(Bloomberg) — OpenSea is currently the Google Chrome of nonfungible tokens. Some top venture capitalists are hoping it turns out to be more like Netscape.
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People buying or selling NFTs, the keys to owning digital assets, most frequently do so on OpenSea. It has 43% of the market, with $23.3 billion in total sales, according to an analysis of data from the research firm DappRadar. But OpenSea has a weakness, said Shaun Maguire, a partner at Sequoia Capital: It mainly relies on a less efficient blockchain, Ethereum.
So Sequoia is betting on a tiny startup built around what it sees as a better blockchain for NFTs. The company is called Magic Eden, and it uses the Solana blockchain to authenticate the NFTs on its market. Solana is capable of facilitating many more transactions at once than Ethereum and at a much cheaper cost, according to research by Etherscan.
On Monday, Magic Eden plans to announce a $27 million round of funding from Sequoia and other investors. The company declined to disclose its valuation, though it’s certainly much less less than the $13 billion OpenSea got from investors in January, but Maguire sees an opening. “The bet was that they would move fast and that they would capture that advantage before OpenSea would be able to go into Solana,” he said.
The lead investor in Magic Eden’s funding is essentially hedging its bets: Paradigm, the crypto-focused VC firm started by a Coinbase Global Inc. founder and a former Sequoia partner, is also a major backer of OpenSea. Magic Eden and its shareholders are anxious to see whether, or when, OpenSea adopts Solana. OpenSea has already conducted tests on that blockchain, according to an analysis of the site’s code by the 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 fallen 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 hold up in the long term. Investor Marc Andreessen and Reddit Inc. co-founder Alexis Ohanian backed a $30 million fund last week solely devoted to buying NFT artwork. “NFTs are still pretty early,” Yin said.
So far, NFT owners haven’t bought in to the promise of Solana. Magic Eden dominates NFT trade on that blockchain, according to DappRadar, but it’s only the ninth-largest NFT marketplace overall. Solana is used mainly for decentralized finance. But Yin said the 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 on places like Solana,” he said. “They’re not going to be on Ethereum.”
Some game makers are on board. Players of Mini Royale: Nations, a multiplayer game based on Solana, buy and sell NFTs on Magic Eden’s marketplace. Magic Eden is also introducing a competition for March Madness where tournament brackets are represented by NFTs.
Historically, though, the cheapest or most efficient technology doesn’t always win. Tim Beiko, a core contributor to Ethereum, said that blockchain has a strong community of creators and fans experimenting with NFTs. “We’ve also seen that most innovative NFT projects choose Ethereum,” he wrote in an email.
Magic Eden will tap Sequoia and other new investors, such as Greylock, to help expand into OpenSea’s waters. It has 55 employees dispersed around the world and will open its first office next month in San Francisco. It also created a decentralized autonomous organization called MagicDAO that anyone can join. Members can vote on things like which NFT collections are featured on the homepage.
Sequoia has been around for 50 years and backed the likes of Apple Inc., Google and WhatsApp. It has only gotten serious about crypto relatively recently, creating a dedicated fund in February with as much as $600 million. “There are needs for crypto-specific companies, whether it’s participating in governance, whether it’s providing liquidity,” said Josephine Chen, a partner at the firm. There are also some dynamics in the tech business that are universal, that Sequoia has watched play out again and again—like when a tiny startup tries to take on a giant.
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