OpenSea at the Center of the Storm: Is Web3 the Answer to Everything?

On January 10, LooksRare, a community-centered NFT trading platform, announced its official launch, airdropping LOOKS tokens to some OpenSea users. Additionally, LooksRare established a series of economic incentive mechanisms—for example, 100% of the platform's trading fees are earned by LOOKS token holders. This reward model was created in response to the "fees primarily reward a single entity" model of previous-generation NFT markets, making it clear that they're targeting OpenSea.

On the day before the LooksRare airdrop, starting around 9 PM on January 9, OpenSea's service went down. This isn't the first time OpenSea has experienced issues. Although OpenSea now supports Polygon, trading still primarily occurs on Ethereum, where frequent congestion, delays, and high gas fees have even led netizens to jokingly call it "ClosedSea."

With competitors eyeing the market outside and product performance falling short inside, OpenSea finds itself at the center of the storm, facing both internal and external challenges. What challenges does OpenSea face today? What is its moat? Will it fully step into the Web3 world?

1. Tall Trees Catch Much Wind: What Is OpenSea's Moat?

Despite the controversies, OpenSea's current success is unquestionable.

2021 was a year of explosive growth for the NFT market, and the industry's absolute leader, OpenSea, surged along with it. According to Dune Analytics data, from December 2020 to December 2021, OpenSea's total trading volume grew by 90,968%. Market share also soared, rising from 61% in July 2021 to 95% by the end of December 2021, firmly holding first place. Meanwhile, second-place SuperRare's total trading volume and user base were only 1/24 and 1/6 of OpenSea's, respectively.

Entering 2022, OpenSea continued to ride the waves. On January 9, single-day trading volume exceeded $260 million, the highest peak in over three months. As of January 10, OpenSea's cumulative trading volume for January was nearly $2 billion, approximately 61% of December's trading volume.

On January 4, OpenSea announced the completion of a $300 million Series C funding round at a post-money valuation of $13.3 billion, successfully growing its valuation 6-fold since the previous $100 million Series B round.

This success is closely related to OpenSea's advantages in liquidity. According to several crypto research institutions' reports, OpenSea's liquidity advantages are mainly reflected in the following 3 aspects:

(1) OpenSea allows users to create and sell NFTs for free without paying gas fees. This lowers the barrier to participation, expands the supply of long-tail creators, and thereby attracts users and liquidity in both primary and secondary markets.

(2) OpenSea aggregates and provides a wide range of asset types. This all-inclusive strategy is a key competitive advantage, making OpenSea the preferred market/liquidity source for many early assets.

(3) OpenSea has a large number of NFTs available for "immediate purchase." The more NFTs available for immediate purchase, the higher the market liquidity.

The liquidity accumulated over a long period has become OpenSea's current moat. W3Hitchhiker believes that "because the NFTs sold on OpenSea are non-standardized products, unlike platforms that provide standardized products where liquidity is easily migrated, coupled with the inherently poor liquidity of NFT markets, the cost of分散ing liquidity is too high for the market. This makes it difficult for other competitors to steal OpenSea's 'liquidity.'"

Under the protection of this liquidity moat, will the recent vigorous rebellions against OpenSea cause substantial harm?

2. Under Attack: What Challenges Does OpenSea Face?

On Christmas Day last year, dissatisfied with OpenSea's failure to launch a token and with many of its actions suggesting a possible IPO, OpenSea users angrily established the autonomous organization OpenDAO and airdropped SOS tokens to OpenSea users. This was equivalent to launching a token on OpenSea's behalf, which could potentially provide functional supplementation to the OpenSea platform. People hoped OpenDAO would go further and cooperate with other NFT markets to build a decentralized OpenSea alternative, opening up a new NFT ecosystem network. However, OpenDAO seems not to have taken substantive action, while the hype has only intensified.

Unlike OpenSea, which gathers users with its product and builds community, OpenDAO and SOS lack core utility but excel in narrative. By very cleverly capturing OpenSea users through fetching open-source on-chain data and airdropping, this group of users, after profiting, spontaneously posted their NFT annual statements initiated by OpenDAO on social media. The high gas fees consumed on OpenSea were intuitively displayed, sparking people's dissatisfaction and resonance with OpenDAO. This was followed by the viral spread of memes like "OpenSea, if you don't launch a token soon, I'm calling the police," allowing OpenDAO to expand its influence in a short time.

It's clear that OpenDAO is taking the opposite route of OpenSea—first gathering users with rewards, then accumulating token value through sentiment. But whether the token will have actual utility and value support later remains unknown. The current SOS is more similar to a meme coin, and those returns obtained through SOS are actually being paid for by investors in the secondary market. According to CoinGecko data, the SOS token reached a new high of $0.00001108 the day after the airdrop, but subsequently fell 64%.

In this incident, the rise of community power needs attention. OpenDAO's "surprise attack" increasingly pitted OpenSea against users, bringing negative user emotions to the forefront and triggering an outburst. It also reflects that the development of blockchain technology and Web3 culture are continuously empowering communities and users. Users' behaviors and the data they contribute on platforms need effective rewards. The original centers need deconstruction, and new consensus is beginning to form. These are emotions that OpenSea needs to capture and reflect on. Moreover, through increasingly easy-to-use DAO tools and a series of related infrastructure, user sentiment can随时 solidify into real power. If project teams cannot maintain competitiveness in serving users and sharing benefits, there's a possibility of "being DAO'd."

