Off-Chain NFT Marketplaces vs. On-Chain NFT Marketplaces: What Are the Differences and Benefits?

A famous idiom in the cryptocurrency space goes as follows, “not your keys, not your coins”, and it is famous for good reason. This expression highlights the importance of decentralized and sovereign digital asset ownership. If you do not control the private keys to the wallet or contract address that holds your cryptocurrency or NFT, you do not actually have any direct control over the asset. It is essential for all users, traders, creators, collectors, and traders to wake up to this reality, and understand what it means to them.

This centralized digital asset control has led to hundreds of millions (if not billions) of dollars lost in the traditional cryptocurrency space, and with NFTrade being one of the only NFT marketplaces to address this problem, it is our duty to showcase its importance to the broader community. This piece will break down the difference between off-chain and on-chain marketplaces, why off-chain NFT marketplaces are essential, and what a creator or collector can do to protect your assets.

So, What’s the Difference Anyway?

There is a night and day difference between the custodianship of off-chain and on-chain marketplace, with this being the decisive and differentiating factor. For example, within the Avalanche ecosystem, NFTrade is the ONLY marketplace that offers off-chain NFT listing and transactions, meaning the wallet of the NFT owner retains full custody of the asset right until the point of transfer. If this is a gaming item, this means users can still utilize the in-game item while being able to take sale offers on the asset. This also applies for all listings, meaning NFTrade never actually holds or controls the NFTs, our users do!

By utilizing an off-chain marketplace, users do not have to deploy their NFT to a centralized smart contract of an exchange that hackers can potentially exploit, leading to the complete loss of their stored NFTs forever. Think about it, you’ve probably heard of countless marketplace hacks, and these were all only possible because the marketplaces had full control over their users’ assets and did not have the proper security protocols in place to offset these possibilities. At NFTrade, this is not something we even need to consider, as we NEVER have custody over your NFTs.

How We Do Things Right

Off-chain listing can be tricky and potentially dangerous if not developed correctly, which is why we made sure to stress test all of our services to the highest degree before public implementation.

When you list a NFT on NFTrade, you approve the transfer in case there’s a sale. However, you approve a proxy contract that has no logic to actually transfer the asset. This proxy contract can’t get compromised, as it’s basic in its outputs, and has no chance for security breaches. The proxy can get called only with the proper permissions. When listing an item, you say how much you want to sell it for, to whom, until when, etc., and all those parameters are signed with your wallet. In this case, our exchange contract is the only one with the permissions to tell the proxy to transfer the asset, and that only happens if the off-chain signature meets all the order parameters. This means that the order is only filled if it perfectly matches with the signature, telling the proxy to transfer the assets.

The most important thing to remember about this process is that the transfer permissions can be revoked at any time!

With this failsafe in place, even in the worst-case scenario of the exchange being hacked, there’s a dummy proxy contract that knows nothing, with no one else having the ability to tell it to transfer the NFT.

Developing this methodology correctly took a lot of time, precision, testing, and auditing, and we can confidently say that is the most effective mechanism for utilizing a secondary NFT marketplace.

The Benefits Are Clear

Now that you have a stronger understanding of the difference between on-chain and off-chain marketplaces, the benefits for users and creators should be obvious. Not only is there greater security and protection in terms of digital asset ownership, but with off-chain marketplaces, you can still utilize and interact with your listed NFT in other decentralized applications. On the contrary, when using an on-chain marketplace, once you begin a transaction and deposit your NFT into the marketplace’s smart contract, you no longer have ANY control over your NFT, leaving it up to the marketplace to make sure they have the necessary security in place to secure your assets properly.

Although there are obvious benefits to an off-chain marketplace, it is a much more challenging infrastructure for many development teams to build, which is why NFTrade is one of the only marketplaces across the entire NFT ecosystem that offers these capabilities. The bottom line is that many marketplaces are simply too lazy, incompetent, or unskilled to introduce these implementations, which is all the more reason off-chain marketplaces should be utilized if someone is looking for a secure and decentralized secondary NFT marketplace.

If you’ve ever wondered why some NFT marketplaces require you to deposit your NFT to interact and why some do not, you should now understand that this is due to on-chain versus off-chain infrastructures. When possible, it is ALWAYS better to use an off-chain solution, as they leave the control and value in the hands of users and asset owners instead of potentially manipulatable third-party marketplaces.

About NFTrade

NFTrade is the first cross-chain and blockchain-agnostic NFT platform. We are an aggregator of all NFT marketplaces and host the complete NFT lifecycle, allowing anyone to seamlessly create, buy, sell, swap, farm, and leverage NFTs across different blockchains. Using NFTrade, anyone can gain access to the entirety of their NFT, unlocking the total value of the NFT market.

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