How Blur is Disrupting the NFT Marketplace
|Mkt cap (USD mn)||$214.7|
|FDMC (USD mn)||$1,520.1|
|Cofounders||Tieshun Roquerre, or “Pacman”|
Launched in 2022 on the Ethereum Mainnet, Blur is an NFT marketplace and aggregator that is disrupting the NFT industry with its unique ability to address the current pain points of trading. It has been quickly gaining traction and in January 2023 surpassed the weekly trading volume of OpenSea (the dominant player in the NFT marketplace). Blur had an airdrop giveaway to users around mid-February. After the airdrop, the token dropped in price from as high as $5.0 to lower than $1.0 due to mass offloading. At its current price of $0.51 (implying a fully diluted market cap of $1.5 billion), there may be significant upside as OpenSea’s last valuation was at $15 billion. Our illustrative valuation shows a range of return from -43% ($0.29 per token) in a bear case to 108% in a bull case ($1.06 per token). The illustrative bull case for our upside estimate is based primarily on an average revenue multiple with Blur charging a 1% trading fee, retaining 60% market share, and overall NFT trading volume growing approximately 10%. Blur has become the largest NFT marketplace in trading volume (approximately 80% of market share) and can potentially generate significant revenue once it starts charging trading fees. In addition, its unique trading platform and the potential ecosystem that can be built on it further add to the bull case. However, any investment in crypto should be considered high risk. You should carefully assess your risk tolerance before making a decision to invest. Our illustrative bear case uses the assumptions of Blur charging a 1% trading fee, retaining 20% market share, and overall NFT trading volume decreasing by 10%. Additionally, risks for Blur include manipulation in the marketplace, how users may negatively react when Blur starts charging a trading fee, sustainability of the ecosystem after airdrops are finished, and that the token has been volatile in its short time on the market.
However, for the investor with the right risk profile, Blur could be an interesting long-term hold.
What is NFT? What is an NFT Marketplace?
Non-Fungible Tokens, or NFTs, represent a kind of cryptographic token that is unique and are sometimes backed by digital or real-world assets. NFTs gained global attention in 2021 thanks to several collections including NBA top shot, CryptoPunks, and BAYC (Bored Ape Yacht Club). NFT quantities can be limited, so it is often treated like a collectible – possessing a unique NFT is sometimes compared to possessing artwork. Utilities of NFTs initially were limited to the crypto industry, such as serving as a digital collection or in-game asset. However, we are beginning to see real-world enterprises such as Hermes, Chanel, and Mercedes-Benz and renowned artists such as Takashi Murakami and Steve Aoki tap into this sector.
Since NFT represents the ownership of a digital asset, it can be traded on the secondary market, like a stock or even an item on eBay. The website acting as a platform for buyers and sellers to trade NFTs is called an NFT marketplace. Since there is more than one NFT marketplace, there is a need for an NFT marketplace aggregator to collect data on NFTs listed on different NFT marketplaces.
NFT Marketplace – A Highly Concentrated Market
Even though one of Web 3.0’s key features is decentralization, the NFT marketplace was dominated by one marketplace, OpenSea (in both volume and transactions). During the past year and a half, there were many contenders, such as LooksRare and X2Y2. However, none of them took meaningful market share from OpenSea, until the launch of Blur.
Launched in October 2022, Blur is an NFT marketplace and aggregator founded by Tieshun Roquerre. Blur integrates pricing from other NFT marketplaces, such as Opensea, Looksrare, and X2Y2. However, an interesting feature of Blur is that it also allows users to list their NFTs directly.
Blur has two user interfaces. One is collection mode. Another is trade mode. Users can choose each mode as they see fit. The collection mode is somewhat similar to existing marketplaces, showing a picture, the current price, and the price of the last sale. However, the trade mode is an interesting utility, as it lists out recent activities (sales and listing) as well as a sales chart and depth chart for NFT traders to analyze the market condition.
