An NFT marketplace is a platform where Non-Fungible Tokens (NFTs) can be traded. NFTs are unique digital assets that use blockchain technology to establish ownership and provenance. These assets can represent various forms of digital content such as artwork, music, videos, virtual real estate, collectibles, and more. NFT marketplaces provide a platform for artists, creators, and collectors to showcase and monetize their digital creations, while allowing buyers to own and trade these unique digital assets securely.
NFTs are typically created on blockchain networks like Ethereum, Polygon, or BSC. The blockchain ensures the uniqueness, authenticity, and ownership of each NFT by recording all transactions and ownership details on a public ledger.
Once an NFT is created, it can be listed for sale on various NFT marketplaces. These marketplaces act as platforms where buyers and sellers can interact and trade NFTs.
Buyers can view the listed NFTs, and place bids or purchase them directly using cryptocurrency. Sellers can set their desired price or initiate auctions for their NFTs. Once a buyer purchases an NFT, ownership is transferred to their digital wallet.
NFT transactions are facilitated by smart contracts, which are self-executing contracts with predefined rules. These contracts automatically handle the transfer of ownership, royalties, and other terms defined by the creator. Smart contracts ensure transparency, security, and immutability of transactions.
Order is a crucial element in the marketplace as it serves to store transaction information and execute smart contracts related to the order. It provides a structured approach to effectively track and manage the buying and selling process.
There are different types of orders in the marketplace.
- Listing order: When an owner lists an NFT for sale on the marketplace, a listing order is created. If someone successfully purchases the NFT, the order status changes to a fulfilled listing order.
- Offer order: When someone intends to buy an NFT, they can make an offer, resulting in the creation of an offer order. If the owner(s) of the NFT accept the offer, the order status changes to a fulfilled offer order. The offer order can be further classified into three types based on the objects they intend to purchase.
- Token offer order: If the buyer offers a price for a specific NFT, the resulting order is a token offer order.
- Collection offer order: If the buyer offers a price for a random NFT under a collection, the resulting order is a collection offer order.
- Trait offer order: If the buyer offers a price for a trait group of NFTs within a collection, the resulting order is a trait offer order.
The order stores trading info and will initiate smart contract to execute following the order info. The marketplace ensures secure and transparent transactions while facilitating the exchange of NFTs between buyers and sellers. The following image depicts the process.
To elaborate further, the order process in the marketplace involves the following steps:
Creation of an order: When a user intends to sell an NFT at a specific price or offers a price to buy an NFT, an order is created.
Fulfillment of the order: Once a user fulfills the listing or offer, the smart contract automatically initiates the transaction. The transaction details, including the ownership of the NFT and the allocation of fees, are recorded on the blockchain. The buyer receives the NFT, and the seller receives the token. The marketplace, in turn, receives the trading fee that they have set, and the NFT creator receives a royalty. The marketplace then retrieves the latest NFT information and updates the status of the order.
The order in the marketplace undergoes a lifecycle with different statuses based on various situations.
- Active: When the order is created, the default status is active. It remains active until another action triggers a status change.
- Fulfilled: The order status changes to fulfilled when someone buys the NFT or when the price is accepted by the owner.
- Canceled: if the sponsor of the order cancels the order actively, the status changes to canceled.
- Expired: if the order is out of validity period, and it hasn't been canceled or fulfilled, the status changes to expired.
- Inactive: The status changes to inactive when the NFT is transferred. This can happen in two situations.
- The owner transfers the NFT before the order can be fulfilled.
- If the NFT is listed or offered in multiple marketplaces, when the order is fulfilled in one marketplace, the corresponding order in the other marketplace becomes inactive, as the NFT has already been transferred there.
An order book is the collection of orders in the marketplace. It is a record or database that contains all the buy and sell orders placed by participants in the marketplace. The order book displays the current market depth, showing the available bid (buy) and ask (sell) orders. The order book provides important information for traders, such as market liquidity, current supply and demand dynamics, and order matching.
An aggregated order book is a collection of order books from multiple third-party marketplaces. By consolidating the order books, traders can access a comprehensive view of the market, including all the buy and sell orders across different platforms. The aggregated order book provides traders with a more complete understanding of the market, helping them make informed decisions and execute trades more effectively.
- How does it work?
Normally a marketplace serves two main functions, displaying market information for traders and facilitating trading execution. The order book aggregates third-party marketplace orders, and displays them on your platform. This allows traders to access a comprehensive overview of the market activity.
