFT assets listed on opensea are not the exclusive content of the platform. Simply put, since all NFT assets are on the chain, there are no NFT assets that are exclusive to opensea and cannot be provided by other platforms. Other platforms can display all NFT series only by reading the contract on the chain.

In addition, opensea does not have a perfect mechanism to discover and recommend NFT. At present, it often takes the form of "after the event recommendation", such as showing the trading rankings and the recent hot projects. It is difficult for creators to rely on opensea recommendations to increase their sales, and users can't get interesting and suitable projects from the recommendation mechanism. They can only get information about what projects are hot. The reason behind this is that it is difficult to make recommendation judgment for pure investment financial products. Only games and music NFT with strong content are more suitable for recommendation mechanism.

2. The friction of user migration in the Web3 world is less

Since all assets are on the chain, the trading platform can easily read the data on the chain and put it on the NFT series. For NFT, the core of liquidity comes from the seller's pending order operation, because many users search for low-cost NFT through aggregation platforms (such as GEM). In other words, to seize the liquidity of opensea, the core is to encourage the seller to pay the bill. At present, the cost for sellers to migrate to other trading platforms lies in opening accounts and authorizing the gas fee of NFT. Compared with a series of cumbersome operations such as filling in a large amount of information, conducting qualification review and even paying deposit on web2 platforms, the migration friction of Web3 has been very small. For buyers, connecting the wallet can buy on different platforms.

3. Opensea liquidity barrier is not insurmountable

Opensea lacks user incentive measures, which leads to the gradual loss of liquidity business barriers established in the early stage. At the beginning of this year, opendao, looksrare and other projects launched vampire attacks on opensea and used platform tokens to reward loyal users of opensea. Looksrare once surpassed opensea in trading volume. The emerging NFT trading market x2y2 is seizing the market share of opensea with its fast functional iteration, better ui/ux experience and extremely low transaction rate (x2y2: 0.5%, opensea: 2.5%). In order to avoid misleading volume Trading (opensea's market share has been less than 20% in terms of transaction volume), we can also see that opensea's share has a downward trend from the proportion of active people.

In addition, different from the defi field, the same NFT can be listed in multiple trading markets at the same time, which means that the liquidity of NFT is easier to transfer and disperse. Professional traders often put NFT on multiple trading markets at the same time.

Source: dune

4. Opensea is poorly managed, and the brand value has not opened a significant gap

Opensea's mismanagement has been criticized by users for a long time. Its security has also been constantly questioned, and the platform reputation has been damaged by vicious events such as theft, fraud and contract bugs. Opensea has a large number of false and counterfeit NFT series. The platform has a long time to accept complaints, and the rights and interests of developers and users are not guaranteed. In May this year, its homepage erroneously recommended an NFT series that imitated Pxn, and the trading volume had reached 3600eth before it was removed from the shelves. There was a bug in the contract of opensea, which made many boring ape NFTs sold at a low price, causing losses to collectors. In terms of security and reputation, opensea does not lead competitors too much, and has not yet built a brand moat.


Vertical ecology of NFT trading market


After long-term observation of the NFT trading market, we have also seen direct competitors such as rarible, looksrare and x2y2 with similar positioning to opensea (some of them also have good trading volume). However, we believe that in the future, those who can make a bigger cake and surpass opensea are not certain or likely to be opensea's direct competitors, but a package of vertical NFT trading platforms focusing on a specific segment.

NFT is not JPEG only. In terms of format, NFT is divided into JPEG, MP3, MP4, SVG, iframe, array, matrix, etc. In terms of categories, NFT is divided into collection category (PFP), pure art category, virtual world category, game category, music category, sports category, equity category and financial category.

Tasha Kim summarized the verticality of NFT trading market as follows. Among the main categories, we can see that the vertical ecology has been preliminarily established, such as games (fractal, lookex, dmarket), music (catalog, glass, Roya), art (superrare, sloika, foundation), etc. Some platforms have made good achievements, and emerging platforms have also received a lot of financing.

Source: the unbundling of opensea

So what is the motivation for users to migrate to a vertical platform rather than stay on a common platform?Let's look back at the reasons why eBay finally lags behind the vertical market under the vertical evolution path of the traditional web2 platform:

  1. Certification services:For some products, people have a strong demand for certification to reduce the risk of buying fake products. The commodities on eBay are not guaranteed to be authentic.
  2. Quality Control:EBay does not control the quality of goods on the platform, resulting in a large number of defective products and garbage flooding the platform, making it difficult to distinguish between good and bad.
  3. Price guidance:EBay does not classify the same kind of goods and gives the lowest price reference. It is difficult for users to find a reasonable price in tens of thousands of returned results.
  4. Community missing:EBay lacks a close sense of community, which makes it difficult to encourage users to repeat purchases and actively participate in both markets.

