What is The Secondary Market?

Blockchain technology has evolved over the years and has introduced new ways of earning, especially for NFT creators. Non-Fungible Tokens have never been more lucrative and creators can earn passively from secondary markets as well as primary markets. Artists have already made millions from minting and trading NFTs in the blockchain network. A secondary market is an NFT marketplace that trades NFT projects that are minted out. Examples of such secondary markets include Rarible, Opensea, and Looks-Rare.

The secondary market allows artists to earn passive income through royalties and this is continuous even after the asset is minted out.  Most artists never see a penny when their work is resold, even those whose works command astronomical prices and have thriving secondary markets. However, NFTs changed all that. This article takes a wider look at what secondary markets are and how they work in the blockchain ecosystem. 

What are Secondary Markets?

To understand what secondary markets are you need a grasp of what the private market is. The private market is where the originally minted digital assets and securities are sold for the very first time. The major aim of using the primary market is to gain funds in favor of the company creating the digital project. This is done in order to meet the long-term capital requirements the company aimed for. Private markets are popular for IPOs and crowdfunding. Secondary markets are different. 

For the secondary market, the projects are already in existence and are being traded by investors. Here, the securities, bonds, shares, treasury bills, tokens, and NFTs are being traded. Investors in the secondary market trade these previously issued digital assets without involving the project creators. It’s all based on the sole purpose of liquidating an investment. 

As the private market provides funding for new projects for diversification and expansion, the secondary market provides a marketplace that allows the marketability and liquidity of existing digital projects. However, for the private market, a digital asset can only be sold once. On the other hand, projects in the secondary market can be traded occasionally, based on the value of the digital artworks. 

How Secondary Markets Work

A secondary market is considered a reliable marketplace for trading different kinds of assets by investors among themselves. Once a digital asset is minted, it is sold in the primary market for crowdfunding purposes or IPOs. After the artwork is minted out, it is then sold in the secondary market for investors to liquidate and the creators can also earn from the sales. This is possible through royalties including the NFT royalties. Here, both creators and investors can earn passive income. 

In case the NFT creator coded a percentage royalty of about 5%, any time the digital asset is traded in the secondary marketplace, the creator earns a 5% cut off the sale price. This is done after the smart contract automatically authenticates the transaction. The major role of the secondary market is to provide a marketplace that offers the tools needed to trade and invest that are lacking in the primary market. That way, it’s a win-win for both creators and investors.