NFTs, short for Non-Fungible Tokens, has taken the world by storm. This increased attention has given rise to various NFT marketplaces through which one can invest in NFTs or trade them.
Earlier, I presented to you an introductory guide on investing in NFTs. Below, I review some of the major platforms in this space with a view to providing a quick start guide on what is best suited for whom.
Let’s dig in.
- 1. What are NFT Marketplaces?
- 2. What are the Differentiating Factors Amongst NFT Marketplace Platforms?
- 3. Testing – Popular NFT Marketplaces
- 4. Results – NFT Marketplaces That Stand Out & Why
- 5. NFT Marketplaces & the Store of Value Argument
1. What are NFT Marketplaces?
NFT investment platforms or marketplaces are decentralized applications built on top of a blockchain.
In its simplest sense, they allow you to mint your own NFT, list to sell your owned NFT, or allow you to purchase the work of others, all the while using blockchain technology for recording transactions.
With utility being common amongst all such investment platforms, the comparison of which one is the best platform to invest in NFTs is, thus, on other factors.
2. What are the Differentiating Factors Amongst NFT Marketplace Platforms?
Broadly speaking, any marketplace, to be successful would require to have a large number of buyers and sellers to use its platform while being undeterred by the cost of transacting through the said platform. This is true for NFT marketplaces as well.
2.a. Transaction Fee Test
This is quite simple. If a marketplace has a high cost to mint or trade, in USD terms, this is a negative as it drives away creators & investors. If the cost to mint is low, this is a plus.
2.b. Community Test
If the NFT is minted on a popular blockchain, this is a plus point (more mints & higher community engagement for subsequent trading.
Whereas the same NFT on a blockchain with a low user count is negative (as new mints are going to be hard to come by, and the community engagement is expected to be low for subsequent trading).
3. Testing – Popular NFT Marketplaces
So using our two-part test, let us now review some popular NFT investing platforms. For the purposes of our analysis, we have excluded in-game marketplaces, as we intend to focus on standalone marketplaces/platforms only.
At the outset, I shall like to give credit to Dapp Radar for all the statistical information on the all-time trader count and all-time volume count that has been presented below.
OpenSea is the online NFT marketplace native to the Ethereum blockchain. As of today, the volume traded is USD $30bn with 1.689 Million traders. These metrics put it as the top-ranked NFT marketplace in our sample.
The cost to mint & trade is high given the scalability issues of the Ethereum blockchain. However, the platform is now moving to a chain-agnostic structure, whereby they also host collections on the Polygon Network & are in beta for the Solana blockchain.
LooksRare is another online NFT marketplace native to the Ethereum blockchain. As of today, the volume traded is USD $22bn with 73,000 plus traders.
These metrics put it as the top-ranked NFT marketplace with respect to all-time volume for the purposes of our sample but the low user base is a huge negative.
The cost to mint & trade is high given the scalability issues of the Ethereum blockchain. This is another negative.
Solanart is the online NFT marketplace native to the Solana blockchain. With 230,000 plus all-time traders, the Solanart platform performs reasonably well when compared to LooksRare.
However, the all-time volume traded is just over USD 650mn. Of course, one cannot ignore that this is a relatively new platform, due to which the numbers pale in comparison to our earlier two marketplaces.
However, the fact that this young platform has such a high user count already speaks of the success of this platform.
One reason for this success is the relatively low fee on the Solana blockchain. The Solana blockchain was conceived in response to the scalability issues of the Ethereum blockchain.
Specifically, Ethereum, even under its current architecture, is unable to handle the massive volume of transactions in a cost-effective manner. Resultantly, transaction costs are steep on the Ethereum blockchain. The Solana blockchain architecture is more scalable & resultantly transaction fees are lower. This is a huge positive.
3.d. Magic Eden
Magic Eden is another marketplace native to the Solana blockchain and like Solanart has the advantage of very low transaction fees.
However, the community is larger than that of Solanart (637,000 approx all-time) and has double the all-time volume (USD $1.19bn).
Rarible is another NFT marketplace native to the Ethereum blockchain and also supports Tezos. However, we see that the overall volume traded is only USD 299mn & the all-time trader count is also just 103,000 approx.
4. Results – NFT Marketplaces That Stand Out & Why
Based on the above, we can conclude that OpenSea is the most popular investment platform in terms of traders (1.69mn). Resultantly, creative flow is high on OpenSea & so is liquidity (lifetime volume of USD 30bn).
However, transaction costs on the Ethereum blockchain are prohibitive.
The platform now boasts the ability to transact via the Polygon blockchain and is moving to a chain-agnostic structure, whereby they shall soon accept Solana NFTs as well. This shall help bring more communities to their platform & hence makes OpenSea the ideal marketplace for NFT investing.
However, the contrarian view is to focus on the new blockchains that are entering this space, as they have lower barriers to entry (low transaction fees) for creators and traders alike.
This is creating a mass movement away from Ethereum-based services & one can argue that NFT investing in the new, obscure & affordable will be more profitable as compared to the established market.
OpenSea’s moves explain this into a chain-agnostic structure by welcoming Polygon and Solana NFTs, as well as the large communities that both Magic Eden & Solanart have been able to build in a short amount of time.
5. NFT Marketplaces & the Store of Value Argument
I would personally also look at this from the perspective of which blockchain provides a better store of value. $ETH trades for USD 2,100 approx, down from an all-time high of USD 4,600.
$SOL on the other hand trades at USD 55 approx, down from an all-time high of USD 260 approx. $ETH has held ground better than $SOL in a declining market. That said, the contrarian view is that when markets reverse, $SOL has more upside potential (5x to all-time high compared to $ETHs 2x to all-time high).
This is important, as the Intrinsic value of any previously minted NFT is basically the cost to mint the same NFT today.
Notwithstanding rarity and the community factor, a Solana NFT could be worth 5x more when markets reverse and reach previous all-time highs. In comparison, an NFT on Ethereum could be worth only twice, keeping network congestion & the resultant prospect of higher transaction Fee constant.
It is clear then that OpenSea enjoys a leadership position amongst NFT marketplaces. This makes it the best marketplace to mint and/or invest in.
However, it is equally important to consider transaction fees and the choice of the blockchain from the perspective of a store of value. Here, Magic Eden passes with flying colors.
That being said, this could very well be a short-lived hypothesis, with OpenSea’s chain-agnostic future set to challenge these new contestants for its place at the top of the table.
Good luck once again on your NFT Investing!