As of the time of this writing, Blur does not charge any trading fees but charges a small royalty fee, which is paid by the NFT buyer and distributed to content creators. While having no trading fees is likely a short-term strategy to attract users, Blur’s ability to monetize trading flows still needs to be assessed in the long term.
As an NFT marketplace and aggregator for pro traders, it is necessary to have adequate speed to discover listed NFTs among other NFT marketplaces. Blur touts that it is ten times faster than other NFT aggregators, such as Gem, with only 0.4 sec pending detection and 4-sec listing updates.
Before we discuss Blur’s bidding system, let’s take a look at how existing marketplaces operate, using OpenSea as an example. Users who want to place a bid for an NFT need to first convert their ETH into WETH. Once OpenSea ensures users have enough WETH in the wallet, a bid can be successfully placed. The bidder now has to wait to see if the holder accepts the bidding. The model is like a p2p negotiation, resulting in inefficiency and long wait times. Additionally, it is often cumbersome to convert ETH to WETH. Under OpenSea’s model, it may take days or weeks if a “whale”, or a large trader, wants to buy/sell a large number of NFTs without getting impacted by price reactions. For example, if a whale wants to buy 100 NFTs, the goal is usually to buy the NFTs without driving the price up in the process. But typically after the whale buys a certain amount of NFTs at the floor price, other NFT holders will sense that someone is buying around the floor price, and those NFT holders will logically change the original price to a higher price, driving up the buying cost. We can attribute this to 1) the NFT series usually having limited numbers and 2) there is not enough liquidity around the floor price.
Blur does the following to create more liquidity in the NFT space: 1) allowing bidding placed in ETH and 2) introducing a bid points system. Before placing a bid, users need to lock their ETH in a bidding pool, and those ETHs are used for bidding. A point system is utilized in the bidding system and can be used to claim tokens in an airdrop. More points equate to more tokens that can be claimed in the future. Points available for collections are based on the collection’s 24h trading volume, meaning more popular collections will have a larger allocation of points. Within a collection, bids that have the highest chance to be taken earn the majority of the points. As a result, if a user places a bid at a price closest to the floor price across active collections, the user will most likely earn a large share of the points. Due to this incentive mechanism design, Blur brings additional liquidity around the floor price, softening the impact to price when traders execute NFT transactions.
Blur charges gas fees that are approximately 17% lower than other marketplaces, helping NFT traders to save more expenses, especially compared to Ethereum when gas fees spike significantly with increased activity. The gas fee optimization is still working in progress according to the Discord community mod.
Operational Performance – Volume and Transactions
Blur demonstrated significant daily volume, roughly accounting for over 50% of the total NFT trading volume since 2023. After 14th Feb 2023, with higher anticipation of another round of airdrop campaigns, Blur accounts for 80% of the total trading volume. However, Blur isn’t free of a trade manipulation called wash trading. Because some NFT marketplaces incentivize users depending on their trading volume, some traders traded NFTs between their accounts to drive up trading volume. Hence, it is crucial to examine the quality of a marketplace’s trading volume. According to the data on Dune Analytics, although there are some wash trading activities (12%) on Blur, the number is lower than several competitors, such as LooksRare (95%) and X2Y2 (85%). Those two NFT marketplaces were regarded as strong contenders of OpenSea and encouraged users to earn tokens based on trading volume.
Similar trends showed in daily trades as well. Blur took around 20%-30% of daily trades before 14th Feb 2023 and accounts for nearly 60% of daily trades as of now.
Blur initially raised a $11 million round back in March 2022 that included prominent VC investors such as Paradigm. There are rumors that Blur is in talks to raise another round at over a $1 billion valuation.
|Time||Round||Amount Raised (USD mn)||Investors|
|Feb 2023 (In Progress)||NA||NA||NA|
|Mar 2022||Seed||11||Paradigm, eGirl Capital, Keyboard Monkey, LedgerStatus, 0xMaki, Santiago Santos, Zeneca, Deeze, Andy|
Blur’s developments in the past were related to the airdrop and competition with OpenSea. See the table below for more details.
