Andreessen Horowitz is placing a big bet on NFTs, leading a huge $100 million funding round for the largest of the NFT trading marketplaces, OpenSea. With the round, OpenSea, founded in 2017, has a valuation of $1.5 billion.
Users connect their crypto wallet to OpenSea’s platform, and then are able to buy, sell, or create NFTs (non-fungible tokens). OpenSea takes a 2.5% fee on each transaction. NFTs have had a big 2021: OpenSea says it sold $160 million in digital assets on its platform during June, and saw a 45X increase in volume growth in the first half of 2021.
An NFT is a cryptocurrency token connected to the blockchain that represents a digital good, and permanently and traceably marks its ownership and uniqueness. So far we’ve seen NFTs for digital art, videos, music, gifs, games, text, memes, and code, but that list will likely grow.
NFTs are a new technology, and many see the tokens as something collected by crypto nerds, and that can’t hold much value because the assets they represent are digital and easy to copy. NFT prices have seen dramatic highs and lows, as their perceived value has been influenced by the rises and falls of Bitcoin prices, by speculative trading, and by internet hype about cryptocurrency itself.
But a $100 million investment in the largest NFT marketplace led by a top-tier VC like Andreessen Horowitz makes a statement. The investors believe that NFTs have real and lasting utility and are not a passing fad. Indeed, the VC sees NFTs as a distribution vehicle for digital content that lets the content creator better control and profit from their work.
“NFTs . . . can accelerate the trend of creators monetizing directly with their fans,” wrote general partner Chris Dixon in a blog post from earlier this year. “Social platforms will continue to be useful for building audiences (although these too should probably be replaced with superior decentralized alternatives), but creators can increasingly rely on other methods including NFTs and crypto-enabled economies to make money.”
Dixon argues that NFTs will let content creators spend much less on customer acquisition or intermediaries because fans are attracted to the idea of owning a unique piece of content (such as a limited edition artwork or piece of music). “[U]sers feel like owners—they have skin in the game,” Dixon writes. “It’s true peer-to-peer marketing, fueled by community, excitement, and ownership.” NFTs also let creators design different tiers of products, at different prices, to match the enthusiasm level of the fan/buyer.