If the vertical market wants to compete for the market share of opensea, it also needs to provide something that the general NFT market cannot provide, such as:

  1. Audit system improves content quality:For subdivided fields, it is necessary to appropriately raise the access threshold, screen high-quality projects for users, and reduce user losses.
  2. Targeted design in subdivided fields:The platform can optimize ui/ux for specific categories. For example, art classes can provide 3D immersive galleries, and music classes can introduce player settings.
  3. NFT pricing service:For some NFTs, such as equity, finance and games, which have the ability to generate interest, DCF model can be used to price them.
  4. Building communities:NFT in the segmented fields is more likely to establish a cohesive community. For example, the game trading market guides players to exchange game experiences, and even facilitates asset exchange between different games.


The rise of game NFT trading market


So on the eve of the upcoming NFT vertical platform track, what type of platform may be the first winner? The game NFT trading market is the most potential seed player.

Game NFT has always been the second largest NFT category in the foreign trade volume of collectibles.With the arrival of NFT bear market, NFT transaction data of collections with hype value greater than actual utility may continue to decline. NFT will evolve in the direction of paying more attention to intrinsic value. According to nonfungible According to com, in 2021, the game NFT transaction volume reached $5.17 billion, plus the virtual world NFT that can be classified into the game category of $510million, the total transaction volume reached 5.68 billion. Calculated by 5% royalty, NFT generated a profit of $284million. According to Nansen's estimation, by 2023, the total profit of the game industry will be about $200billion, while the profit of the blockchain game industry will reach $5billion, accounting for about 2.5% of the addressable market.

Source: Annual Research Report from ark invest

Game NFT is the most obvious use case of NFT.Game NFT is nothing new. As early as 2017, cryptokitties was one of the first games deployed on Ethereum. Although PFP NFT now accounts for the main share, in the face of speculation, game NFT can always come forward with practical utility.

For collections or works of art NFT, the stories and collections behind it endow it with value. However, in addition to meeting the first two types, game NFT also provides additional usability value, so that users can really participate and immerse themselves. Availability is a sustainable development direction, expanding the addressable market of NFT.

Source: the compelling case for NFT gaming

Blue chip PFP NFT is also stepping into the narrative of Gamification, providing more value support for it. Bayc series launched the game brand otherside. In the future, bayc holders can use NFT avatars in the game. In addition, cool cat, doodle, pudgy penguins, azuki and other series have plans to launch games.

Although large game developers are more likely to establish an in-game NFT trading market, users are also more likely to prefer to trade in the game rather than jump to other platforms. However,An open platform can also bring many advantages to the game:

  1. Game community:The platform can provide a larger community than a single game, where players' appreciation and evaluation of the game can be seen. The community leaderboard and achievement system make the platform a more immersive place than a single game.
  2. Cross selling opportunities:Platform based data recommendation can also promote cross selling of games and game assets. When different game assets converge on one platform, coupled with the interoperability of NFT, the asset swap of different games and the cross game migration of assets can be realized.
  3. Asset pricing and comparison:As the power source driving users to play chain games in the short term is yield, the open platform can take advantage of the rich attributes of game assets and give price suggestions by referring to the prices of other interest bearing assets, so as to facilitate users' comparison.
  4. Targeted improvement:The official market often has many disadvantages, such as restricting the types of currencies, limiting prices, high rates, and not opening aggregate transactions and batch transactions. Open platforms can make targeted improvements.

Even in the closed ecosystem of web2, there are dozens of third-party trading platforms built around cs:go, such as csgoroll, skinchhier, csmoney, skinmonkey, dmarket, etc. In the Web3 world, since a trading market can cover multiple (theoretically unlimited) NFT assets of games, the Gmv of the game NFT trading market will be considerable.


Game NFT trading market ecological case


Eden Games: game segment in general NFT trading market

Maigic Eden is a general NFT trading platform similar to opensea, focusing on Solana public chain ecology. Eden games is a one-stop platform launched by magic Eden for game developers and gamers.

Eden games temporarily includes the following functions:

  1. Special game list: each game introduction page contains a game trailer, and the content display page displays the social content and description of the game, as well as the NFT contained in the game.
  2. Content center: the game content recommendation mechanism helps players quickly find the content they need.
  3. Competition channel: regularly hold game tournaments, invite community members to participate, and provide rewards.

The platform provides developers with NFT consulting, customized casting, promotion and marketing, user security and other support services.

Idea: Magic Eden is the dominant NFT trading market in Solana chain (the trading volume in Solana is higher than that in opensea). The platform has 1.5 million active visitors every day and 10million active visitors every month. Eden games is preparing to make full use of the huge traffic brought by magic Eden to become the discovery layer and distribution platform of games and game NFT. The NFT trading market has natural flow and liquidity advantages.

Eden Games

Fractal: vertical game NFT trading market

This platform was established by Justin Khan, the co-founder of twitch, focusing on blockchain games and NFT games. It aims to create a more secure trading market for NFT games and provide promotion and distribution services.

