What is OpenSea?
OpenSea recently received a $13 billion valuation and has become the talk of the town. The company is a non-fungible token (NFT) marketplace that operates from New York City. Initially, it started as a small market allowing users to sell NFTs directly at a fixed price. Similarly, it provides an auction facility based on the Ethereum ERC-721 standard and the layer-2 scaling solution for Ethereum Polygon.
OpenSea started its operations in 2017, although its history goes back to its founders. The company began its operations under Devin Finzer and Alex Atallah. Currently, Finzer is serving as the company’s CEO, while Atallah is the CTO. Both founders, before OpenSea, had significant experience in the Computer Science field. Atallah graduated from Stanford with a degree in Computer Science in 2014.
Before that, the owned hostess.fm, which he sold in 2013. Later, he went to work at Palantir and Zugata as a software engineer. However, that didn’t last for him, and he branched out as a founder again. In 2016, he launched Whatsgoodly, a social polling platform, which amassed 300,000 users. All this experience allowed Atallah to contribute to OpenSeas and become its CTO.
On the other hand, Finzer graduated from Brown University as a Mathematics student. He completed his college studies with exceptional results. From there, he joined Pinterest as a software engineer. In 2016, while Atallah was working on Whatsgoodly, Finzer started Claimdog. It was a tool that allowed users to find if a business owes them money through the state unclaimed property databases. Later, Finzer sold the company to Credit Karma, where he worked as an Engineering Manager.
During Credit Karma, Finzer became interested in blockchain and cryptocurrency domains. He studied the underlying techniques and realized he wanted to continue his career in this path. At that time, CryptoKitties was a project that gathered significant attention for NFT transactions. Finzer realized the demand and started working on his platform with Atallah.
Both founders drew some rough ideas and applied them to enter the startup accelerator Y Combinator. There, they got $120,000 in seed funding. This funding allowed the founders to start working on their ideas. At the time, their project revolved around the concept of sharing Wi-Fi bandwidth using blockchain technology. Later, they shifted to OpenSea, which they released in 2018. When the platform went live, it had already managed to sell $500,000 worth in digital collectibles.
How does OpenSea work?
The OpenSea platform provides access to various features. It is a decentralized platform built on NFT technology. Similarly, it runs on the Ethereum blockchain. Since OpenSea is a decentralized platform, users can interact with it using smart contracts. It also allows for more secure digital assets while also giving them custody of their items in their wallets.
Users can use OpenSea through the MetMAsk app on their computers. Once they get the app, they can create an account on the platform. This account requires the necessary information about the user and their email address. However, users cannot interact with the platform through real-world currencies. Instead, they must buy Ethereum first, which allows them to purchase goods.
On the platform, users can browse articles and search for specific items. They can also participate in an auction or create one for their goods. Usually, these sales have fixed prices. However, auctions allow users to go beyond that and sell their items at a variable rate. This feature works best for collectable, rare or unsold items.
The price of those items varies significantly depending on the type of the underlying good and its source. On top of that, discounts may also reduce those prices. Through their accounts, users can buy and sell several digital assets. This way, they can trade on the platform for the same goods they have acquired. On top of that, the platform also allows users to create developer accounts, which may have other rules and regulations.
Every time a user makes a transaction or trades through the marketplace, it charges a commission. These rates are the lowest for similar platforms on the internet. Overall, OpenSea is a reliable and safe platform for users to trade NFTs. Most users prefer to use the MetaMask wallet for this platform. However, they can also obtain access to it through others.
What is the OpenSea business model?
OpenSea uses a similar business model as other decentralized platforms. For this platform, the primary source of income is the commissions from users. Since it is an online platform, it primarily operates through the e-commerce business model. OpenSea provides services to users through these technologies and allows them to trade NFTs.
OpenSea also uses an NFT business model. Essentially, an NFT is a digital certificate of ownership that is non-duplicable. This model is new and does not come with significant competition. Consequently, OpenSea provides users access to NFTs through its platform. Users can trade those NFTs through the online marketplace. While the NFT business model does not provide any income, it creates a source to generate revenues.
OpenSea business model primarily generates revenues through commissions. These commissions come with every transaction. Although they are low for the users, they help generate significant income for OpenSea. For most decentralized platforms, the business model is similar. They provide users access to a marketplace to trade digital items. Based on those trades, these platforms make money.
Overall, OpenSea uses the commission-based business model to make money. However, the company also generates income through other sources. But those sources usually provide negligible value. On the other hand, commissions are the primary income source for the company. This business model helps OpenSea accumulate many users, including NFT creators, crypto investors and gaming enthusiasts.
How does OpenSea make money?
As mentioned above, the OpenSea business model allows users to trade NFTs. For each transaction, the platform charges a fixed commission. Apart from these commissions, OpenSea also makes money from other sources. However, those sources may provide negligible returns. An explanation of how OpenSea makes money is below.
Commissions
OpenSea charges a service fee equal to 2.5% on every transaction. This charge is a fixed percentage and is significantly lower than the competition. However, it allows the platform to make money from every user and each transaction they conduct. Since the company processes millions in transactions regularly, the return from these transactions is also significant.
Registration fee
In the past, accessing and registering on OpenSea was free. Subsequently, the platform started charging a fee for these services due to the influx of users. OpenSea charges new sellers an account initialization fee before listing their assets. This fee is crucial in facilitating trades between a user’s wallet and the platform.
Gas fees
Gas fees is a new concept in the world of decentralized platforms. These fees cover the cost of the computing energy required to process and validate Ethereum blockchain transactions. Usually, OpenSea charges these fees on various transactions. These include cancelling NFT listings, cancelling bids, converting WETH to ETH and freezing metadata.
Contract approval fees
OpenSea also charges contract approval fees, allowing users to sell an item through a custom NFT contract. This fee is a one-time charge for authorizing transactions. Usually, users must pay this fee when they use a new cryptocurrency for the first time. These include currencies such as DAI and USDC. However, these fees are insignificant.
Conclusion
OpenSea is an online platform that facilities NFT trades between users. For these, it charges users a commission that comes with every transaction. OpenSea has made a name for itself in the online NFT market, although it only started operations in 2017. The company is one of the most secure and inexpensive online NFT trading platforms.
