Explained | The OpenSea story on the future of NFTs

The story so far: The writing is on the wall for the crypto market. Popular cryptocurrencies have turned around after a meteoric rise last year. Several crypto exchanges laid off a significant part of their employees and lending platforms are struggling to remain solvent. As part of this ecosystem, non-fungible tokens or NFTs also took a hit as a result of the crypto fallout.

What are NFTs?

NFTs are digital assets whose ownership is verified through transaction records stored on blockchains. Artwork, digital avatars and monkeys with accessories are some of the most traded NFTs. OpenSea is said to be one of the largest NFT marketplaces around. Earlier this year, the platform was valued at over $13 billion after raising around $300 million in venture capital. In August 2022, based on Ethereum blockchain data, OpenSea was used by two million traders who traded at least once on the network.

What is OpenSea’s place in the sector?

OpenSea was built on the Ethereum blockchain to trade NFTs. The sale of digital goods on the platform increased in August 2021, according to the analysis platform Dune Analytics. In November, Bitcoin and Ether hit all-time highs as the market reached a state of ecstasy. OpenSea monthly volumes rose between December 2021 and January 2022. In January, OpenSea monthly volumes for Ethereum shot above $4.8 billion. In February and March, monthly transactions plunged before rising again in April. This recovery was short lived as TerraUSD collapsed [UST] stablecoin and partner coin LUNA wiped billions of dollars in shareholder wealth off the market in May 2022. As a result, both Bitcoin and Ether fell and more than halved in value in the first six months of 2022. Daily transactions on OpenSea have been gradually declining since the time.

OpenSea’s trading volume in June fell to around $695 million. It fell another 30% in July to $528 million. In addition to the large loss in volume, the number of NFTs (Ethereum blockchain) sold has also been declining since January 2022, when more than two million NFTs were sold. In July 2022, around 1,702,302 NFTs were sold at the time of writing. However, this followed increases in May and June 2022. But NFT trades on OpenSea for the Polygon blockchain show even fewer transactions. Monthly volumes fell to around $6.4 million from nearly $80 million between January and July 2022.

Can users trust OpenSea?

While supporters of NFTs hail these assets as a way to revolutionize the art scene or explore new models to prove ownership, OpenSea users complain about excessive downtime on the platform. There have also been reports of breaches and security vulnerabilities. In such a case, an employee of the platform’s email delivery provider had caused the security breach.

“We recently learned that an employee at Customer.io, our email delivery provider, abused employee access to download and share email addresses – provided by OpenSea users and subscribers to our newsletter – with an unauthorized external party. If you have shared your email with OpenSea in the past, you should assume that you were affected. We are working with Customer.io in their ongoing investigation and have reported this incident to the police,” OpenSea said on June 29.

In late February 2022, at least 17 OpenSea users were targeted by an alleged phishing attempt. There are also ethical issues. A number of artists have complained that OpenSea users often steal their work, create them as NFTs and start profiting from them without their consent. These artists have criticized the NFT platform for not doing enough to combat art theft and also making the removal process for stolen art troublesome for non-crypto users.

Can influencers do everything for NFTs?

Celebrities played a key role in increasing NFT sales, either by purchasing their own such assets or minting them and putting them up for sale on platforms such as OpenSea. One of the most famous OpenSea collections was musician Shawn Mendes’ collaboration with Genies to offer NFT versions of himself, and virtual accessories such as his guitar, a shirt and even a decorative vest. One such NFT was priced at 5.5 ETH (over $10,000 on August 19). But the last sale was 0.6942 ETH (less than $2000 on August 19). OpenSea and Twitter Blue rose to mainstream fame and teamed up to allow Twitter users to upload their Ethereum minted NFTs and have them verified with a special hexagonal frame. Within days, if not hours, Twitter evolved to show which celebrities and influencers were still behind the NFT boom.

While celebrity endorsements or celebrity digital collectibles may lead to brief spikes in popularity, they fall far short of what is needed to keep the industry financially viable.

Is OpenSea finally falling?

Perhaps no development encapsulates the rise and fall of OpenSea better than the event that took place on 14 July.

The crypto bull run and NFT boom in 2021 led Web3 companies to start a hiring spree to scale operations at a rapid pace. But as Bitcoin and Ether more than halved in value after the May 2022 crash, a long list of global crypto companies began firing large swathes of their workforce.

On July 14, OpenSea co-founder and CEO Devin Finzer announced it was a “tough day” for the company, which fired 20% of its team.

“Yet the reality is that we have entered an unprecedented combination of crypto winter and broad macroeconomic instability, and we must prepare the company for the possibility of a prolonged downturn,” he said in a message shared on Twitter.

Mr. Finzer emphasized OpenSea’s strong balance sheet and its ability to survive the ongoing crypto winter with available runway. He argued that OpenSea is in “an even better position to capture what will soon be the largest market on the planet.”

While many may conclude that the era of NFTs is over and it’s time to exit their positions and give up their creations, there are always others in the crypto world who believe that panic sellers are giving them generous discounts.