Fractal's value comes from:

  1. High quality game NFT launchpad:fractal adopts a strict review system. At present, only 5% of the applicants are accepted. There are more than 20 projects waiting in the pipeline.
  2. Fractal provides NFT fi related services with game features, such as lending, pledge, fragmentation, etc.
  3. Fractal will serve as the management and discovery layer of the best games, giving game developers the right to contact consumers.

Idea: fractal does not develop games, and does not rely on established NFT giants (such as magic Eden). Throughout the successful web2 game platforms, such as steam, epic and even taptap, there are seed users brought by the parent company's self-developed game bundle. Fractal hopes to overcome more obstacles as the management and discovery layer of the game.

Fractal

Dmarket: integrate web2& 3 platform for game assets

Dmarket aims to build a digital asset trading platform worth billions of dollars for game developers, players, anchors and E-sports clubs. What is different is that dmarket uses blockchain technology to access tradable game assets (not just NFT) such as skins in web2 games (such as cs:go and dota2) and Web3 games (such as decentraland).

Idea: in traditional games, the most profitable game is often the big dau free game with "skin economy", with a market value of billions of digital assets circulating in the secondary market every year. In fact, as early as 2016, platforms for trading game assets with bitcoin, such as opskins, emerged. Such third-party platforms use steam's API to access other payment systems and bypass many restrictions set by steam (for example, each weapon can not exceed US $1800). This kind of platform contains a large number of traditional players and is an important entrance to convert web2 players to Web3.

DMarket


Looking ahead


there 's no making without breaking. Axie infinity's daily revenue has been less than $10k since it reached the highest profit on August 6 last year (the daily revenue was $17.5m). The narrative of blockchain games is changing, and the play to ear model is also being questioned. With the "failure" of axie infinity, it has even gradually become an industry "consensus".

Source: https://tokenterminal.com/terminal/projects/axie-infinity

But we should also see the good side: axie Infinity has a total profit of $1.3 billion, and its token AXS FDV is up to $43billion. After the market downturn, there is now US $3billion. Without cryptocurrency economy, axie infinity adopting web2 development mode would never have achieved what it is today.

Despite the outbreak of NFT industry in recent two years, we are still in the early stage of the industry. According to the research of Hootie rashidifard, the data in June 2021 showed that only 13% of the United States had purchased cryptocurrencies, and this figure was only 3% in the world. The current dau of axie infinity, which ranks first, is about 300K. This number will only be less after removing accounts with multiple wallets. The highest game roblox data in web2 dau is up to 8.6m. This shows that there is still a lot of room for blockchain.

Source: am I too late?

NFT is the underlying element of the meta universe and blockchain games, and NFT trading market is the cornerstone of the digital asset economic system.NFT trading market focusing on games is expected to become the first successful vertical platform in the future. However, in addition to the basic trading functions, we can see that the game NFT trading market is more expected to become the discovery layer in the game ecology. How to get users for Web3 Games has always been a hot topic.

The customer acquisition method and profit calculation of web2 games are very clear: advertising โ†’ acquiring users โ†’ retaining users โ†’ comparing LTV and CAC to calculate ROI.However, Web3 games are squeezed by regulatory compliance on the advertising buying side, and face many challenges in terms of low conversion rate on the user acquisition side and difficulty in predicting LTV on the profit side. Games that use the current web2 promotion method to push Web3 will encounter sky high CAC, and it is difficult to recover the cost (unless free-to-play, and the blockchain is built in the bottom layer and not discovered by users).At present, the mainstream promotion methods and profit sources of Web3 are: Community seed user accumulation โ†’ airdrop diffusion โ†’ crypto intra circle traffic promotion โ†’ ino/ido financing โ†’ NFT secondary transaction fee + token value (LTV).

Source: https://flow-with-heart.notion.site/Web2-Web3-075e6dc8b0a04afe9e46e13db8aa858c

This Web3 promotion method relies on community fission and has high requirements for the project founding team, so it can not be quickly reused to other projects. To exaggerate, this has the CX attribute.The production and promotion processes that are difficult to reuse are not in line with the production processes of a large number of project approval, rapid iteration, testing, optimization or elimination in the game industry. In addition, the uncertain business model mainly relies on the transaction fees of the secondary market, which ultimately makes it difficult to predict CAC and LTV.

The chain tour business model has not been fully realized, which shows that the market pattern is far from finalized, and there are still many opportunities for entrepreneurs. Different from the business models of web2, such as charging advertising share and game bonus, the game NFT platform can only rely on primary and secondary NFT transactions (or focus on secondary transactions) to maintain the operation of the platform, greatly reducing the burden on game developers. With the large-scale adoption of blockchain games, in the future, the game NFT trading market will be able to occupy a richer niche, undertake the functions of user acquisition, user discovery, user retention, inter game cross promotion and user migration, and thus lead the development of the industry.


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