Original source: Nansen
Original source: Nansen
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This research article aims to separate the hype from the reality of the recent LooksRare token airdrop. LooksRare prides itself on being a "community-first, non-functional marketplace that actively rewards participating traders, collectors, and creators." “In exploring its token economics and incentive system, we believe that despite widespread concerns about what appears to be trade brushing, this instead favors opportunistic traders maximizing LooksRare’s ‘trade reward’ system.”
This article is divided into four parts.
The first part explains that the goal of LooksRare is to benefit the NFT community, and how to achieve this goal through token mechanism design. Here, we will compare the user retention rates of the two platforms, OpenSea and LooksRare.
The second part details the three parts of the LooksRare reward system: staking rewards, liquidity provision rewards, and transaction rewards.
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airdrop
Within the realm of mainstream marketing, the quest to attract buyers (i.e. consumers) is not always a simple task. Blockchain has revolutionized this, giving new programs like LooksRare the possibility to interact directly with their target customers. At the press conference, LooksRare announced to provide its native token $LOOKS to OpenSea users through airdrops. Users who have traded at least 3 ETH of nft on OpenSea over a period of more than 6 months are eligible for the airdrop. The airdrop of $LOOKS tokens has 9 tiers - the more transactions a user makes on OpenSea, the more $LOOKS tokens can be claimed. Figure 1 shows. Details the layers of the airdrop campaign where active OpenSea customers were incentivized to switch to LooksRare.
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Figure 1: LooksRare Reward Tiers Source: LooksRare (2021)
In short, the goal of the LooksRare airdrop is to take liquidity away from competitors and inject it into its own platform. However, when it comes to the "David vs Goliath" situation, some commentators believe that LooksRare's "disruptive" strategy is necessary to gain the interest of the most active users currently.
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Figure 2: Comparison of daily active users of OpenSea and LooksRare
Figure 2 depicts the comparison between the daily active users of OpenSea and LooksRare. Active users are defined by addresses that make purchases or sales. A new user refers to an address that made its first transaction on the platform, while a retained user refers to an address that has made at least one transaction. A closer look at the data reveals that LooksRare was slower than OpenSea to acquire new users within the first 9 days of launch.
Between January 10 and 19, the number of daily users of LooksRare increased by 5.55%, while that of OpenSea increased by 38.17%, see Figure 2a.
It's clear that the LooksRare platform didn't take long to initially attract new users. However, when analyzing retained user activity, LooksRare’s retained user growth rate exceeded OpenSea’s during the same period (Note: 3658% for the former and 14.86% for the latter, see Table 2b).
Table 2 b: Comparing the changes in retained users of the two platforms
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In addition to an airdrop of redeemable $LOOKS tokens, LooksRare increases the incentive for users to switch to new markets through a deliberate focus on the community, a token economic model, and a novel reward system.
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Figure 3 outlines the core goals of the LooksRare platform, and the NFT community is the center of the platform architecture design. The founding team at LooksRare ensured that the community is rewarded for participating in making this happen. They announced that three quarters (75%) of the tokens were issued for the community. Of the 75% tokens allocated to the community, 12% tokens are reserved for airdrops, 18.9% token supply will be circulated through the issuance of equity pledges, and the last 44.1% tokens will be distributed through the transaction reward system ( See Figure 4).
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Figure 4: LOOKS Token Economics Source: LooksRare (2021)
Observers have noticed similarities between the $LOOKS distribution model and the Crypto Punks NFTs launched by Larva Lab (for example, a tweet by angel investor moon (@MoonOverlord) on the LooksRare platform). The rationale behind such a token launch schedule is that the founding team has a personal interest in ensuring the success of the project after launch. Only when the platform is successfully issued can the team's convertible value be realized.
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unique features
At first glance, the $LOOKS token issued by LooksRare has a clear distinction between the two platforms. The token is designed to encourage the use of the LooksRare platform to trade NTFs, which is similar to the practice of liquidity mining for NFTs.
