Flow Journey: TIL I learned about some NFT Marketplace business models

blockchain nft ft flow

Introduction

Next up in my Flow Journey was more a business related question. After going through the Cadence tutorials and starting to understand concretely how I might buy a NFT marketplace, or blockchain based dApp (distributed App) in general, I had a big question in mind.

Let's say you build an NFT marketplace. People purchase your NFTs and then they start trading them. From the examples I saw, it seemed like people could buy and sell between each other and then would just transfer FTs or Fungible tokens between each other. So with that in mind, how do the people who build the platform our marketplace make money.

I was browsing the NBA Top Shot Smart Contracts, and I couldn't find a place during the transaction that would lead to the platform making money. The closest thing I found was a 'beneficiary' cut.

So this led me to my question, how to these NFT marketplaces make money?

Thanks again in huge part to the Flow Community, the Flow Discord server, and the Flow office hours, I learned of 2 common business models for NFT Marketplaces

  • First party sales
  • Transaction based

First Party Sales

I apologize for not remembering the handle of specific person who answered (big thanks to that person!), but what they said was, the first common way for NFT marketplaces to make money is on "First Party Sales".

What this basically means is, the platform has minting permissions. So they are the ones who create the NFTs in the first place and when they are first minted, they belong to the organization. The way they make money is by selling these NFTs for the first time. Afterwards, when people buy and sell them, they don't make any more money.

This is analogous to say trading cards in the real world. When they are first sold, the company that produced them makes money. However, afterwards, when people buy and sell them, it's not like the original company gets a cut. They only make money on the first sale.

Transaction Based

The other way is through transaction fees. So if you build an NFT marketplace, you could take a cut during the purchasing and selling. If you write your Smart Contract to deposit some of the funds into the seller's account, but hold some back and deposit that into your account - then you make money off the transactions. So that's another way to do it.

Not to mention, you could combine the two.

Conclusion

These business models are probably pretty obvious to most people. However, the thing is, when you start learning Blockchain development, seemingly simple questions seem to feel daunting.

Business models was definitely a question of mine, and the Flow team answered it perfectly.

Til the next one.

Casey Li
CEO & Founder, BiteSite