The NFT primitive as a building block will enable a breadth and depth of use cases that go far beyond the current focus on art and collectibles. You can read more about that here.

Today, I'm focusing on the current mainstream NFT use case; digital collectibles and art.

Breaking out

I think we can safely conclude that 2021 was the breakout year for NFT's. OpenSea had an equally big year, positioning itself as the defacto marketplace for non-fungible tokens.

With its recent round of funding, its valuation pushed $13B. Absolutely insane.

But – where do we go from here? That's what we're going to explore today.

During the past year, dissatisfaction with OpenSea has grown in the core NFT community on Twitter:

• There's the often-non-responsive support department.
• There was a front-running/insider trading scandal.
• Randomly freezing stolen assets, which mostly fucks over the seller and the buyer but lets the thief off the hook.
• Lastly, the community on Twitter kept raising the volume; "Wen token?"

Wen token?

A core ethos of the web3 momentum: sharing value with those who created it.

Many had hoped that OpenSea would follow in the path of Uniswap, Rarible, ENS, and others. These protocols grew to success by way of its users, and then proceeded to decentralize ownership by airdropping tokens to its users.

Being a VC-backed company, there is a slim chance that OpenSea will airdrop free money to its users. It is – and operates – like a traditional web2 company leveraging the momentum of web3.

So, what's Openseas moat? I think there are two:

• Compared to most alternate NFT marketplaces, it's actually a pretty well-built and polished product. (If we forget about the 395 days they experienced downtime last year.)
• Positioning; it is the ultimate aggregator of supply and demand, making it the most effective marketplace to trade your assets. 
  There are strong network effects; the marketplace becomes more liquid and effective for each consecutive buyer/seller on OpenSea.

OpenSea is very well positioned, but they're not unchallengeable; Over the next couple of years, I think we'll see several dynamics play out – some will be at the expense of OpenSea.

Fragmentation and niche marketplaces

As the surface area of NFT collectibles and assets keeps increasing, more niche-oriented marketplaces will emerge.

To some extent, this has already played out for a while with 1/1 art-focused marketplaces. It will continue;

Play-to-earn gaming is poised to grow in a big way in 2022. There will be specialized marketplaces for in-game assets, for instance.

It's also likely that we'll see some NFT communities/ecosystems grow big enough to build out their own marketplaces.

Why should big players like Pixel Vault, Bored Ape Yacht Club, Gutter Cat Gang, and others let OpenSea rake in all those transaction fees when they could be retained and circulate in a project's ecosystem?

The Wolf Game creators have already hinted that this might be in the works.

Community-owned competitors

With many strong, anti-OpenSea voices in the core NFT community, it is inevitable that community-owned (and true to the "share value with those who create it"-ethos) will emerge.

The first such well-built contender – LooksRare – launched today and handsomely offers tokens to the community, creating an immediate incentive to start using it.

Sidenote; this is a fascinating effect of public data on the blockchain. One protocol can offer incentives based on the user's activity on a different/competing protocol.

I.e., since we know you're an active NFT trader, we will immediately give you ownership of our NFT marketplace, giving you an incentive to increase the marketplace's value.

Whether a competitor like LooksRare can succeed ultimately depends on how much supply/demand they can attract from OpenSea.

Well (venture-) funded competitors

It’s likely that many other mainstream NFT marketplaces are in the works right now and will launch later this year. Some have already tried and failed (or at least not reached escape velocity yet). Which is a testament to the position OpenSea has dug into.

Coinbase NFT marketplace launching

Coinbase will most likely launch its NFT marketplace early this year. This might be the most significant influence on the current state of NFT trading due to timeline (near future) and potential power.

If positioning/brand equity is one of OpenSea's major moats, Coinbase is the behemoth that can challenge it from day one.

More than 8 million traders are active every month on the Coinbase platform to buy and trade cryptocurrencies.

For scale, there are still less than a million wallets that have traded NFTs on OpenSea since its inception.

The Coinbase marketplace will likely bring in a substantial new wave of NFT collectors and lower the bar to entry in the process with easy fiat on-ramping and asset custody. A solid combination to make it easier to use for non-crypto-natives.

In the future, the broad, catch-all marketplaces like OpenSea and Coinbase might act as top-of-funnel destinations as new users get into the mix. Over time they'll move down the funnel to niche marketplaces as they find the communities that resonate with their passion and interests.

Aggregators emerging

The three dynamics mentioned so far share one thing in common: they will spread supply/demand across platforms over time.

In a web2 environment, this would lead to less effective marketplaces. Things are composable in a web3 world, where everything is based on public databases (the blockchain).

In essence, it means that somebody can create new building blocks on top of, and connected with, the existing blocks.

We've already seen this in practice In the Decentralized Finance-corner of web3:

As more decentralized exchanges sprung up, each with varifying liquidity pools depths between different trading pairs, users were in a pickle: where can I get the best price on my trade?

The solution: Aggregators like 1inch Network.

Instead of going directly to a specific DEX, users enter into a trade via the aggregator, which then sources liquidity from multiple exchanges behind the scenes.

The growing fragmentation of supply and demand for NFT's will open up space for the same aggregation products on top of the marketplaces themselves.

We're already seeing the emergence of this layer with Genie.xyz, for instance.

Genie started by complementing OpenSea with features that the latter is missing, most significantly better handling of multiple-item selling and buying.

(Which also is an excellent example of web3 composability in action.)

Wrapping up

There will be opposing forces pulling in different directions over the next year:

• Mainstream adoption will take place on the major hubs, but these will be owned by web2 companies.
• "Web3 maxis" will embrace community-owned alternatives like LooksRare, but it will need wider traction than the “NFT-core” to establish as an effective marketplace.
• Some ecosystems will integrate asset trading.
• Aggregators will provide the best, advanced tools for serious traders.

The only thing I'm sure of is that these multiple forces and the growing use cases of NFT's will create a different marketplace landscape throughout the next few years.

It will also be a great test of positioning and first-mover advantage in web3 for OpenSea. Given that they raised $300M in their last round, they might “do a Twitter” and actually fire up the engines, progress and ship new features at a high clip.

I won’t write them off just yet.