(Bloomberg) — OpenSea is currently the Google Chrome of non-fungible tokens. Some big venture capitalists are hoping it will be more like Netscape.
Bloomberg’s Most Read
People who buy or sell NFTs, the keys to owning digital assets, most often do so on OpenSea. It holds 43% of the market, with $23.3 billion in total sales, according to an analysis of data from research firm DappRadar. But OpenSea has a weakness, said Shaun Maguire, partner at Sequoia Capital: it relies primarily on a less efficient blockchain, Ethereum.
Sequoia is therefore betting on a small startup built around what it sees as a better blockchain for NFTs. The company is called Magic Eden and uses the Solana blockchain to authenticate NFTs in its marketplace. Solana is able to facilitate many more transactions at once than Ethereum and at a much cheaper cost, according to research from Etherscan.
On Monday, Magic Eden plans to announce $27 million in funding from Sequoia and other investors. The company declined to disclose its valuation, though it’s certainly well below the $13 billion OpenSea secured from investors in January, but Maguire sees an opening. “The bet was that they would move fast and seize that advantage before OpenSea could enter Solana,” he said.
The lead investor in Magic Eden’s funding is essentially hedging its bets: Paradigm, the crypto-focused venture capital firm launched by a Coinbase Global Inc. founder and former Sequoia partner, is also a major backer from OpenSea. Magic Eden and its shareholders are eager to see if, or when, OpenSea will adopt Solana. OpenSea has already run tests on this blockchain, according to an analysis of the site’s code by tech blogger Jane Manchun Wong. OpenSea declined to comment.
Zhuoxun Yin, a former Coinbase product manager, co-founded Magic Eden last year during the NFT boom. The hype has dropped sharply since then. Trading volumes on OpenSea have been cut in half over the past month, DappRadar said. Still, NFT sales reached $2.9 billion in February, according to NFT data provider CryptoSlam, and investors expect interest to continue for the long term. Investor Marc Andreessen and Reddit Inc. co-founder Alexis Ohanian last week backed a $30 million fund solely dedicated to buying NFT artwork. “NFTs are still pretty early days,” Yin said.
So far, NFT owners have not subscribed to Solana’s promise. Magic Eden dominates NFT trading on this blockchain, according to DappRadar, but it is only the ninth largest NFT market overall. Solana is mainly used for decentralized finance. But Yin said blockchain’s advantages over Ethereum will play well in a medium like video games, where NFTs are likely to be traded frequently. “Gaming NFTs will be in places like Solana,” he said. “They won’t be on Ethereum.”
Some game makers are on board. Players of Mini Royale: Nations, a Solana-based multiplayer game, buy and sell NFTs on the Magic Eden marketplace. Magic Eden also introduces a competition for March Madness where tournament brackets are represented by NFTs.
Historically, however, the cheapest or most efficient technology does not always win. Tim Beiko, one of Ethereum’s top contributors, said the blockchain has a strong community of creators and fans experimenting with NFTs. “We also found that most innovative NFT projects choose Ethereum,” he wrote in an email.
Magic Eden will bring in Sequoia and other new investors, such as Greylock, to help expand into OpenSea waters. It has 55 employees scattered around the world and will open its first office next month in San Francisco. He also created a decentralized autonomous organization called MagicDAO that anyone can join. Members can vote on things like the NFT collections featured on the homepage.
Sequoia has been around for 50 years and has backed Apple Inc., Google, and WhatsApp. He only got serious about crypto relatively recently, creating a dedicated fund in February with up to $600 million. “There are needs for crypto-specific companies, for them to participate in governance, for them to provide liquidity,” said firm partner Josephine Chen. There are also universal dynamics in the tech industry, which Sequoia has seen time and time again, such as when a small startup tries to take on a giant.
Bloomberg Businessweek’s Most Read
©2022 Bloomberg LP