Millions of avatars sweep the cryptocurrency world, uncovering the super platform behind NFTs: OpenSea

Written by: 0x49, Rhythm BlockBeats

"Crazy, crazy." On the morning of August 31, Xia Jiahua, the founder of the sneaker store Solestage with 140,000 Weibo followers, posted these four words on Weibo. The accompanying image showed "Your item has been successfully sold," with a transaction amount of 7.39 ETH, approximately 24,000 USD.

Three days before Xia Jiahua's Weibo post, people noticed that NBA superstar Stephen Curry had changed his Twitter avatar to a monkey. This was not just any monkey; it was an image of a monkey existing on the blockchain. Through the transparent path of the blockchain, people discovered that Curry had paid 180,000 USD for this monkey image.

For Curry, who has an annual salary of 44 million USD, the 180,000 USD was earned in just 16 minutes of gameplay. However, compared to an image that could easily be right-clicked and saved, the 180,000 USD figure clearly shocked the internet. The news quickly gained traction, and it topped the trending searches on Douyin.

Xia Jiahua was no exception; the image he sold for 24,000 USD belonged to the same series of monkey images as Curry's. As a seasoned sneaker player who is at the forefront of trends and has seen many pairs of shoes priced in the hundreds of thousands, he was also astonished by the price of this image.

It's worth noting that these monkey images, when they first appeared, only cost 0.08 ETH, which is just a few hundred RMB. In just a few months, the returns have been astonishingly high.

This is a snapshot of the current cryptocurrency world, which has always been synonymous with wealth effects, with trends constantly rotating. "Outsiders are starting to get interested," said NFT player Zhou Lan. "People are starting to ask me how to play with NFTs."

Under the NFT boom, the NFT trading platform OpenSea, which originated from Y Combinator, saw its transaction volume grow exponentially, reaching a monthly GMV of 3 billion USD, making it one of the top 1,000 websites globally. In the frenzy of NFT wealth effects, OpenSea became the biggest beneficiary of this story.

1. A Textbook Example of Silicon Valley Entrepreneurship

This is a Silicon Valley investment case that could be written into textbooks.

Some investors have stated that in recent years, YC has adopted a model of investing 125,000 USD for a 7% equity stake when incubating projects. After receiving YC investment, YC uses its market influence and appeal to help the invested companies achieve higher valuations.

Generally speaking, about three months after receiving YC investment, even the worst companies can achieve a valuation of 8 million USD, while average companies can reach valuations between 10 million and 12 million. For star companies, valuations can increase by at least 20 times, reaching 40 million to 50 million.

OpenSea's activities in the capital market have almost followed the path of YC's incubated companies.

Devin Finzer graduated from Brown University, where he interned at the Wikimedia Foundation, Google Cloud, and Flipboard. After graduation, leveraging his internship experience, he joined Pinterest, then the hottest image-sharing platform in Silicon Valley, second only to Facebook and Twitter.

During Devin Finzer's time at Pinterest, it was the third-largest social platform in the U.S. After leaving Pinterest, Devin Finzer decided to work for himself. OpenSea is Devin Finzer's third startup.

Before gaining YC's favor, Devin Finzer initially planned to apply for YC incubation with a blockchain-based shared WiFi broadband project. However, after entering YC, he was influenced by CryptoKitties and shifted to establish OpenSea.

At its inception, OpenSea received 120,000 USD in funding from YC, with an estimated valuation of about 1.8 million USD at that time. Four months after receiving YC investment, OpenSea secured another 2 million USD in funding. In an interview, Devin Finzer stated that YC created an environment that attracted more investor attention. In such an environment, fundraising for companies is more likely to trigger institutional FOMO.

Under the YC model, although OpenSea's angel round funding was only 2 million USD, it attracted participation from eight institutions, including Foundation Capital, The Chernin Group, Founders Fund, Coinbase Ventures, Blockchain Capital, Blockstack, The Stable Fund, and 1confirmation.

After completing its angel round funding, OpenSea did not skyrocket in growth but continued to wait quietly for the right moment. In terms of positioning, Devin Finzer believes OpenSea is more like eBay, aiming to grow from the long tail of small games and projects that need a marketplace.

Another co-founder and CTO graduated from Stanford University. During his time at school, Alex, like Devin, chose to intern at major Silicon Valley companies like Apple. He later held technical leadership roles at several tech-driven companies.

