Why OpenSea’s NFT Marketplace is Doomed to Fail
OpenSea recently announced plans to launch an NFT-based marketplace where users can buy and sell items from any blockchain game or non-fungible token project. While this may seem like an exciting announcement, there are actually many reasons why OpenSea’s NFT marketplace will not work in the long run. This article outlines 5 reasons why the NFT marketplace concept as it exists now will not be sustainable in the long run, and it also outlines what improvements need to be made if the concept is going to succeed.
The model will fail because it won’t be able to make enough money
NFTs are worth a fraction of what other digital assets are worth, so users won’t be as motivated to sell for the marketplace. Additionally, OpenSea will not have access to exclusive deals with content creators, which it needs in order to provide incentives for buyers.
The result of these shortcomings will be an inferior user experience and low token volumes on the marketplace – two qualities that make for a shaky financial model.
OpenSea has no chance at creating an incentive layer because it cannot incentivize content creators – remember, it doesn’t have any form of exclusivity! It cannot offer potential buyers anything special that they cannot get somewhere else.
The model will fail because it won’t bring enough users
OpenSea is an online marketplace for digital goods. One of their products is a service that lets users buy and sell non-fungible tokens (NFTs) using Ethereum’s native cryptocurrency, Ether. This has the same problems as other marketplace models: one of the most popular challenges is liquidity. Since it doesn’t use its own token, there are few incentives for users to trade on the platform. With limited activity, it will be difficult for any buyers or sellers to justify posting rates that exceed what they can earn elsewhere.
A tokenized marketplace model could solve both of these problems, but it would be difficult for OpenSea’s company to change its business model at such a late stage. In order for such a platform to work properly, its native token would need a high market cap and enough users on its network in order for sellers and buyers to quickly find each other. It would also need adequate liquidity so that bids and asks are visible before transactions happen. The marketplace could reduce friction by using smart contracts with escrow features, or by implementing artificial intelligence with pricing algorithms, but these solutions come with their own complexities.
The model will fail because it will encounter regulatory problems
One of the problems with OpenSea and any marketplace like it is that, until a universal and accepted standard for non-fungible tokens has been created, there will be a question about what tokens are enforceable within different jurisdictions. How will users know if their digital assets comply with a given legal framework without knowing where they are in the world? Even if all users in a given market share the same currency or law system, since digital assets have no physical location, it becomes unclear which jurisdiction has jurisdiction over the trade. Ultimately this creates uncertainty in transactions which reduces confidence, making people reluctant to trade. If either buyer or seller has reason to doubt the ownership of an asset, they won’t feel comfortable moving forward with the transaction.
The model will fail because no one wants to use it
OpenSea, an online marketplace for digital assets, announced last month that it was opening a new department devoted exclusively to non-fungible tokens (NFTs). Fungible tokens are tokens whose value is defined by the underlying cryptocurrency. If you have one Bitcoin, you can swap it for one Ethereum and be happy about it because both are considered fungible. Non-fungible tokens are items with their own digital profiles or attributes that can’t be swapped. You don’t just have Bitcoin; you might also own Rare Pepecoin. And while there are plenty of people who collect coins as a hobby, if your rare peppercorns go up in value then they’re worth more than any other coin on the market. So if someone offers you $10 for your 100 Rare Pepecoins, you would only agree to such trade if they offered $10K in return!
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