How Does an NFT Marketplace Work? Everything You Need to Know

NFT marketplaces are quickly becoming some of the most used decentralised applications on the internet today. They provide a platform for investors/collectors to trade on a person-to-person basis, while taking a small cut of each transaction that takes place in order to generate revenue. But how do NFT marketplaces actually work?

How Does an NFT Marketplace Work? Everything You Need to Know

What is an NFT Marketplace?

A non-fungible token (NFT) marketplace is a platform whereby NFTs can be displayed, stored, and traded on a peer-to-peer (P2P) basis. They also generally provide a base for creators to mint NFTs and sell their work on-chain. NFT marketplaces are considered the eCommerce stores for NFTs. 

With NFT hype kicking off exponentially, there needs to be a place where one can invest in them and collect them, and this is where an NFT marketplace comes in. Modern marketplaces have been built to be easy to use and easy to navigate, making them a hub for everything NFTs. Many NFT marketplaces also provide a platform for creators to mint their work, which essentially means creating an NFT. 

NFT marketplaces also provide projects, creators, and artists with the necessary tools and exposure to sell their work all around the world. This is providing countless opportunities for creators of all kinds. 

How Do NFT Marketplaces Work?

First and foremost, NFT marketplaces provide a platform for you to buy NFTs, or list them and sell them. Most marketplaces require you to connect an external crypto wallet in order to purchase NFTs. For example, if you were to buy an NFT on OpenSea, you’d have to connect a wallet such as MetaMask in order to make a purchase. Once bought, the NFT would be visible within your wallet or on your profile page on OpenSea. 

Some marketplaces don’t require that you have an external crypto wallet. For example, Momint creates a wallet for you when you create an account, and you can deposit funds into it via your credit card. Your NFTs will be visible on your profile and on your wallet.

NFT marketplaces also play a key role when it comes to marketing for NFT collections. Millions are using these marketplaces, so you’d want your collection to be visible on the marketplace. Some could come across your project and potentially invest in your collection. 

It’s also important to know that NFT marketplaces are built specifically to fit different blockchains. For example, Momint, is built on the Gnosis blockchain. This means that it only facilitates the trading of NFTs stored on the Gnosis blockchain

Another example would be Magic Eden. Their marketplace is built on Solana and therefore only supports the trading of NFTs stored on Solana.

How Do NFT Marketplaces Make Money?

Some of the most popular marketplaces are generating some groundbreaking revenue. They do this by taking a small percentage of every sale that takes place on their marketplace. OpenSea charges a 2.5% service fee on each sale that takes place on their marketplace, and this generates the majority of their revenue. 

To give you an idea on what they’re making, OpenSea surpassed $27.5 billion in sales volume in 2021. They obviously take a small cut of this, but it adds up. 

Most marketplaces work in a similar fashion. They provide the platform to buy and sell NFTs and they take a small cut of each sale that takes place. Most marketplaces will take around 2%. Here’s a practical example: An NFT gets sold for $100, the marketplace place will receive 2% of the sale and therefore take $2.

Why Are NFT Marketplaces Becoming So Big?

As mentioned earlier, NFT marketplaces are becoming some of the most used decentralised applications on the web. This is mainly because NFTs are the latest hype, but also because these marketplaces can support all kinds of digital assets. Here are some key reasons why NFT marketplaces are taking off: 

1. They Provide a Base for Alternative Investments 

The latest JPEG craze has brought many investors into the game of trading NFTs and more specifically JPEGs. New projects are using NFT collections to raise funds for their growth, and early investors can see attractive returns on their investments for acquiring a project’s NFT. 

A good example of this would be Blocksmith Labs. A team of developers on the Solana blockchain that used the funds raised from their NFT collection to build applications that provide useful utility within the Solana ecosystem. One of their NFTs cost 2 $SOL at first, but they are now worth around 50 $SOL. 

One option would be to sell the NFT on an NFT marketplace for an immense profit, but another option is to hold it as Blocksmith also provides a return on your investment through staking. This is where you lock up your NFT with the project and earn a native token in return. 

Some of the most innovative teams are now looking to NFTs for fundraising and NFT marketplaces are an incredibly efficient and accessible way to invest in a project. 

2. They’re a Launchpad for Creators

NFT marketplaces provide a home for creators of all kinds to sell their work on-chain. They are giving opportunities to industries of all kinds, seeing as though NFTs can be any kind of digital content. 

Creators of all kinds can sell their work independently on these marketplaces, and take the majority of the sales made. This is especially important for creators such as musicians. NFT marketplaces provide a platform for musicians to earn more from their productions, rather than making tiny amounts from music streaming platforms. Async.art is a great example of a marketplace that gives musicians a hub to sell their work.

3. They’re Easy to Use 

Accessibility and ease of use are key to the success of any digital marketplace. Some marketplaces have barriers to enter such as explicit gas fees, and most require crypto in order to make purchases. However, these marketplaces still make it easy to acquire digital assets through an impressive user journey and experience. This makes it possible for everyone to start investing in assets on-chain. 

Momint’s NFT marketplace is one of the more accessible marketplaces as it endures zero gas fees for transactions, but you also don’t require any cryptocurrency to make purchases - you can buy NFTs with your credit card.

The Future of NFT Marketplaces

Although NFT marketplaces may seem limited in the types of assets you can buy on them, there’s no doubt one day these will be platforms where you can buy and sell digital assets of all kinds. Whether it’s property, merchandise, or even gaming assets. These marketplaces have started with digital art and are slowly moving into other assets and it’s exciting to witness. 

Another exciting prospect for NFT marketplaces is their fundraising ability for small companies/projects. Several marketplaces have introduced launchpads into their platform, a place where projects can drop collections for investors to buy into. These are becoming a modern form of seed funding and they’re giving the opportunity for smaller businesses to attain the necessary funds to build services that solve problems.

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