Analyzing a brand new contender for NFT market dominance
Around the Block from Coinbase Ventures sheds gentle on key tendencies in crypto. Written by Connor Dempsey, Justin Mart, & Mike Cohen (WE’RE HIRING)
Solely in crypto can a platform constructed by nameless founders come out of nowhere to problem an business chief, all in a matter of weeks.
That’s exactly what occurred with the launch of NFT market LooksRare, whose $9B+ in January quantity almost tripled that of OpenSea. On prime of that, inside 30 days of launch LooksRare produced $307M in protocol revenue, vs OpenSea’s $110M over the identical interval.
The uncooked numbers don’t inform the total story, nevertheless…
On this version of Round The Block, we’ll discover the LooksRare vampire assault of business main NFT market OpenSea.
The OG vampire assault
Vampire assaults are purely a crypto/Web3 phenomena. At their highest stage, a vampire assault refers to a technique for sucking customers out of an present platform right into a competing one by providing some sort of incentive (usually tokens).
The most notorious vampire attack occurred in 2020, when SushiSwap launched a close to an identical decentralized change to business main Uniswap with one key distinction: customers who migrated their liquidity from Uniswap to Sushiswap got $SUSHI tokens. $SUSHI provided holders governance rights over the platform along with a minimize of buying and selling charges collected on SushiSwap.
The outcome? Uniswap’s liquidity quickly took a nosedive, as customers moved $1.2B in funds over to Sushiswap to money in on the superior incentives being provided. Uniswap finally recovered and responded with a token launch of their very own, however a brand new DEX was bootstrapped over a comparatively quick time period.
LooksRare’s vampire assault
LooksRare adopted the everyday vampire assault playbook which is as follows:
- Determine business chief
- Construct competing, but strategically differentiated platform
- Provide superior incentive for customers who migrate over
The principle distinction between SushiSwap’s assault and LooksRare’s is that SushiSwap was a close to an identical copy of Uniswap’s code (often known as a fork) with token incentives constructed on prime. LooksRare seems to have constructed their very own good contracts (in keeping with their documents); all the things else within the playbook is similar:
- Determine business chief: on this case, it’s OpenSea by a rustic mile.
- Construct a competing, but differentiated platform: looksrare.org.
- Provide superior incentives for customers emigrate: meet the $LOOKS token.
A $LOOK on the preliminary incentives
As a result of open-sourced nature of blockchains, the LooksRare crew was in a position to establish OpenSea customers who had traded at the least 3 ETH price of NFTs over the prior six months and airdrop them LOOKS tokens. Nevertheless to assert these free tokens, customers first needed to listing an NFT on the LooksRare change.
Airdropping tokens to an present neighborhood of lively NFT merchants proved efficient, as NFTs flooded onto the brand new market. The LOOKS token would climb to just about $7 simply 10 days after launch, fetching a $1B marketcap within the course of.
And the incentives didn’t cease there…
MOAR Incentives
Past the preliminary airdrop, customers of the LooksRare platform may earn extra tokens by staking their LOOKS and by buying and selling NFTs on the platform. LooksRare prices a 2% charge for each sale (vs. 2.5% on OpenSea), and staking (locking LOOKS into a wise contract) entitles stakers to 100% of these charges. Stakers additionally earn extra LOOKS on prime of buying and selling charges.
On the time of writing, staking LOOKS earns an eye-popping 500%+ APR.
The buying and selling incentives is the place issues begin to get attention-grabbing. It’s fairly easy: purchase or promote an NFT on LooksRare and earn LOOKS. Rewards are paid out each day, based mostly on the % of that day’s quantity. At the moment 2.8M LOOKS, or simply underneath $10M USD at present costs, are being awarded each day.
Up to now, a free airdrop was sufficient to get folks to the platform, and a $10M each day reward has been sufficient to maintain each day buying and selling volumes outpacing OpenSea. Nevertheless, if you look the whole each day # of customers, it’s clear that these volumes aren’t as spectacular as they initially seem.
Wash buying and selling
Whereas LooksRare is doubling OpenSea’s quantity on any given day, OpenSea has 20–40 instances extra lively customers than LooksRare. This means that LooksRare’s quantity is fueled by a small variety of merchants gaming the motivation system to earn LOOKS.
There’s nothing stopping a person from swapping the identical NFT forwards and backwards between their very own wallets at a excessive greenback quantity. Since each day rewards are paid out as a % of the day’s quantity, if, for instance, somebody can wash commerce their method to 10% of that day’s quantity, they’ll web $1 million in LOOKS.
The wrinkle right here is that for each commerce, customers should pay a 2% charge priced in ETH. The math works out such that the charges merchants are paying in ETH are roughly equal to the rewards being paid in LOOKS. As such, merchants are mainly swapping ETH for LOOKS, which can repay ought to the value of LOOKS respect relative to the value of ETH.
Basically, there’s an attention-grabbing little bit of sport idea in movement, as early adopters will probably be rewarded ought to the LooksRare platform succeed.
Past wash buying and selling
At this level, nobody would dispute that LooksRare’s staggering volumes are a results of their profitable incentive scheme. Nevertheless, that doesn’t essentially imply that LooksRare is all hat and no cattle.
On the finish of January, Crypto Slam estimated that about $8B of the $9B in January quantity was washtrading. Nevertheless, the remaining reputable NFT quantity remains to be greater than what NFT marketplaces Rarible, SuperRare, Basis, Makersplace, and Aysnc did in all of 2021 combined.
Even with washtrading eradicated, LooksRare’s launch can nonetheless be thought of a hit. Plus they provide different attention-grabbing and novel options similar to no transaction charges for personal gross sales and the flexibility to make a single provide throughout a complete assortment of NFTs. Lastly, their “actual quantity” is continuing to grow.
Is it sustainable?
LooksRare’s buying and selling rewards will wind down over the course of the following two years, at which level {the marketplace} should compete on its product and neighborhood alone. Whether or not it could actually proceed to develop its market share with out highly effective incentives is as much as the nameless crew behind it.
We will look to its vampire attacking predecessor, SushiSwap, for a glimpse into what the long run could maintain. SushiSwap by many measures has remained related after its preliminary rewards dried up. They continued to innovate and deploy throughout a number of chains, with almost $5B in TVL at this time.
Nevertheless, usurp Uniswap they didn’t. Uniswap finally launched a token of its personal (there’s hypothesis that OpenSea could sooner or later do the identical) and has maintained its standing as crypto’s dominant DEX with over $7.5B in TVL at this time. It’s additionally price noting that no contentious laborious fork (Bitcoin Money, Ethereum Traditional, and many others) or vampire attacker (SushiSwap, Swerve, and many others) has ever supplanted an incumbent.
Whereas Sushiswap has loved success, it has had its fair proportion of struggles as effectively. Community infighting between the core crew and Sushi token holders led to the exit of a number of excessive profile crew members, together with the mission’s CTO. As soon as LooksRare palms governance over to LOOKS holders, it would seemingly be reminded of how nascent and messy DAO governance really is.
Lastly, for LooksRare customers, it bears mentioning that anon groups all the time include rugpull danger. On prime of that, LooksRare’s good contracts launched unaudited and and not using a public GitHub repo — so dealer beware.
