How Does OpenSea Make Money? Business Model of OpenSea


How Does OpenSea Make Money

OpenSea.io provides the simplest way to buy and sell digital collectibles. The platform is powerful, innovative, and fun to use. It allows everyone to get into this burgeoning market for the first time. It gives collectors an amazing space to share their collections with the world and for traders to be able to earn money trading crypto-collectibles, which has never been easier before.

How does OpenSea make money? What’s their revenue model? In this post, we’ll cover the answers to the most frequently asked questions about OpenSea’s business model. As an investor, you want to understand all the details that will help you understand whether opensea.io is worth investing in or not, and this article will give you exactly what you need to know.

As a marketplace for NFTs (non-fungible tokens), rare digital items, and crypto collectibles, OpenSea relies on fees collected from successful transactions for making money. From the seller’s perspective, the fee is 2.5%. This means that if you sell to someone for 100 ETH worth of an NFT, you would keep 97.5 ETH, and OpenSea would keep 2.5 ETH (2.5%).

 

About OpenSea

OpenSea is the largest peer-to-peer online marketplace for non-fungible tokens (NFTs). It launched in 2017 with $2 million in start-up funding. The company recently raised an additional $23 million in April 2021 with the help of the venture capital fund of Andreessen Horowitz.

The simplest way to understand how OpenSea makes money is that think of it as the escrow service for blockchain collectibles.

OpenSea is free to use by the buyers of NFTs. Sellers of NFTs pay a 2.5% commission on any sales made through the OpenSea system.

 

OpenSea Business Model

OpenSea makes money on the sale of NFTs through its system. An NFT is a digital certificate of ownership that is non-duplicable. It is a “smart” contract created using open-source code.

Once the code is written, it is “minted” as a permanently published token added to the Ethereum blockchain (ERC 721 or ERC 1155).

The business model for OpenSea is straightforward and fair. The platform takes a 2.5% fee of each transaction that happens on OpenSea, helping the platform grow along with the NFT economy.

This business model helps in bringing together blockchain gaming enthusiasts, NFT creators, and crypto investors on one platform.

 

How much money is OpenSea making?

Dune Analytics shows the reports of the monthly fees earned by OpenSea.

The tracking of fees from August 2018 started with a very modest $251 earned that month. It took until October 2019 for the monthly fees to exceed $50,000.

It took almost another year, until September 2020, for the monthly fees to exceed $100,000. Then, the fees earned by OpenSea went up dramatically, hitting around $200,000 per month for each month through the end of 2020.

In January 2021, the fees exceeded $600,000. In February 2021, the fees exploded to over $5 million. In March 2021, they doubled to over $10 million for the month. In April and May, the fees were over $5 million each month. June was just under $10 million, and July 2021 is on track to be over $10 million again.

OpenSea is a private company that does not release its financials. However, by rough estimates, OpenSea probably achieved profitability, having exceeded in the collection of more than $35 million in fees with continually growing revenues.

 

OpenSea Competitors

The main competitor of OpenSea is Rarible. Influencer Marketing Hub reports that Rarible has the second largest market share of NFT auctions after OpenSea.

DayTrading reports that Rarible charges 2.5% as a listing fee and 2.5% as a sale commission. This is twice what OpenSea charges. Both systems pass through to the NFT sellers the charges of the ETH gas to mint the tokens on the Ethereum blockchain.

The top ten most popular NFT marketplaces are:

  • OpenSea
  • Rarible
  • SuperRare
  • Foundation
  • AtomicMarket
  • Myth Market
  • BakerySwap
  • KnownOrigin
  • Enjin Marketplace
  • Portion

 

How does the OpenSea system work?

Let’s take a look at an EFT transaction on OpenSea from the buyer’s point of view first and then from the seller’s point of view.

OpenSea from a Buyer’s Perspective

Buyers use the OpenSea system for free. All the purchase transactions conducted by a buyer are made in the cryptocurrency called Ethereum (ETH). The OpenSea system converts ETH into wrapped Ethereum (WETH).

WETH came into being after the release of ETH to make exchanging ERC-20 compatible versions of the native ETH tokens easier to accomplish. ETH and WETH are exchangeable as equivalents in a 1:1 ratio through Airswap.

A buyer who wants to purchase an NFT on OpenSea needs to have a digital wallet that contains ETH or WETH of a sufficient amount to either pay the fixed price for the NFT (if it has one) or pay for a successful bid in an auction of that NFT.

The buyer of an NFT purchases the specific contract rights to distribute, license, or re-sell as desired. However, the contract may include some limitations, such as the item cannot be used on a specific platform or that certain royalties still accrue fully or in part to the original creator.

The buyer purchases the specific “smart” contract rights offered by the seller that make up a unique NFT. This may include a royalty fee when a buyer of the NFT sells an NFT to another party as a secondary sale.

To be clear, unlimited access to digital content may be available on the Internet. However, only one NFT or a limited edition of that NFT represents the ownership of the rights to the specific digital content. The secure, documented rarity and permanent tokenization of the smart contract on the Ethereum blockchain makes an NFT valuable to some collectors.

 

OpenSea from a Seller’s Perspective

OpenSea accepts the placement of existing NFTs, even if they were created elsewhere, for sale on the OpenSea system.

