LooksRare analysis (NFT marketplace)
Why should you have an eye on OpenSea's major competitor?
In order to understand this piece of writing, you should first understand what an NFT marketplace is and how does it work. Below are 2 great intro videos on that .
How to Create, Deploy, and Sell a Generative Art NFT (Beginner Friendly!)
Opensea: Complete Beginner's Guide!
As you all may be aware of , the NFT market has been booming since 2021, amassing over $24 billion collectively from sales in 2021. It’s obvious that NFTs on the Ethereum blockchain are dominating the market where millions of dollars are traded and popular projects such as BAYC,Azuki gaining strong traction even beyond the crypto space. The concepts behind the heat(proof of ownership/ticket to community) are very intriguing, but they are not the main focus for this piece.
I would just like to ask a question.
Among all the activities on Ethereum, which one brings the most value towards the ecosystem?
The answer is NFT. NFT marketplace “ OpenSea” accounts for the largest ETH burn rate. This means the the transaction amount from NFTs on OpenSea is the highest even compared to Defi/Dex like Uniswap. Source: 15 Gwei | ultrasound.money
Burn rate: a part of every transaction fee on ethereum blockchain , measured in ETH, will be burned and lost forever.Hence it could be an indicator as to which activity accounts for the most ETH transaction.
In other words NFT transactions are basically carrying the ETH network. For example, even only in Jan 2022, OpenSea has accumulated nearly $5 billion of trading volume .
Yet,
I believe as the market progress, there will be more competitors trying to dethrone OpenSea, given the high profit nature of NFT marketplace ($206.5 million gross revenue from Oct-Dec 2021) . Thus In this piece I’ll dive in and study its major competitor LooksRare, and see whether or not investors should keep an eye on this NFT marketplaces (and its token).
This article will be divided into 5 parts:
Introduction of LooksRare and $LOOKS
$LOOKS tokenomics
Data comparison between LooksRare and Opensea
Community, user experience, behaviour and feedback
Conclusion
LooksRare introduction
LooksRare is a decentralized, community-first NFT marketplace on ETH blockchain that actively rewards traders, token stakers, creators and collectors for participating on the platform. The founders are anonymous that goes by “Zodd” and “Guts” with a team of 11 members.
They airdroped their token $LOOKS in Jan 2022 as a Vampire attack towards OpenSea, in which the NFT trading reward system was introduced , in which is unique from other platforms.
In essence, users can stake their $LOOKS for $WETH and $LOOKS rewards while they trade their NFTs. However, the staking APR is variable and adjusts accordingly depending on the number of staking and the price of $LOOKS.
Below marks the use cases for the $LOOKS token.
$LOOKS Use case:
Staking: stake Looks for WETH (wrapped ETH) and LOOKS
Current APR= 141.60% (as of 4/4/2022)
staking can be divided into Active and Passive staking:
Active: LOOKS token are fully unlocked
Passive: $LOOKS are locked for trading but unlocked for staking — e.g., treasury, team and strategic sale tokens. No extra reward for staking
100% revenue is distributed back to LOOKS token stakers, which could lead to high profit for active NFT traders
For rewards
$LOOKS is a medium for giving back to active participants, users and creators
Users who buy and sell NFTs from selected collections earn LOOKS tokens as rewards.
Users who stake LOOKS tokens are rewarded with 100% trading fees.
All staked LOOKS are auto-compounded to save gas fees
Upcoming features on LooksRare:
Collection Offer: Users can make an offer that includes all NFTs in a selected collection.
Trait Offer: Users can buy any NFT with a specific trait in a collection.
Multi-Cancellation: Users can cancel multiple open orders in a single transaction. When multiple open orders are canceled separately, gas fees tend to be quite high, which is where this feature helps.
$LOOKS tokenomics
Supply:
It has 495,564,500 (495mil) total supply now and 1 billion maximum supply (in other words max supply is capped,it’s not an inflationary token)
Current price is $2.83 (2/4/2022) , current circulating supply percentage is 49.5%, which is considerably low and could lead to sell off pressure in the mid term as supply further increase.