|Oct 2022||Token||Airdrop season 1 announcement|
|Nov 2022||Royalty fee||Opensea requires new NFT collections to list on Opensea exclusively. Otherwise, content creators can’t receive royalties. Many NFT creators had no choice but to list on OpenSea only due to the concern of royalty fees.|
|1st Feb 2023||Royalty fee||Blur discovered that there is a loophole in an open-source protocol developed by OpenSea, Seaport, and leveraged the loophole to build a system to bypass OpenSea’s blocklist.|
|14th Feb 2023||Token||Token launched and airdropped to season 1 participants (360mn BLUR)|
|16th Feb 2023||Royalty fee||Blur’s CEO listed four options for creators and recommended creators not to list on OpenSea with incentives of airdrop rewards.
|18th Feb 2023||Royalty fee||Opensea announced to temporarily eliminate its 2.5% trading fee on sales and move optional royalty fees to min 0.5% for all collections. Update the operator filter to allow NFT to be listed on NFT marketplaces with the same policies, including Blur.|
|22nd Feb 2023||Token||Airdrop season 2 announcement. 300mn BLUR will be distributed.|
|28th Mar 2023||Token||Blur teased that a new feature will be released in the near future and that bidding and listing points will be doubled in Season 2 until May. Twitter reactions are largely negative.|
- Token utility: Currently, Blur has not shared details on token utility. Governance will likely be one of the utilities. It is still unknown whether the token holder will be entitled to share protocol revenue.
- Total supply (capped): 3bn
- Circulating Supply: 389,335,940
- Token distribution:
- 51% to Blur community members 1,530,000,000 BLUR
- 360,000,000 BLUR to NFT traders during 19th Oct 2022 to 14th Feb 2023
- Year 1: 468,000,000 BLUR
- Year 2: 351,000,000 BLUR
- Year 3: 234,000,000 BLUR
- Year 4: 117,000,000 BLUR
- 51% to Blur community members 1,530,000,000 BLUR
- 29% to past and future core contributors with 4-year vesting 867,601,888 BLUR and a 4 months cliff
- 19% to investors with 4-year vesting 565,633,826 BLUR and 4 months cliff
- 1% to advisors with 4 to 5-year vesting 36,764,286 BLUR and a 4-16 months cliff
- Token emission schedule:
Major NFT marketplace competitors of Blur include Opensea, LooksRare, and X2Y2.
- As of now, all competitors generate revenue through charging trading fees. It should be noted that Blur does not charge any trading fees yet.
- Trading volume: Blur has been aggressively taking market share since the beginning of 2023 thanks to token airdrop incentives, which are based on a point system they designed (see Mechanism section). Additionally, due to support from a top VC, Paradigm, communities are more willing to participate in Blur’s point-earning contest. It is worth noting that Blur’s trading volume has surpassed OpenSea since January 2023.
- According to tokenterminal, OpenSea remains the most profitable NFT marketplace as its revenue is almost 10 times higher than competitors like LooksRare and X2Y2.
|Mkt cap (USD mn)||$214.7||NA||$65.0||$10.5|
|FDV (USD mn)||$1,520.1||$13,300 (Series C)||$138.3||$58.8|
|Trading fee||0%||2.5%->0% (temporarily)||2%||0.5%|
|Royalty fee||From 0.5%||From 0.5%||0%||0%|
|Revenue source||Unknown||Trading fee||Trading fee||Trading fee|
|Weekly trading volume (3/13-3/20) (USD mn)||$223.6||$56.9||3$.6||$11.6|
|Weekly trading volume (1/2-1/9) (USD mn)||$95.6||$79.3||$5.2||$18.1|
|Annualized revenue (USD mn)||NA||$206.8||$17.1||$8.8|
|FDV/Revenue (fully diluted)||64.3x||7.6x||6.9x|
- Robust NFT market growth: According to Grand View Research, the global NFT market is expected to reach USD 211.7bn by 2030, growing at a CAGR of 34.2% over 2023-2030. Key growth drivers include growing demand for NFTs/cryptocurrency and increasing integrations of traditional enterprises launching NFTs. Renowned brands such as Starbucks, Coca-Cola, Mercedes, Nike, Disney, and Meta are showing strong interest in adopting NFTs.