LooksRare takes 2% profit from each transaction. Currently, the OpenSea platform charges a fee of 2.5%. While the fee difference between the two platforms is minimal, the difference in the fee structure between the two platforms is “Who benefits from the fee?” With LooksRare, the fee will be distributed to $LOOKS token holders.
Other competing features of LooksRare include the ability for users to make public offers, applicable to any piece in a single NFT collection. This feature is especially useful for users who want a piece from their collection but don't have a specific piece in mind.
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award
award
1. Staking (pledge)
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Figure 5: Cumulative amount of $LOOKS tokens
$LOOKS holders can stake their tokens to earn passive income. At the time of writing, the return on staking is 819.31% APR. But this is variable and will adjust accordingly based on the number of participants staking their tokens on the network and the price of the $Looks token. At the time of writing, the cumulative number of $LOOKS tokens staked is approximately 120 million (see Figure 5.)
2. Liquidity provider
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Figure 6: Cumulative Amount of Liquidity Provider Tokens Held
The liquidity provider option may be attractive to users who do not wish to have full exposure to the $LOOKS token, but choose to mitigate possible volatility associated with the token by exposing it to Ethereum (ETH). This distribution of rewards is also variable and adjusts accordingly as participants move liquidity in and out of the network. In theory, the rewards paid to liquidity providers should be more consistent since this is derived from transaction fees charged by the platform.
In short, by staking $LOOKS-WETH LP tokens in LooksRare's smart contract, users can earn additional $LOOKS tokens in addition to the pro-rated exchange fees earned. However, liquidity providers face the risk of impermanent losses, which is a risk factor that users need to consider additionally.
3. Transaction rewards
Of the three rewards, the most controversial one is LooksRare’s “Trade Rewards.” Discussion surrounding the implications of this reward system has rapidly heated up on social media (see, for example, a tweet by djo.eth (@dylanorrell) explaining observations about using Meebits for wash trading).
LooksRare encourages NFT trading on its platform by offering incentives to buyers who purchase eligible collectibles. This reward system allows buyers to earn more $looks periodically (within 24 hours). On the one hand, users find this system particularly attractive for those who missed out on the airdrop, while increasing the trading volume on the platform.
According to LooksRare’s reward program, the trading rewards in the first phase will decrease significantly over time. Interestingly, it can be speculated that the profits of early speculative wash traders affirmed their decision to switch platforms. Figure 7 highlights some of the largest addresses that benefit from the LooksRare reward system.
Figure 7: Amount of $LOOKS reward claimed by an address compared to amount and fees paid to LooksRare (actual profit may vary depending on price at time of sale)
Partner with Nasen to explore on-chain activity
Figure 8a: Comparison of transaction volume between LooksRare and OpenSea (January 10-January 19)
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Figure 8b: Transaction volume of LooksRare compared to OpenSea (January 10-January 19)
Figure 8a shows the volatility of trading volume on LooksRare over time. Two possible reasons for this volatility include:
On January 10, the number of deals completed on LooksRare increased, while those on OpenSea decreased. This can be understood as LooksRare's strategy to direct OpenSea users to its platform. However, from January 12, both platforms experienced a decline in transaction volume (see also January 20). This trend can be attributed to the overall state of the cryptocurrency market.
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While most short users opted to sell their $LOOKS tokens, a third of users held their tokens: 4.1% held, 0.85% had entered liquidity provider pools. Figure 9 details this decomposition.
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Figure 10: Comparing the daily activities of smart money on the two platforms
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conclusion
conclusion
Referring to Nansen’s on-chain data, we explore whether LooksRare’s proactive strategy of directing users and buyers to its platform shows early signs of success. Analysis data shows that despite the controversy surrounding LooksRare's launch, they did attract new users and retain users on the platform. Whether this trend will continue, however, only time will tell.
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