Market cap is $414,383,249 (414 million) , fully diluted market cap is $1,687,436,090 (1.68 billion)
Initial allocation of token :
44.1%: Volume rewards , 18.9%: Staking rewards, 12%: Airdrop, 10%: Founding team, 10%: Treasury, 3.3%: Strategic sale, 1.7%: Liquidity management
Most of the initial released tokens are airdropped to users (community) (75%), only 10% distributed to the founding team and only 3.3% are sold strategically
For more info click here.
As for the 10% allocated to the founding team and 3.3% strategic sell , it can be seen that both parties’ tokens could vest after 180 days of platform launch, which will be in April/May. Accompanied with the 3rd phase of emission and reward halving. It could lead to the market pricing in the information beforehand, possibly resulting in a downward pressure in token price during that period.
From the data of LooksRare right after its phase 2 of reward halving, we can see that the platform recorded the lowest number of users, trading volume and transaction fees. LOOKS - Post reward halving
(LooksRare reward halving: the amount of LOOKS emitted will reduce from 800 LOOKS per block to 380 LOOKS per block, which means trading rewards will reduce from 441.00 → 209.475 LOOKS per block. LOOKS staking rewards will reduce from 189.00 → 89.775 LOOKS per block. The amount of WETH earned will continue to be based on daily trading volume every 6,500 blocks.)
In terms of price performance, the lowest price during the phase 2 reward halving period is $3.10 on 9/2 18:00 . it then bounce back strongly to $3.87 before gradually declining and is currently at $1.72, 45% down from previous low.
However, one of the good attributes of LOOKS tokenomics as quoted from Nansen , “Token supply was designed with an intent for the founding team to redeem the value of their allocated tokens 180 days after its launch. The rationale behind is that the founding team has a personal interest to ensure the success of the project post-launch. The team’s redeemable value can only be realised if the platform’s launch is successful.” (quoted from Nansen)
This ensured the interest of the founding team and users are aligned, at least in the early stage after the offical launch , that they are INCENTIVIZED with the platform in a longer term , reducing the chance of price crash from early backers/founding team selling early.
Demand:
Extra yield from staking LOOKS and earning WETH from NFT transactions is very attractive to NFT traders, and poses a very valid use case for the token.
Small NFT traders might not put much focuses on the rewards. But for NFT whales who makes +70 ETH trades daily, trading rewards + owning part of the platform and fees generated is extremely appealing.
As for wash trading, it is certain that it poses concerns over the platform, but as a new platform, it is inevitable that people game the system for extra rewards, and it also contributes to the demand of LOOKS token as they would try to max out their staking rewards. (El Yogui on Twitter: This table shows how much a wash sale makes based on $LOOKS price and daily trading volume)
Also, according to the breakdown of El Yogui, wash trading is actually quite risky and we could possibly deduce that the wash traders are actually buying for a longer term instead of a short term arbitrage.
This creates abundant demand to support $LOOKS from dropping to zero like some degen farm tokens.
wash trading: a transaction in which the seller is on both sides of the trade in order to paint a misleading picture of an asset's value and liquidity. In the case of LooksRare, the trader trades (royalty-free) NFT repeatedly to earn extra rewards.
Overall
LooksRare rewrds long term LOOKS holders by providing lucrative LOOKS yield and unprecedented transaction rewards in WETH , the downside however is that it does not have enough means to decrease sell off pressure, such as unstake lock up period etc. For the short term price prediction, I believe funding rate could provide us with a possible solution, which is somewhat volatile and bearish.
funding rates of $Looks is always negative on different exchanges , this indicates that the strategy of hedging with perpetual futures is popular : shorting $LOOKS while staking equivalent amount of $LOOKS at the same time. (LOOKS Funding Rate History-Coinglass)
This could mean that currently investors/users are not too confident in the price performance of $LOOKS and tend to be more conservative by taking a hedging position instead of redistributing the rewarded WETH back into $LOOKS for higher yields. It suggests a more bearish pov for $LOOKS from investors. ( LooksRare- The Defiant)
However, I am overall bullish to the token in the long run, as the platform progress and attracts more users and increase its liquidity (lower slippage) , it could very well lead to an increase in demand in $LOOKS and a boom in token price.