- Team’s deep understanding of the NFT market and capabilities of mitigating challenges: Blur has attracted many NFT users and generated strong transaction numbers and volume through multiple rounds of airdrop activities (Season 1). The team understands the current pain points of NFT trading. Blur’s infrastructure and model are well-designed to enhance NFT users’ stickiness and aggregate liquidity. In addition, Blur’s team showed abilities to mitigate and solve challenges from competitors. After OpenSea blocked Blur, Blur bypassed OpenSea’s blocklist and announced four options for content creators to choose from with potential incentives (see Recent Development section). Just two days after the options announcements, OpenSea updated its policy allowing NFTs to list on Blur.
- User-focused product design: Blur has a well-designed user interface and mechanisms (pending detection, listing updates, and gas optimization) to offer better UI/UX for NFT traders.
- Potential ecosystem built around Blur: If Blur can successfully aggregate and retain NFT liquidity, it is possible that an NFT ecosystem, such as collateralization, lending/borrowing, derivatives, etc, could build around Blur, enhancing its competitive position in the NFT marketplace sector.
- Marketplace manipulation and wash trading: It is unclear if there are significant traders that engage in Blur purely for accumulating points for token airdrops. This type of activity also encourages wash trading and artificially bidding, which could negatively impact a NFT collections’ ecosystem
- Revenue generation capabilities: Currently, Blur does not charge any trading fee from any NFT transactions. At a certain point, it may be difficult for Blur to monetize its platform without charging fees. In addition, once Blur charges trading fees, it runs the risk of users withdrawing from the platform. It is currently unclear whether a significant number of traders utilize Blur simply because they don’t have to pay a trading fee.
- Retention of current users and trading volume: Blur’s high trading volume and the liquidity it brings to a collection’s floor prices are partly due its airdrop incentive system, and there may be risk to this once the airdrop stops. While tokens can be a wonderful tool for onboarding users and gaining community attention, it is unclear whether Blur has a more sustainable way to retain users and sustain volume once the token airdrop finishes.
- Token utility: Currently, there is no public information on the utilities of holding a BLUR token. Given that one of Blur’s investors is Paradigm, who is experienced in token design, there is a chance this risk can be somewhat mitigated. Additionally, a 4-month cliff period for contributors and investors seems short. It could create larger selling pressure after June 2023.
Volatility & Regulation: Although not unique to Blur, the volatility of Blur’s token price should be taken into consideration before investing. Additionally, potential regulation in the United States against crypto in general could negatively impact demand in the region.
Subject to NFT market growth and Blur’s market share, we illustrate a hypothetical range of returns from -43% to 108% with the key assumptions and approaches below. Our illustrative base case shows a potential return of 26%:
- Illustrative valuation approach: use peer FDV-to-Revenue ratio to derive Blur’s valuation
- Assumed illustrative base case 2023 avg. NFT’s daily trading volume is USD 100mn, which is on par with the level of 4Q22 (USD 100mn). Assumed illustrative bear case is USD 90mn, and assumed illustrative bull case is USD 110mn
- Assumed Blur’s 2023 market share to be 40%. Although Blur takes 80% of the market share as of now, we believe a normalized 40% may be more sustainable when airdrop activities are completed and when Blur begins to charge trading fees.
- Assumed Blur to turn on the trading fee switch in 2H23 at 1% to attract user flow and to be competitive.
In our sensitivity analysis, under the scenario of NFT avg. the daily trading volume of USD 100mn, we assumed different upside/downside returns depending on Blur’s normalized market share. If Blur only takes 20% market share while NFT daily trading volume drops to USD 90mn, we expect the potential downside to be -43%. In the bull case, if Blur can retain up to 60% of market share and NFT trading volume increases to USD 110mn, the potential upside will be 108%.
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