Although NFT Volume Still Down 88% from 2022 all-time highs (and down 38% year-to-date), Pallet Exchange is creating a new type of NFT market focused on user retention. And it does so on a blockchain less known for NFT transactions: Sei.
Co-founders Kelvin Wang and Davy Li have convinced investors that there’s still enough of a future for NFTs beyond silly social media profile pictures (PFPs) that they’ve raised $2.5 million in a private funding round with the participation of Spartan Group, Symbolic Capital, Cypher Capital and angel investors from Coinbase, MoonPay and more, TechCrunch learned exclusively.
Wang and Li are probably best known for the creation The lighthouse, one of the most popular web3 games on Arbitrum, a layer 2 blockchain built on top of Ethereum. “That was the initial impetus, we saw the gaming landscape and thought we could make a better game and had a vision for it,” Li said of why they then built an NFT marketplace.
They see strong promise in the future of NFTs because of human behavior. “A user’s basic attraction to trading and flipping is very human nature,” Wang said. “We’ve seen it with collectibles, cars and toys.”
When creating The Beacon, they saw market-level friction with speed, transaction time and user experience, so they decided to create a marketplace that would be faster and easier to use, Wang said.
In crypto, platforms are often overly focused on all things financial.
“It’s nice if there are a lot of economic innovations, but at the same time we saw that there are pain points from a user experience,” Li said. “It’s hard for beginners to jump in and get hit with numbers and dashboards. Imagine throwing a newbie who has never touched stocks into the Bloomberg terminal. It’s like that.”
However, making money is a key driver for cryptocurrency enthusiasts (and many fail, for what it’s worth).
And Pallet’s founders say they recognize that in a bear market like the most recent one, when it’s much harder to make money, especially for a startup, new marketplaces like theirs will struggle to keep customers. “That’s the part we wanted to experiment with and innovate the liquidity and retention mechanisms.”
So even in cases where the “number doesn’t always add up,” the market wants to make users feel like they’re moving forward and doing meaningful, fun things with their NFT collections. It uses social media tactics like in-app messaging that allows people interested in the same NFT collections to interact with each other on its marketplace.
“Imagine the moment you buy an NFT, it’s added to a group chat with other holders, and there’s a community aspect to it,” Li said. “We want to create some clans where friends can work together and we’re trying to take a page from the live mode games that we see and [create] an improved system compared to pure points that many markets use” to gamify the NFT market experience.
Overall, Pallet wants to be a “good shopping experience for normies,” Wang said. “We want to create a platform that brings liquidity, regular crypto people and regular users through games of social features.”
But when it comes to the largest blockchains in the NFT space, Ethereum, Bitcoin and Solana lead the pack with over $1.3 billion in sales volume in the past 30 days, according to CryptoSlam data. So why build a market on a blockchain with less traction?
Well, Sei’s layer-1 blockchain is extremely fast 12,500 transactions per second and has low gas fees, also known as transaction costs. And the team believes there is opportunity in its less chartered area.
“We saw it as a parallel to Solana’s early days. We took a leveraged bet that this will be the chain of the future because it allows something that Solana was not able to do, to tap into the EVM liquidity market naturally,” Wang said.
In addition, the creators of the Sei blockchain are working to attract the crowds of developers based on the Ethereum Virtual Machine (EVM) by creating a technology called The Parallel Stack – something they hope will make Ethereum faster and less expensive.
Sei EVM’s work convinced Pallet that Sei overlords would “cover the pie here,” says Wang.
The bet on Sei, its social aspects and friendly user interface has paid off so far. Palette is one of the fastest growing NFT markets by volume across all blockchains.
The palette launched in September and experienced an “explosion” in December, Wang said. That’s when Seance, a Sei-based collection of NFTs fueled by meme culture, capitulated the new blockchain and market into the cryptocurrency world conversation. Seiyans NFTs can be bought and sold on Pallet.
Today, it holds approximately 99% of the NFT market share on Sei and has done over $20 million in trading volume year to date, with over 2 million users visiting its platform in the past year and having 40,000 to 50,000 daily users , Wang said. Its revenue model involves taking a 2 percent commission on transactions, which brings its annual operating rate to $2 million or more, Wang said. “It’s a great start for us.”
In recent weeks, Wang says there’s been growing interest in artistic NFTs, collectibles that aren’t a throwback to the whole Bored Apes PFP phenomenon, though PFPs still have their fans, too. Next, Pallet plans to work with major partners in the art market and create a separate marketplace for these creators. “We don’t want to put a single artist with a bunch of PFPs, we want to create unique experiences for both of them,” Wang said.
