NFT Trading Platform: Blue Ocean or Red Ocean Market?

Author: NFTGo

Source: DeFi Dao

Key Takeaway

• The blue ocean market is an emerging market with high profit margins and no vicious competition; whereas the red ocean market is a known and fiercely competitive market with high barriers and strict industry competition rules.
• Among markets of various sizes and shapes, some markets can bring innovative value to both trading parties, while others merely replicate the revenue models of other markets.
• Some platforms using tokens provide new value to users through incentive designs, such as LooksRare and Magic Eden.
• On May 16, 2022, Magic Eden's daily trading volume was $47.22 million, while OpenSea's trading volume was $32.88 million, and ME's daily active user count was also trending to surpass OS.
• With OpenSea adding support for SOL, cross-chain and full-chain NFT markets may be one of the future trends. According to Magic Eden's data, Solana NFT sales on OpenSea account for about 9% since Magic Eden's launch.
• With the maturity of the NFT secondary market and derivative trading, the NFT trading market needs to rethink the ways and user experiences of NFT index trading, fragmented trading, and derivative trading.

The concept of Blue Ocean Strategy was first proposed by W. Chan Kim and Renée Mauborgne, referring to enterprises actively exploring emerging and uncompetitive markets. This strategy does not focus on market segmentation or meeting user preferences, but rather on changing the industry, resetting the rules of the game, merging segmented markets, and integrating demand to achieve value innovation. In contrast, the red ocean is where everyone is a competitor, and there are strict barriers between markets.

The early NFT market was a blue ocean market. With the launch of the NFT trading platform OpenSea, the NFT market rapidly developed and expanded like mushrooms after rain. Initially, there were no competitors in the entire NFT trading field, but with the entry of new trading platforms like SuperRare and Nifty Gateway, the competition officially began.

In recent months, new trading platforms such as X2Y2, LooksRare, and Coinbase NFT have emerged continuously, and the secondary market is gradually showing signs of saturation, which is what we mentioned earlier—red ocean: a crowded market, lack of growth momentum, declining profit margins, ultimately leading to fierce competition. In other words, the red ocean signifies a battle for interests among project parties. With many wolves and little meat, driving innovation and finding the right market positioning will be the key to victory.

Market Value

As new competitors enter the market, many project parties begin to seek value innovation, pursuing a development model of cutting costs and increasing efficiency. The boundaries between existing markets are clear; the type of service users need gives rise to the corresponding market. For example, some investors prefer unique artistic niche NFTs and 1/1 art pieces, and trading markets like Foundation or Nifty Gateway that sell unique NFT works meet the needs of this segment of users.

Value Innovation Model; Data Source: NFTGo.io, Blue Ocean Strategy

Despite the large number of platforms providing NFT trading services, project parties are still pursuing new interactive experiences for users. A recent example is the newly launched Coinbase NFT, which adds social features to the existing trading site, allowing users to leave comments and share experiences related to NFT investments.

Through the Pioneer Migrator Map, we can easily distinguish which websites are creating value for users and enhancing user experience, and which websites may only be replicating existing operational models.

Pioneer Migrator Map; Data Source: NFTGo.io, Blue Ocean Strategy

There are many platforms providing NFT trading services, but the overall operational strategies of these platforms tend to converge. We can use the Market Evaluation chart to measure the core competitiveness of different platforms. The y-axis in the chart represents the performance of each platform on different competitive factors. In addition to the several indicators shown in the chart, we have also added "cost structure," "multi-chain aggregation," and "complexity of operations." The higher the score on the y-axis, the more value the platform brings to both trading parties; conversely, a lower score indicates less value created.

Market Value Evaluation Chart; Data Source: NFTGo.io, Blue Ocean Strategy

Although users enjoy similar services across different platforms, OpenSea remains the undisputed leading project among all NFT trading platforms. With the launch of more trading platforms, it is foreseeable that the data lines on the market value evaluation chart will become increasingly dense in the coming years. Creating new value from NFT trading will also become a question that platform developers need to consider.

Who is the leader?

The ability to create value is a key factor for trading platforms to succeed in long-term competition. Total sales of marketplaces and the market value evaluation chart are key indicators for measuring value; the more value a platform provides to users, the more transaction volume it will achieve. In the chart below, we can see the total sales data of the top five trading platforms (LooksRare's data excludes "wash trading" and "highest sales").

