OpenSea, a startup valued at $13.3 billion after a $300 million funding round, is on the brink of disaster.
The company, which is essentially a solutions provider for the nascent NFT market, was red hot for the last few years. They were the market to beat when it came to NFT launches and they were home to the most famous of NFTs, Bored Ape Club. Other hits on OpenSea included Doodles and Rugrats, but please don’t make me find anymore because the entire concept drives me nuts.
Basically its the site you went to if you wanted to sell JPEGs on the blockchain.
Now the company is in some hot water and recently announced a 20% layoff even with $300 million in the bank. This isn’t them being cautious. This is them being scared.
Read the statement by CEO Devin Finzer. It’s a pretty traditional “mea culpa” by a startup founder but the desperation is palpable:
Each of the people leaving has played a critical role in OpenSea's journey. They've supported our users, championed our mission, and worked intensely to build the foundations of the FT space. They are talented and committed and they will be missed - and we plan to treat them with great care. For those leaving us, we'll be providing generous severance, healthcare coverage into 2023, and accelerated equity vesting for those who haven't hit their cliff. We'll also be helping with job placement and opening our personal networks to support them however we can. Finally, thanks to your compassion and support, we were able to notify each person one on one, in person.
“Treat them with great care” means they don’t want them to leave and run their mouths about how awful the market really was, even during the company’s heyday.
“During this winter, I expect that we'll see an explosion in innovation and utility across NFTs. With the hard (but important) changes we made today, we're in an even better position to capture what will soon become the largest market on the planet. When the global economy is uncertain, our mission to build the foundation for new, peer-to-peer economies feels more urgent and important than ever. Winter is our time to build,” he wrote. This is an old saw in crypto circles - “Winter is the time to build” - and it’s what CEOs say when they realize that their Dingus Coins fell to parity with a bottle cap. OpenSea was on a hiring spree of late - it seemed that everyone I met was involved with the company - but if you’re building you need talent and it’s clear they aren’t ready for the next big thing in crypto which will probably be straight up equity investment using tokens, sort of an ICO but with more legitimacy (if that’s possible.)
The NFT market is rife with wash trading and self-dealing. Most of the high-flying NFT sales have been internally managed for positive optics and most of them, like this interesting example that appeared on This American Life, are products of a pump and dump scam so obvious that it’s almost (but not yet) criminal.
Like social audio, NFTs were a pandemic fad. This fad, however, was aimed at allowing kids who were too young to buy bitcoin when it first launched to pretend to be savvy investors. The results, when the market crashes further, will be catastrophic.
Where will OpenSea end up? The company is the Razorfish or Oven Digital of the crypto space. They are a service provider that gained enough global awareness to become a brand. You can ask anyone around during that time how those companies operated but during the fat years they were absolute winners, shoe-ins for going public and taking on the world. Now they’re forgotten.
OpenSea and the other markets will suffer the same fate. At this point crypto in general and NFTs in particular are arcane topics. There are only a few people in each organization dedicated to exploring them and, as such, the IT and development centers associated with enterprise clients aren’t ready to support Solidity or any other crypto tech. The result? Some dude in a suit from Nickelodeon walks into OpenSea’s offices, drinks a coconut water, and slowly gets snowed by some bizdev kid with a wolf cut and a Goblintown hoodie who tells him that Nickelodeon will really resonate with the incel libertarian Elon-Musk-worshipping community if they release an NFT collection featuring the stars of You Can’t Do That on Television. The resulting development contract keeps OpenSea’s revenue above water for another month and the greater fool theory does the rest.
So OpenSea slowly winds down and, because the NFTs don’t exist on OpenSea servers per se, it is no longer needed as a central clearinghouse for this junk. The Nickelodeon dude hires some refugees from the broken company to launch their next series of NFTs but the solution provider is some anonymous group in Warsaw instead of a high-flying NFT market maker, and we all go on with our lives.
Remember: friends don’t let friends buy NFTs.
I share and appreciate all of your cynicism about this ridiculous shit.