LooksRare, the upstart NFT marketplace that airdropped its $LOOKS token to NFT traders on Jan. 9, is having a stellar run.
Over $5B worth of NFTs have been traded on the marketplace since the platform launched just ten days ago, and trading volume has consistently surpassed that of OpenSea, the NFT marketplace leader. (Source: @hildobby Dune Analytics)
$LOOKS briefly traded north of $7 on Jan. 20, giving the project a fully diluted valuation of $7.1B. The token has since fallen to $5, in line with the broader market sell-off.
OpenSea closed its latest Series C funding round at a valuation of $13B.
Is LooksRare really worth half as much as the industry leader in less than two weeks? Or could something else be going on here?
Let’s dive in.
The People’s Marketplace
OpenSea has established itself as the dominant NFT marketplace, with the lion’s share of overall NFT users and trading volume.
Despite its success, OpenSea routinely comes under fire for its centralized corporate structure and reliance on venture capital funding.
LooksRare has capitalized on these perceived shortcomings, positioning itself as the ‘community-first’ NFT marketplace.
In contrast to OpenSea, which keeps a 2.5% cut of all sales on its platform, all of the trading fees (currently 2%) on LooksRare are paid to $LOOKS stakers.
Stakers also earn additional $LOOKS tokens in the form of emissions, and the combination has delivered triple-digit yields since the launch of the project.
All About The Incentives
“Show me the incentive and I’ll show you the outcome” – Charlie Munger
LooksRare has seen nearly three times the trading volume of OpenSea since it launched.
However, comparing user and transaction counts over the same period paints a completely different picture.
The data indicate that a small number of users are making high-value transactions on LooksRare, and there’s a good reason for that.
LooksRare incentivizes trading on its marketplace. Buyers and sellers earn $LOOKS tokens based on their share of the total daily volume traded on the platform.
For the first 30 days, 2.87M $LOOKS per day are allocated to trading rewards. At the current price of $5, that’s nearly $15M in daily rewards.
If we look at the top traded collections on LooksRare, we can see that the leaders are collections with zero royalties.
Many of these NFTs changed hands at absurdly high prices, clearly wash trades executed to boost trading volumes and earn rewards.
Wash trading in NFT terms refers to buying and selling an item between wallets that you control.
For example, Meebit #8319 has been ‘traded’ multiple times between the same two wallets over the last day. The Defiant reached out to LooksRare for comment via Twitter DM but has yet to receive a response.
Twitter user El Yogui has shared a spreadsheet analyzing wash trading profitability at various volume and price levels.
Higher volumes mean more trading fees for $LOOKS stakers and the resulting yield entices more buyers in a ‘flywheel’ effect that’s been working well so far.
Is it sustainable? It’s too early to tell, given that LooksRare is just ten days old.
Trading and staking rewards will be cut in half on Feb 10, so it will be interesting to see how the token and platform perform leading up to the event.
Yield aggregator Pickle Finance has launched a new strategy that uses the WETH earned from trading rewards to buy and stake more $LOOKS tokens. This may be of interest to $LOOKS bulls.
For more conservative farmers, hedging using perpetual futures is another option since $LOOKS has been listed on various centralized exchanges. By staking $LOOKS and taking an equivalent short position in the futures market, one can earn the lucrative staking yield (less the funding fee on the short position) without the price risk. Note that funding rates have been consistently negative, so this may already be a crowded trade.