When users engage in trading multiple NFTs across different marketplaces simultaneously, the aggregated smart contract is triggered to interact with the respective marketplace's smart contract. On the other hand, if a user exclusively trades NFTs within a single third-party marketplace, the aggregated smart contract is bypassed, and the corresponding marketplace's smart contract is directly invoked. It is important to note that if your marketplace has implemented a trading fee on top of third-party marketplace order, the aggregated smart contract will always be initiated to ensure the proper application of the fee.
Here are the third-party order books that we have aggregated: https://docs.nftgo.io/docs/gotrading-introduction#supported-marketplaces
Your own order book holds the orders assigned to your marketplace. It will be collected by aggregated order book. You can set the trading fee and royalty as you like. The total fee percentage of your own order book could be lower than third-party order books, making it more appealing to users.
- How does it work?
When users start a transaction, the seaport smart contract will be executed to call the NFT smart contract directly. The order book will then provide information about your orders only.
To check the fees' detail, check the 'Fee setting of the two order books'.
When trading, there are several fees charged.
- Gas fee: this fee is charged for executing a transaction on the blockchain. It covers the computational resources required to process and verify the transaction. The fee amount depends on the blockchain network and can vary based on network congestion. A transaction called more smart contracts, the higher the gas fee.
- Trading fee: marketplaces charge a commission or platform fee on each successful sale. This fee is typically a percentage of the sale price and is deducted by the platform.
- Royalty: royalty is a percentage of the order's sale price that the creator of the NFT receives each time the NFT is sold.
- For aggregated order book, the total fees charged will be: trading fee(third-party marketplace)+ royalty(third-party marketplace)+ extra trading fee(your marketplace).
The trading fee and royalty of the third-party marketplace are fixed and cannot be changed. However, you have the flexibility to collect extra trading fee for your own marketplace as you like.
- For your own order book, the total fees charged will only be: trading fee(your marketplace) + royalty(optional). You have the freedom to set the trading fee and royalty for your marketplace according to your desired pricing strategy. These fees will be collected no matter where the order is traded.
Note: for the extra trading fee of the two order books, we divide a modest portion of 30%. If you wish to modify the fee ratio, kindly get in touch with us.
The processes of fee collection vary due to special restrictions imposed by certain third-party marketplaces.
Our collecting principle prioritizes the following:
- Ensuring the collection of the extra trading fee.
- Ensuring the lowest gas fee.
Here is a list of different scenarios and how we handle them.
If you don't collect an extra trading fee, the aggregator will only work when there are multiple orders from different marketplaces. The blur order is special because the blur smart contract can only be initiated by the blur aggregator.
Buy NFT(s) within one marketplace
Example: Buy 3 NFTs, all within the OpenSea marketplace. The backend will initiate the Opensea smart contract directly. However, when you buy more than one NFT within x2y2 or looksrare, the backend will initiate our aggregator due to these two platforms can not aggregate multiple orders, to reach the lowest gas fee, the order will be directed to our aggregator.
Buy NFT(s) within multiple marketplaces (except Blur)
Example: Buy 3 NFTs, within Opensea and x2y2 marketplaces. The backend will initiate the aggregator to reach the lowest gas fee. Then the aggregator will initiate the Opensea and x2y2 smart contracts respectively.
Buy NFT(s) within multiple marketplaces (including Blur)
Example: Buy 3 NFTs, within OpenSea, x2y2, and Blur marketplaces. The blur smart contract cannot be initiated by our aggregator. To reach the lowest gas fee, all the orders will go through the blur aggregator.
If you collect extra trading fees beyond the 3rd-party marketplaces. All the orders should go to the aggregator except blur orders.
buy NFT(s) within one or multiple marketplaces (except Blur)
Eg: buy 3 NFTs within the OpenSea marketplace or within OpenSea and x2y2 marketplace. The backend will initiate the aggregator and charge the extra trading fee at the same time.
buy NFT(s) within blur marketplace
Eg: buy 3 NFTs all within blur marketplace. initiates the blur aggregator and the extra trading fee can not be charged due to the restriction.
buy NFT(s) within multiple marketplaces(including Blur)
Eg: Buy 3 NFTs from multiple marketplaces, including Blur. To ensure the additional trading fee, we direct the Blur order to the Blur aggregator and the others to our aggregator. The total additional trading fee will be charged by our aggregator.
You've learnt all the core concepts of the business! Enjoy trading NFTs on your own marketplace!
Feel free to ask if you have any questions about this content, we're glad to offer help :)