Welcome to the wonderful world of NFTs, a new type of crypto asset that can represent digital and physical objects such as photographs, films, land and wearables on the blockchain.
They’ve exploded in popularity over the last few months as part of the much-hyped metaverse, and as the digital economy emerges.
In 2021, NFTs became broadly mainstream, with OpenSea becoming the largest and most popular NFT marketplace to tap into that rave. They would allow just about anyone to purchase, sell, and manufacture NFTs on the Ethereum and Polygon blockchain networks.
Recently, other marketplaces, such as LooksRare, have entered the NFT sector, as OpenSea continues to expand and perhaps introduce additional chains. On January 10, 2022, the LooksRare NFT marketplace opened, launching its native coin LOOKS and claiming to be:
“A community-driven NFT marketplace that actively rewards traders, collectors, and creators”.
A Worthy Challenger?
This meme looks rare ✨ pic.twitter.com/vrQlhvkkLC
— 🌈 Metavibe (@metavibz) January 11, 2022
Since its introduction, LooksRare has consistently outperformed OpenSea, with the biggest daily volume of $842 million on January 19, compared to $202 million for OpenSea. LooksRare had $519 million and OpenSea had $273 million on January 26.
LooksRare appeared out of nowhere earlier this month to become the greatest opponent yet to major NFT marketplace OpenSea, but there’s a significant asterisk next to the platform’s spectacular trade stats.
Wash trading is rife, with users buying and selling NFTs across wallets they control to manipulate daily trading payouts. Since LooksRare began on January 10, we now have a better idea of how bad the wash trading has grown.
CryptoSlam, an NFT analytics startup, announced today that it has discovered more than $8.3 billion in wash trade on LooksRare, accounting for the vast bulk of trading volume on the platform so far.
The majority of wash trading occurs with royalty-free collections, which implies that sellers are not required to pay the artists a secondary sale charge. Meebits, a Larva Labs project, has the most wash traded at $4.4 billion, followed by Terraforms at $2.9 billion, Loot at $705 million, CryptoPhunks (a CryptoPunks derivative project) at $251 million, and $62 million from other projects.
LooksRare has garnered more than $9.5 billion in total Ethereum trade volume since its introduction, according to public blockchain statistics compiled by Dune Analytics. However, If the results from both sources are correct, LooksRare’s trading volume to date matches Crypto Slams wash trading criteria by roughly 87%.
Why settle for less? https://t.co/EvFrkJHzdF
— LooksRare – NFT Marketplace (@LooksRareNFT) January 25, 2022
Data from CryptoSlam revealed that LooksRare users were selling Meebits, Loot, and other royalty-free NFTs back and forth between the same wallets for upwards of $50 million in ETH each direction soon after the launch on January 10. At the time, the average sale price for a Meebits NFT on OpenSea for the previous week was 4.1 ETH ($13,800).
The site did not implement procedures to disincentivize users from purchasing and selling their own NFTs at exorbitant rates, which made LooksRare’s astonishing early trade volumes suspicious. LooksRare even retweeted a thread from an investor who referred to such techniques as “brilliant.” Decrypt had already reached out to LooksRare for comment, but they had not responded.
CryptoSlam’s creator and CEO, Randy Wasinger, told Decrypt through email that the company now employs both automatic and human methods in a multi-step process to detect wash trading. To begin, a transaction for an NFT that was sold and then repurchased by the same wallet during the last seven days is automatically classified as a wash trade by CryptoSlam.
Furthermore, any wallet highlighted for the first point that then buys and sells an NFT after holding it for less than 30 minutes is considered as a wash trade. Furthermore, CryptoSlam manually examines any transactions for NFTs that are “obviously well beyond the average and not authentic,” according to Wasinger. As the platform’s algorithm improves, that last step may eventually be automated.
The LooksRare Reward System
Its reward mechanism consists of giving tokens to the day’s traders based on their share of overall sales volume.
According to a LooksRare representative, these tokens, called LOOKS, can then be used in a process known as “staking” to claim a piece of the platform’s earnings from the 2% fee levied on all trades.
When asked if the deals reviewed by Reuters artificially inflated trading volumes, the spokesman said that such techniques were extremely hazardous since traders would have to pay transaction charges that they couldn’t be sure they’d recoup.
Traders don’t know whether they’ve traded enough to earn LOOKS tokens or how many until the end of the day because they don’t know what others have traded.
Does OpenSea Stand a Chance?
Although we like to make memes of how awful OpenSea is and how great Looksrare is, the data shows that we still have a ways to go from switching over to Looksrare. pic.twitter.com/1tNnuG8XEU
— azf.eth 🪙 🍌 🔮 (@azfnft) February 6, 2022
OpenSea is probably the strongest competition in the NFT marketspace, alongside LooksRare. OpenSea made an effort to reduce the number of bogus NFTs on the platform. It declared that free, limitless minting will be phased out and that each user would be limited to five collections of no more than 50 NFTs each.
As a result of the backlash, the decision was changed within 24 hours. In a backpedalling Twitter thread, OpenSea claimed that “plagiarized works, phoney collections, and spam” made up over 80% of NFTs created this way. Another PR disaster a day later. Users on OpenSea began to complain that bots were on the lookout, looking to take advantage of an out-of-date listing system that would allow them to buy NFTs for less than market value.
While OpenSea had over 90% of the Ethereum NFT market, LooksRare has demonstrated that competitors may challenge this dominance by adding new capabilities such as reduced gas fees. And so, LooksRare may become the largest NFT Marketplace in 2022, let’s see.