Total Sales of Marketplaces; Data Source: NFTGo.io

After its launch, LooksRare quickly captured a significant market share due to the new value it brought to users, developing into the second-largest NFT trading platform on Ethereum.

Market Share; Data Source: NFTGo.io

Setting aside the giant OpenSea, it is not difficult to find that Rarible, Foundation, and SuperRare provide similar services to users, leading to intense competition among these platforms.

Total Sales of Marketplaces (excluding OpenSea); Data Source: NFTGo.io

LooksRare brings new product value to users and has the highest market share among the four trading platforms excluding OpenSea.

Market Share (excluding OpenSea); Data Source: NFTGo.io

Transaction Fees (LooksRare 2%, OpenSea 2.5%, X2Y2 0.5%); Data Source: NFTGo.io

Token-Driven Market Model

Recently, Solana's NFT trading market Magic Eden issued its own token. To some extent, tokens provide the possibility for platforms and traders to grow together. OpenSea generates considerable revenue through high transaction and service fees but does not reinvest the profits back to users. Notably, Magic Eden's daily active user count is also trending to surpass OpenSea.

Magic Eden's daily active users are catching up to OpenSea; Data Source: NFTGo.io

Both LooksRare and Rarible have also tied the platform and users to a certain extent by issuing tokens ($LOOKS and $RARI). For example, users can earn a share of transaction fees by staking $LOOKS; the more they stake and the more active the platform's trading, the more rewards (WETH) they can receive. The introduction of tokens allows users and platforms to achieve mutual growth. In the community-centric Web3 era, rather than treating users solely as consumers, how to integrate user interests into the platform is also a question that major NFT markets need to consider.

Yuga Labs: The Next Trading Platform?

Imagine an NFT trading market excluding the following six collections:

• Bored Ape Kennel Club
• Bored Ape Yacht Club
• Mutant Ape Yacht Club
• Otherdeed
• CryptoPunks
• Meebits

Yuga Labs' ambitions are not limited to MetaRGP games and PFPs. As a leading competitor in the NFT market, its various projects have widely gained public trust and support. More importantly, these projects have also achieved long-term growth in transaction volume and transaction value. The launch of the $APE token is a key step in Yuga Labs' success. Currently, Yuga Labs has a total market capitalization of $4.03 billion, compared to LooksRare's market capitalization of $441 million. Yuga Labs' potential market size may rank second among all Ethereum trading platforms.

All-Time Market Cap; Data Source: NFTGo.io

All-Time Volume calculates the total transaction volume in USD for each collection since its launch.

All-Time Volume; Data Source: NFTGo.io

From the Top Marketplaces chart, we can see that although Yuga Labs has only been developing for a year, once launched, it will undoubtedly be a strong competitor compared to other trading platforms.

NFT Market Ranking Chart; Data Source: NFTGo.io

From the data analysis above, it is clear that Yuga Labs has brought considerable returns to NFT holders by capturing the top traffic in the NFT market and utilizing growth models such as airdrops and whitelists, empowering future product models in a "bottom-up" manner.

Conclusion

Currently, the number of market transactions and overall liquidity is declining, and the instability of the market is prompting people to turn to invest in more stable blue-chip NFT assets. Ethereum, due to its prominent leading projects, consistently ranks first in single transaction volume, but NFT markets on other chains show a trend of small, frequent transactions. Multi-chain markets can bring more new liquidity under the dominance of blue-chip projects, driving innovation and growth.

In addition, platforms need more original activities to attract users. For example, the newly launched market Blur has achieved some success in marketing strategy formulation. The platform has created a preferential model for early investors, and to promote the upcoming beta version, Blur allows each OG to invite five friends to experience the platform's beta version together. Using the beta version can earn points that can be redeemed for practical tools within the platform. The success of Blur's marketing strategy lies in turning users into platform ambassadors, allowing them to speak for the platform and attract other NFT investors.

The beneficiaries of the red ocean slaughter are always the users. However, in the fierce competition of the red ocean, the boundaries between NFT trading platforms are becoming increasingly clear, and the trading models of Web3 platforms will also subtly change. Traffic, voice, and community will continue to be key topics that the NFT trading market needs to focus on.

Note: This article is for research purposes only. Investing in digital assets (such as NFTs and digital assets) carries risks. Please consult a financial advisor before making any investment decisions. NFTGo does not provide investment advice and is not responsible for any losses incurred from investing in digital assets.