What Blur’s success reveals about NFT marketplaces

Last month, data aggregators reported that NFT marketplace Blur had surpassed OpenSea in terms of trading volume.

The four-month-old marketplace has seen a whopping $1.88 billion in sales volume in the past 30 days, according to Dapp Radar. Previous market leader OpenSea’s volumes were $474.58 million by comparison.

Spurred by a renewed surge in activity following the release of the platform’s initial token on February 14, and the overtaking of OpenSea, Blur made headlines as the underdog toppling Goliath.

The platform has established itself as the marketplace for professional traders. It has a sleek interface, analytical tools and floor-sweeping capabilities that have made it easier than ever to execute frequent trades. On top of that, Blur offers zero platform fees and optional royalties, making it a cheaper alternative to the competition.

However, the battle to become the largest NFT marketplace is far from over, and the question of how successful Blur has been – and will be – is complicated.

NFT marketplaces are currently mired in intense competition for customers, with companies reducing fees and royalties in an effort to attract and retain users. Among other things, this competition has led to the steady erosion of enforcing royalty fees, a primary source of income for many NFT creators who feel betrayed by the marketplaces that once championed them.

It is a race to the bottom that is disrupting the entire NFT ecosystem.

Blur’s niche user base

Blur has overtaken OpenSea in the total value of all sales made through the platform. But there is debate about what the data actually shows.

Part of what has made Blur successful is the rewards program. Traders get points for listing and bidding on NFTs and then receive airdropped BLUR tokens depending on how many points they collect.

Without royalties and marketplace fees, there is little apart from the need to pay gas fees to stop users from “farming” points to earn tokens by purchasing their own listings with another wallet.

Last month, NFT sales data tracker CryptoSlam claimed that this is exactly what happened. In an email to subscribers, it said 1% of high-value traders did most of their trading on Blur.

It then decided to remove hundreds of millions of dollars worth of Blur trades from its data due to “market manipulation” and now filters it through an updated algorithm that rules out “suspicious” sales.

Between February 14 and 25 alone, the company detected more than $577 million in laundered NFTs on the platform.

Blur sales data “misrepresents” the NFT market, according to CryptoSlam. This potentially artificial increase in sales lifted the industry’s total sales volume to the highest level since January 2022, leading some to believe that the market was rebounding from a large drop in activity over the past year.

“What we’re finding is that this is artificially increasing sales volume in a very disingenuous way for the entire NFT market,” said CryptoSlam data engineer Scott Hawkins in an interview with Forkast.

Furthermore, OpenSea is still more popular by user numbers than Blur, whose base consists of a smaller number of more active traders. Not only does it have a lower number of users than OpenSea – 113,886 in the last 30 days compared to 294,146 – but critics have said that the bulk of transactions are carried out by a small percentage of those wallets.

OpenSea Versus Blur

Analytics aside, the data was enough to make OpenSea rethink its approach to royalties.

The company had previously been outspoken in its support for royalties, even building a tool to block the sale of NFTs minted on the platform by competitors who did not support royalties. In November 2022, it boasted that creators had earned over $1 billion in creator fees using its platform so far that year, adding that it was committed to “help protect creator fees and develop them into a more meaningful source of revenue for creators”.

Their decision on February 17 to make royalties above 0.5% optional was therefore a blow.

Blur and OpenSea were at odds in the days and weeks leading up to the latter’s decision. OpenSea’s sales ban had affected Blur – although it found a loophole – while Blur enforced full royalties for collections that blocked trading on OpenSea.

The choice of a minimum 0.5% royalty was interesting. Blur announced something similar in late 2022. In a Tweet, it said it would begin enforcing royalties of a minimum of 0.5% on NFT collections that could not use a filter registry to enforce royalties that the platform had adopted several months earlier . Although this affected a limited number of collections, Blur added that it would test gradually increasing the minimum percentage.

The ironic thing about NFT marketplaces right now is that even when they cut royalties, they still claim to be very supportive of them. But in a market where everyone is cutting fees, it’s a business that makes little sense.

Magic Eden co-founder and COO Zhuoxun Yin referred to the decision as a “prisoner’s dilemma” as his marketplace made royalties optional. The exact same phrase was also recently used by Blur co-founder Tieshun Roquerre when asked about royalties by CoinDesk.

Enforce royalties

Creators are caught in the crossfire between these market battles. Animoca Brands chairman Yat Siu believes marketplaces are competing against each other and targeting frequent traders by infringing on the rights of creators.

“Blur has shown that with a strong incentive and interesting trade approach, it was able to significantly increase trade volume, but all at the expense of the creators. It may be an innovation, but it is not positive for the industry. It is unsustainable because this takes away the lifeblood that the ecosystem thrives on, and seriously hinders the network effect, he says.

The removal of royalties prevents creators from supporting and investing in their own communities. Something like the impressive ecosystem that Yuga Labs has created with Bored Ape Yacht Club would be impossible without royalties.

LiveArt co-founder and CEO Boris Pevzner, whose platform helps traditional artists onboard web3 and is a portfolio company of Animoca Brands, believes the solution is to find new ways to enforce royalties.

The company’s earliest mechanism for doing so was, by Pevzner’s own admission, “crude”. It baked royalty payments into the smart contracts of NFT pools so that they had to be paid every time an NFT was transferred, meaning that a holder could not transfer it freely between their own wallets.

Since then, he has urged creators to also consider whitelisting systems, which have been adopted by some collections, as well as preventing those who do not pay royalties from accessing the full range of tools that come with an NFT.

Animoca Brands has also released creative commons license templates for use by creators with clauses requiring NFT buyers to pay royalties.

For others, the issue is more nuanced. NFT creator and collector Jimmy McNelis, who goes by J1mmy.eth online, credits royalties with the success of the projects in the space because the revenue stream generated from secondary sales allows collections to continue working on providing new drops and utility to holders.

“When you remove the incentive for creators other than them to be able to sell you an NFT at mint, you’ve now removed the incentive for them to continue to make the collection successful,” he says.

At the same time, he is a collector and understands the desire to get a better deal. He has circumvented royalties on sales himself by using the X2Y2 marketplace, a move that earned him a lot of flak on Crypto Twitter.

While he doesn’t like the fact that marketplaces have made royalties optional, he says it’s not a black-and-white issue. The amount of royalties people had to pay also increased before the rush to remove them.

“I think royalties for creators have gotten out of hand in a lot of cases. I don’t think it makes sense with 10% royalties unless you’re giving to some charity. I think it might make sense to put some caps on royalties for creators , he says.

An unclear future

Blur is hardly the only company competing against OpenSea. The landscape has become much more diverse in the past year as new players enter the market. The increased competition has meant that existing marketplaces have to try new things beyond royalties and fees.

“Blur would probably have grown even if it hadn’t sacrificed creator rights, but almost certainly not as dramatically as it did,” says Siu.

Many have branched out to offer support on multiple chains, such as Magic Eden which has set up shop on Ethereum or OpenSea which offers support for Avalanche.

LooksRare is taking a leaf out of Blur’s book, and is set to launch its own revamped rewards system. Rarible, meanwhile, is pushing for more community marketplaces — branded, community-driven platforms aimed at specific collections — to give them more control over the sale of their own collections.

The likes of Pevzner remain optimistic. There is currently a lot of emphasis on the needs of traders, but to win back market share, marketplaces must also begin to cater to the needs of creators and collectors.

“I think that the current market share wars will eventually work through to a state where royalties are honored,” he says.

“Basically, it’s in everyone’s interest.”