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Messari: Uniswap acquires Genie, can the OpenSea brand moat be defended?

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Uniswap-owned Genie threatens to erode OpenSea's brand moat, providing a competitive avenue for alternative NFT platforms

Original title: " Messari: Under the leadership of OpenSea, how will Uniswap’s acquisition of Genie “break the situation”? "

Original author: Kunal Goel, Messari analyst

Original compilation: South Wind, Unitimes

Key takeaways

- OpenSea continues to dominate the NFT market landscape. Although its decentralized competitors X2Y2 and LooksRare will incentivize NFT transactions and gain a certain market share of transaction volume, they have not gained significant user volume and transaction volume share.

- Uniswap has acquired NFT market aggregator Genie, which may give challengers the biggest chance to challenge the king.

- Even after adjusting for differences in market capitalization, the fundamentals of other alternative NFT markets are less than impressive.

OpenSea has maintained its dominance in the NFT trading market throughout 2021, accounting for 80% of the market share. Its near-monopoly position allows it to build a strong brand, maintain centralized ownership, and charge high transaction fees of 2.5%.

However, recently several alternatives have emerged that challenge OpenSea's dominance. Chief among these are X2Y2 and LooksRare, due in Q1 2022. Are they effectively gaining market share? Now that the frenzy for NFTs has faded, their native Token Does it present a compelling investment opportunity?

Challengers emerge

X2Y2 and LooksRare have marketed themselves as decentralized, A community-owned alternative to OpenSea.

The two platforms launched a community airdrop in the first quarter of 2022 and have since attempted to incentivize user participation to challenge OpenSea’s dominance.

The transaction fees of both are lower than OpenSea. OpenSea charges 2.5% of each transaction, while X2Y2 and LooksRare charge 0.5% and 2% respectively.

They reward users with native Token (X2Y2 and LOOKS respectively).

They will subsidize Gas fees and reward NFTs listed on their platforms.

All fee income collected by the platform is related to Token Stakers share.

The good, the bad, the ugly

These alternative NFT platforms have passed these The initiative met with some success. OpenSea has an average daily turnover market share of 47% over the past 30 days, while X2Y2 and LooksRare have a turnover share of 40% and 13%, respectively.

Picture above: OpenSea’s daily turnover market share has dropped To below 50%

However, these alternative NFT platforms have far less volume and user volume share than their volume share would imply. This discrepancy is caused by the incentives provided by these alternative platforms that ultimately benefit wash traders. Wash trading is profitable when transaction fees are lower than transaction incentives. These wash trades are usually of high value and are conducted by a small number of arbitrageurs, giving X2Y2 and LooksRare a high volume market share. As a result, OpenSea has a higher market share of 92% for both daily users and transactions over the past 30 days. As shown below:

Above: OpenSea’s Daily Transaction volume and user volume share still exceeds 90%

OpenSea's great success seems to come from a strong brand moat, as can be seen from Google search trends. "OpenSea" is a more popular search term than "LooksRare" or "X2Y2". So far, these alternative platforms haven't found a way to challenge OpenSea's brand, even with incentives and lower costs.

Above: OpenSea's brand appeal makes it a hit Search term

Genie in a Bottle

While the prospects for these alternative platforms now look It looks bleak, but maybe help will be available soon. Uniswap Labs recently announced the acquisition of NFT marketplace aggregator Genie. Uniswap’s Genie has the potential to erode OpenSea’s brand moat, giving these alternative NFT platforms a competitive avenue.

In the field of encryption, whether it is DEX aggregators like 1inch and Matcha, or NFT aggregators like Gem and Genie, aggregators have not yet occupied a important market. They also face the same problem of not being able to attract a broad user base and overcome the brand moat of existing brands.

Above: In both DEX and NFT markets, aggregators are Only occupy a small market share.

However, this time may be different. Uniswap may be the only Crypto application other than OpenSea that has successfully developed a brand for a large number of non-native users. Of the 4.8 million wallets transacting on Ethereum through DeFi platforms, more than 4 million wallets transacted on Uniswap. The next most popular DeFi app, SushiSwap, only had 500,000 wallet interactions at the time of writing. In comparison, OpenSea has a total of 1.9 million traders.

Testing the popularity of smart contract applications on Google Search Trends shows that the peak popularity of Uniswap is much higher than that of other than OpenSea any other application. As shown below:

The popularity of Uniswap will be Genie brings in a ton of attention, far more than any other aggregator in the Crypto space. Additionally, Uniswap Labs has a proven track record of developing user experiences that have attracted a broad user base and may be able to replicate that experience at Genie.

Backed by Uniswap's popularity and execution, Genie may succeed in becoming the go-to platform for NFT trading. As an aggregator, Genie will present the best priced NFTs to users of the NFT marketplace. As such, transaction fees will take precedence over branding and may tip the balance in favor of alternative platforms.

Profitability & Valuation

Last funding round in January 2022 Among them, OpenSea is valued at $13.3 billion. In comparison, the fully diluted valuations of X2Y2 and LooksRare are much lower at $164 million and $276 million, respectively.

However, cheap does not necessarily mean attractive. Unlike OpenSea, both of these alternative NFT platforms (i.e. X2Y2 and LooksRare) are overall loss-making, meaning they pay users more incentives than they earn in fees. As shown below:

Viewpoint

Both X2Y2 and LooksRare failed to impress fundamentally, despite having a market capitalization a fraction of OpenSea's. Gross profit close to zero means that the actual user transaction volume is lower than the platform's daily transaction incentives. When the daily incentive paid by the platform is much higher than the fee income, it also makes financial sense for arbitrageurs to pay fees to the platform in wash trading.

However, at such low valuation levels, any improvement in market sentiment, NFT volume or market share is likely to provide significant upside space. Uniswap’s acquisition of Genie could benefit these alternative platforms. As mentioned earlier, this could erode OpenSea's brand moat and give these alternative platforms a boost. As Robinhood and Zerodha have demonstrated in traditional finance, lower commission fees tend to prevail as more users are onboarded through a better user experience.

Valuation Note

LooksRare will conduct strategic sales, team and treasury tokens in July unlock. This will increase its Token Supply ~18%. Since we use FDV (Fully Diluted Valuation) in our calculation, it does not affect the calculated multiple.

Furthermore, due to the sharp correction in Crypto prices since OpenSea's financing, we could value OpenSea much higher than its current fair value.

Summary

OpenSea's branding puts it ahead of the competition over alternative platforms X2Y2 and LooksRare, even with its high fees and centralized ownership model. Currently, loss-making X2Y2 and LooksRare are valued at much lower valuations than profitable OpenSea. However, Uniswap’s acquisition of Genie may provide a way for these alternative platforms to compete with OpenSea on price rather than brand.

**This article only represents the views of the original author and does not constitute any investment opinion or suggestion.