Memo: OpenSea v. Coinbase


One venture capital firm, two investments: when Coinbase decided to invest in the development of an NFT marketplace for its estimated 70 million users, Andreessen-Horowitz’s competing investment was probably surprised. It’s rare for two portfolio companies to go head-to-head in such a manner. The numbers are in Coinbase’s favor, but the NFT trade is synonymous with OpenSea.

Just 12 months ago, monthly trade volume was around $1 million; in August, that number reached $3.4 billion. Coinbase surely felt that it was missing out on trade volume and an opportunity to democratize the NFT trade. Its relative size provides a few opportunities that OpenSea cannot yet account for. Imagine what would happen to the NFT trade if Coinbase temporarily covered gas fees of new traders, for instance. Gas is the limiting factor for many interested in acquiring NFTs.

Gas is the fee, paid in ethereum cryptocurrency, that is required to finalize a transaction on the blockchain. For NFT buyers on OpenSea, the extra fees can add up. In this way, Coinbase’s volume of new buyers could negatively impact OpenSea if the cost of doing business is cheaper. It can also benefit OpenSea. With increased trading volume, certain projects would become more marketable on the OpenSea. But this isn’t just a platform play: Coinbase seems to be serious about its interests in arts and entertainment.

Last week, Coinbase announced a partnership with Steve Stoute and UnitedMasters, signaling its growing investment in the arts and entertainment space. Another signal was just announced. Coinbase is planning an NFT marketplace that will launch by the end of the year. The waitlist is open.

Details are scarce, but as TechCrunch reports, the platform will include social elements including opportunities for “conversations and discovery”, according to the Coinbase press release. The goal is to make it easier to mint, purchase and find NFTs. Right now, competitors in addition to OpenSea include Binance and FTX. Shopify is also wading into NFT territory by making it possible for all Shopify merchants to mint and sell their own NFTs. Coinbase now wants to stake its claim to a space that has thus far been the story of OpenSea.

Coinbase’s launch into NFTs makes sense for the company, which facilitates buying and trading of crypto. Crypto and NFTs are closely tied together and Coinbase, now public, needs to explore ways to make new revenue. It’s also the natural progression of the onset of Web3, the next era of the internet that exists within digital worlds with digital currencies. Online dealings can start and end entirely online – it’s no longer a means to an offline end. As a result, new cultural norms and consumer habits are forming, as 2PM explained in “The Digital Country Club”, online groups are forming around NFTs and crypto and you’re either in or you’re out.

Country clubs have always been places where members can flaunt status and mingle among a select group. NFTs are making that possible for an internet-bound generation. That’s playing out across platforms in a number of ways. CryptoPunks, a collection of unique character avatars on the Ethereum blockchain, is now allowing users to rent out their avatars, essentially opening up a revenue stream while granting access for a limited time to newcomers. The idea that NFTs were crashing as an asset class is beyond laughable at this point.

Coinbase’s launch will normalize this new reality for more people. As a crypto platform, it will initially cater to the already initiated. But if its social component is thriving enough, that and reduced trading fees could be a powerful way to pull in newcomers to the NFT trade, of which OpenSea could position itself the Saks Fifth Avenue to Coinbase’s Macy’s. The two portfolio companies could benefit one another after all.

By Web Smith | Editor: Hilary Milnes | Art: Christina Williams

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