OpenSea supports different blockchains containing contracts for user-owned digital items. These items include art, music, domain names, items used in virtual worlds, digital trading cards, sports items, software, utilities, and many other digital assets.

OpenSea allows the secure exchange of digital items between two parties without the need for trust between them or a centralized authority. The unique contract for each NFT is stored on the peer-to-peer Ethereum blockchain.

If the seller is new to the OpenSea system and wants to create their first NFT to offer for sale on Open Sea, this is a multi-step process described in a YouTube video by Ann from Graphic Design How To.

Here are the steps:

1. Digital Wallet and ETH

You must have a digital wallet and have some ETH in it or buy some ETH on a cryptocurrency exchange to use for your NFT transaction.

The default on the OpenSea system is the MetaMask digital wallet, but you can use other digital wallets as well if they contain some ETH. Digital wallets are available from Binance, Coinbase, or any other digital wallet source.

For example, you can get a digital wallet on Coinbase, buy some ETH on Coinbase, and then use MetaMask to link to your ETH. To do this, you will need to open a MetaMask account. MetaMask charges a fee of 0.875% for each transaction quote.

To use MetaMask, work with the Chrome browser and have the MetaMask extension installed.

 

2. Create an OpenSea Account

Two transactions are required to create an OpenSea account. One transaction is to initialize the account and the second transaction creates your first NFT on OpenSea.

OpenSea has a way to pay a one-time fee to initialize an account with your first NFT, and thereafter, you do not have to pay to add more NFTs to your account by using the OpenSea Collection Manager. The Collection Manager also allows offering more than one copy of an NFT, such as a limited edition.

 

3. Create a Collection

Create a collection category using relevant keywords in the description.

 

4. Upload the Item

Upload your first digital item that will become an NFT to your new collection on your OpenSea account. An NFT can be made from almost any digital asset.

 

5. Digitally Sign

Use the digital signature from your linked digital wallet to verify the transaction.

 

6. Info

Add information about the item and give it a price in Ethereum. The price may be a set price or the highest auction bid.

 

7. Pay the Initial Gas

To make an NFT, you must pay the fees to the Ethereum miners that are called “gas.” Gas is the common name for the fee required to make a transaction with a contract on the Ethereum blockchain.

The price for Ethereum gas constantly fluctuates and depends on demand. The price of gas is quoted in Gwei (1 trillion Gwei is equal to one ETH). You must pay for the gas to create a smart contract, initialize your OpenSea account, and pay more gas to create the first NFT.

These fees are somewhere between the equivalent of US$100 to $150 to create your first NFT.

 

8. Get Approval

Submit your NFT for approval by OpenSea and then sell it on OpenSea.

The default payment via the OpenSea system is made in ETH. However, you have the option to receive payment in over 200 cryptocurrencies.

 

OpenSea Growth

The self-reported growth by OpenSea is extraordinary. In the second half of 2020, artistic NFTs, sold on OpenSea, grew from around the equivalent of US$1 million per month to over $20 million per month. This is an increase of 20 times in just six months.

The number of artist-sellers grew 500% from 1,395 in June 2020 to 8,770 by the end of the year. The artist-sellers on OpenSea continue to grow exponentially.

NFT creators averaged the equivalent of US$3,500 in sales per month. Art NFTs creators averaged the equivalent of US$6,300 in sales per month. Moreover, 45 NFT artists earned more than the equivalent of US$28,000 in sales per month.

There were 12 NFT millionaires created so far, with the top earner being Soare, selling digital trading cards for a fantasy soccer video game. Soare earned more than the equivalent of US$6 million from selling limited collections of the NFTs of these digital trading cards.

 

OpenSea Future Prospects

The OpenSea NFT marketplace is quite different from the pure speculation occurring in other cryptocurrencies. The digital artwork represented by NFTs is a real item that has clearly demonstrated significant demand with collectors.

OpenSea is the leader in the NFT marketplace due to its low-cost commission fee of only 2.5% of a sale and its one-time fee to set up an account to sell unlimited NFTs.

The innovation by OpenSea is clever and remarkable in its simple design. The first transaction establishes the account and its first NFT on the Ethereum blockchain. Subsequent additions to an account’s collection of items that are for sale are only added to the Ethereum blockchain upon a sale. This method avoids the unnecessary effort and costs to add an item to the Ethereum blockchain until it sells.

The main criticism of the OpenSea system is that the process is still far too complex to establish an account. Nevertheless, many NFT creators and NFT traders show that this complexity is not a barrier to entry into the exciting marketplace for NFTs.

Significant earnings are possible for NFT creators, with the risk limited to the cost of establishing an OpenSea account.

 

Conclusion: How Does OpenSea Make Money?

What does the future hold for OpenSea? It’s hard to say. With such a young platform, we can only speculate on the ways in which they will develop their business in the following months.

Although this market is still too new to fully grasp how it will develop in the future, it has already proven to be quite innovative. This is partly because of the platform’s interesting business model. It is safe to say that OpenSea has the potential to become a major player in collecting and trading NFTs.

Their social media accounts suggest an interest in purchasing other Ethereum-based assets, as well as an interest in marketing, so we could probably expect some changes on these fronts in the near future.

Hope this post helped you learn more about OpenSea.io’s profitable revenue model! Now you can help contribute to a better world by sharing this article with your friends.

Also, let us know if you see any other ways that OpenSea can make money. Thanks for reading! Have a nice day!

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