OpenDAO, which "has no product," is temporarily not to be feared, but LooksRare, which launched on January 10 and conducted an airdrop, seems more like a true "vampire attack" on OpenSea. LooksRare is a community-centered NFT trading platform that announced on its launch day that it would airdrop LOOKS tokens to users who had traded at least 3 ETH on OpenSea between June 16 and December 16, 2021, directly targeting OpenSea's user base. LooksRare also established trading mining, single-token staking, and liquidity mining. These economic incentive mechanisms may create real pressure on OpenSea's model. Similar projects include TreasureDAO, Mintable, and others—these are OpenSea's real competitors.

Speaking of "vampire attacks," we have to trace back to SushiSwap in 2020. Similar to OpenSea's situation, the leading DEX Uniswap hadn't launched a token at the time. SushiSwap forked Uniswap and issued a token, diverting a large number of Uniswap users. And Uniswap's counterattack at the time was to launch the UNI token.

So, will OpenSea launch a token? Will it move toward Web3?

3. Where to Go From Here: Can Web3 Solve Everything?

On January 4, OpenSea announced the completion of a $300 million Series C funding round at a post-money valuation of $13.3 billion. In OpenSea's 4-year history, it has conducted over 5 funding rounds, with participants mostly being "New Money" related to the crypto industry. However, in this Series C round, traditional institutions' "Old Money" took the lead, and Coatue appeared on the list again. This capital, which serves as both a private equity fund (PE) and a hedge fund, once involved, makes it hard not to think of OpenSea's IPO plans.

Although OpenSea responded to IPO talk in early December, saying "We don't have plans for an IPO. If we did, we would seek to involve the community." But there was no follow-up on specifically how the community would participate in the IPO. Community distrust spread, directly leading to the birth of OpenDAO.

The root of OpenSea's wavering and user suspicion lies in the fact that current OpenSea is a Web2 application built in the Web3 world. Where such a "neither fish nor fowl" entity will head remains unresolved.

From its inception, OpenSea naturally built a wallet system, which is one manifestation of its Web3 characteristics. But OpenSea isn't Web3 enough—it's not built on-chain.

This awkward structure also makes OpenSea's governance awkward. On one hand, it hopes to be as open as decentralized platforms, so there's no review step when users create NFTs. On the other hand, it can very centrally directly delist or freeze users' NFTs. This has caused many frictions that add fuel to the community's rebellious sentiment, such as a political painter accusing the platform of "political censorship" of his NFT works, and the controversy over OpenSea freezing stolen assets in the earlier $2 million BAYC theft incident.

This doesn't seem to be OpenSea's fault alone, but rather a dilemma facing the entire NFT market. dForce founder Yang Mindao tweeted that platforms need to protect creators'/producers' IP, otherwise they can't attract them. But if platforms achieve this, they become Web2. Tokens alone cannot solve the problem.

In terms of current Web3 development, this isn't the only deadlock. A recent article also sparked discussion about the "centralization trend" in the Web3 world.

This article originated from an experiment Moxie conducted on OpenSea. Moxie minted an NFT and listed it for sale on OpenSea. He discovered that there was no verification process in this, so he intentionally set this image to appear different to different IPs—that is, one image is seen on OpenSea, but another image is seen after buying it back.

As a centralized platform, OpenSea quickly delisted this NFT. But strangely, Moxie found that the NFT in his MetaMask wallet also disappeared.

In other words, to improve efficiency, MetaMask also adopted a centralized processing method—directly scanning OpenSea's API rather than scanning the blockchain.

Moxie pointed out that the key here is that while blockchain indeed has many benefits, working completely on-chain at this stage is really too inefficient. In a competitive environment, everyone will naturally rely on various existing tools in the ecosystem, so there's a trend from decentralization sliding toward centralization. This is true for users as well—how many ordinary users run their own nodes?

Therefore, Web3 needs compromise. Even when infrastructure may still be centralized, it must ensure information verifiability. That is, users can use centralized OpenSea, but users must have a convenient way to know whether OpenSea is deceiving them.

Vitalik responded to Moxie, saying that a true Web3 world should have a continuous transition spectrum, with many transitional states between the easiest-to-use centralized platforms and the hardest-to-use self-hosted servers to adapt to different application scenarios. But today, the middle part is missing.

So, perhaps these middle grounds are the growth space for "projects like LooksRare." They may not encroach on OpenSea's territory, but they will have their own place. OpenSea doesn't have only two paths, Web2 or Web3. How to maximize its first-mover advantage and liquidity advantage, how to win back users and maintain its leading position—OpenSea needs to continue exploring.

Conclusion

As an early entrant, OpenSea survived the winter and laid much groundwork for the NFT market and related facilities, also sharing in the huge dividends of the industry explosion. Today, facing numerous challenges and standing at the crossroads of Web2 and Web3, against the backdrop of technology empowering users, where it will go remains to be seen.

Currently, many narratives or new gameplay can easily stir up disappointment with OpenSea, and can also easily make people think they hold an invitation to the Web3 world. But the hills in this process must still be climbed one by one.

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