Data comparison between LooksRare and Opensea
Non data heavy comparisons:
Looksrare VS. Opensea
Lower transaction fee, 2% vs 2.5% (Lower cost)
100% of rewards back to stakers , founding team does not benefit (More decentralized)
LooksRare will not withhold or take down the “verified” status of derivative projects — as long as their actions are not malicious. OpenSea, on the other hand, has taken down derivatives of high-profile NFT projects in the past.
Royalty fee is paid as soon as the NFT is transacted. while in Opensea it sometimes takes much longer. (This could mean higher incentives for NFT producers to list their NFTs on LooksRare) LooksRare VS OpenSea
Community count: Discord : LooksRare: 52518 members <> OpenSea: 196335 members, LooksRare is around 25 % of OpenSea. But when compared to the Daily users count, it can be deduced that the community in LooksRare is not as strong as that in OpenSea and work needs to be done (first mover advantage for OpenSea)
After the intense hype since launch in Jan for LooksRare, the daily volume has been reduced greatly after the phase2 reward halving and now generally similar as compared to OpenSea.
In terms of marketshare Looksrare is losing by 11.8% as of 1/4 (44.1% : 55.9%)
Yet, it should be noted that LooksRare’s daily transaction is extremely low compared to OpenSea, showing that NFTs might not have sufficient liquidity on the platform and could lead to bigger slippage. As of 3/4 LooksRare had 947 transactions and OpenSea had 68591.
This also indicates that a small number of users are making high-value transactions on LooksRare due to its lucrative incentives
Daily active user LooksRare:OpenSea <> 1810 : 61635 , indicating that OpenSea is still the most popular platform for NFT trades’
From the above data, it is clear that LooksRare still has a large room of growth as compared to a more matured competitor, yet I believe it is bullish to LooksRare in long term as it shows a promising potential in its business type.
Community, user experience, behaviour and feedback
A strong community is everything in the crypto space, user experience will fundamentally affect the profitability of the platform.
In terms of UX, LooksRare has a much more completed trait system compared to OpenSea. They have a build in rarity system so user don’t have to use trait sniper to check its rarity. It also provides sorting where a sale/listing/transfer of a NFT is sorted out and it brings more convenience.
Nevertheless, according to Nansen , through its onchain data analysis, “ the overview of Smart Money on both platforms, we can infer that LooksRare’s rewards systems did attract and retain Smart NFT traders to their platform. “ , whales such as dingaling are also trusting the platform.
On the other hand, OpenSea itself has several problems:
Time lag between listed and relist price
Slow metadata loading
Insufficient customer support despite its centralized nature
Price chart not advanced enough
Bots
If the above problems are acknoledged and solutions stated down in the future roadmap for LooksRare (or other new NFT platform) , it could be a strong bullish sign.
Conclusion:
In this article, we reviewed LooksRare’s tokenomics design, reward systems and user feedbacks to understand how it has positioned itself as a more decentralized, community focused OpenSea. Despite concerns around the token price volatility generated from reward halving, as well as the notorious wash trading , the platform has been an promised land for opportunistic traders to maximise their rewards by taking advantage of its unique trading reward system. With the help of onchain data, we explored whether there are signs of success from LooksRare’s strategies. And in the end a promising potential is depicted from its growth. In the short term the $LOOKS token might continue to face volatility. However, I believe in the long run, both the platform and the token are here to stay.
Thank you guys for reading till the end ! My Twitter is @TheMartin_Ko, where I post writings/alpha/insights of the market. A share/retweet would be much appreciated!