The backgrounds of OpenSea's founders resemble typical Silicon Valley entrepreneurs, graduating from prestigious universities like Ivy League or Stanford, using their college years to intern at FAANG companies. After a brief working career post-graduation, they embarked on their entrepreneurial journeys.

In terms of company structure, OpenSea has always adhered to a small but beautiful model. For most of 2020, the team consisted of only seven members. Even by 2021, the team had only grown to 37 people.

These 37 individuals are now handling daily NFT transaction volumes in the hundreds of millions of dollars.

2. Support from Silicon Valley Bad Boys

In March 2021, against the backdrop of global monetary easing and the influence of the Metaverse narrative, as Generation Z players entered the mainstream, OpenSea's user address count began to explode, rising from 15,000 to 48,700, an increase of 224%. At the same time, transaction volumes also began to swell, with monthly transactions first breaking the 100 million USD mark, reaching 147 million USD.

Seeing the sudden spike in data, A16Z, known as the bad boys of Silicon Valley, began to reach into OpenSea, just as they had participated deeply in Coinbase's funding eight times. However, this time, A16Z was more decisive and generous. In March, A16Z led a 23 million USD Series A funding round for OpenSea.

The market was too hot, and early users' dissatisfaction with OpenSea's outages and lags began to spread, with suggestions to upgrade OpenSea's servers appearing in community discussions and media.

OpenSea's outages and lags did not cool the market; instead, more and more users flocked into the NFT space. Modern artists like Takashi Murakami, fireworks artist Cai Guoqiang, boxing champion Mike Tyson, Argentine soccer star Lionel Messi, VISA, Coca-Cola, and beer brand Budweiser all announced their entry into NFT-related businesses.

At the same time, "play-to-earn" NFT games like Axie Infinity and meme culture NFTs like Bored Ape Yacht Club and Pudgy Penguins were also driving industry growth. Even more absurdly, some nonsensical, completely blank images were sold for 4 ETH, equivalent to 85,000 RMB.

All of this seemed reminiscent of the 2017 ICO boom, where investors frantically bought in the primary market at any cost and sold in the secondary market. In their eyes, current NFT avatars had no chance of dropping below their purchase price; buying one was guaranteed profit.

The fervent market allowed the leading NFT platforms to gather global liquidity, and the platforms became increasingly mature.

According to NFT Stats, at its peak, the daily trading volume of Curry's monkey NFT (Bored Ape Yacht Club) exceeded 500. If treated like stocks or tokens, its turnover rate was 5%.

From the data, it is easy to see signs of market makers and capital entering the scene, rapidly increasing the turnover rate to stimulate transaction volume, followed by a continuous rise in floor prices. Occasionally, there would be one or two transactions of monkeys selling for sky-high prices, stimulating subsequent user entry, leading to ever-increasing floor prices.

Data Source: NFT Stats

In July, A16Z continued to lead OpenSea's Series B funding round, raising as much as 100 million USD. After the Series B funding, OpenSea's valuation reached 1.5 billion USD.

Looking back four years, the 120,000 USD invested by YC had already approached a valuation of nearly 100 million USD three years later, yielding over 800 times the return.

In August, OpenSea's cumulative transaction volume reached 3.057 billion USD, a figure that surpassed OpenSea's total transaction volume over the past four years.

According to OpenSea's fee structure, OpenSea charges a 2.5% fee on transaction amounts, meaning that in August, OpenSea's revenue exceeded 76 million USD. If OpenSea's transaction volume can maintain the growth seen in August, then the 1.5 billion USD valuation is far below OpenSea's true value.

In such market sentiment, NFTs have somewhat deviated from their original intent, evolving from certifiable virtual assets in the Metaverse to mere speculation.

No matter how good the IP, how beautiful the work, or how hardcore the concept, none can match the immediacy and rapid proliferation of wealth effects. After experiencing IP operations and the baptism of crypto art, NFTs have exploded entirely due to classic wealth effects. IP has audience limitations, and art has aesthetic thresholds; wealth effects are universal.

However, only under the wealth effect can giants emerge, just like how the altcoins of yesteryear led to Binance, which now boasts quarterly profits of 3 billion USD. The flourishing NFT market, with OpenSea's 3 billion USD monthly GMV, is just getting started.