Original source: Coinbase

Original source: Coinbase

A phenomenon that can only be found in the crypto space: a platform built by an anonymous founder in a few weeks can compete with the leading platforms in the industry.

The newly launched NFT platform LooksRare vividly illustrates this phenomenon. Its transaction volume in January reached more than 9 billion US dollars, almost three times the transaction volume of OpenSea in the same period. Not only that, but within 30 days of going online, LooksRare achieved agreement revenue of US$307 million, while OpenSea only achieved US$110 million in the same period.

However, these raw data do not reflect the full picture.

In this blog post, we explore how LooksRare vampires OpenSea, the industry-leading NFT marketplace.

OG's Vampire Attack

Vampire attacks are a phenomenon that only exist in Crypto or Web3. In a broad sense, vampire attack refers to the method of attracting users from existing platforms to emerging platforms by providing users with some kind of incentive (usually Token).

One of the most notorious vampire attacks occurred in 2020, when SushiSwap launched a decentralized exchange that closely resembled the industry-leading Uniswap platform.

It will give SUSHI Token as a reward to users who migrate funds from Uniswap to Sushiswap. In addition to enjoying lower transaction fees on SushiSwap, SUSHI Token holders will also gain governance rights on the platform.

In the end, because Uniswap users transferred 1.2 billion US dollars of funds to Sushiswap, Uniswap's liquidity declined for a short period of time, and Sushiswap also fulfilled its promise and issued Token rewards to users.

After that, the liquidity of Uniswap also returned to its original level, and they also launched their own Token. Even so, Sushiswap's liquidity has been bootstrapped in a relatively short period of time.

Vampire Attack by LooksRare

LooksRare's vampire attack follows that classic set of steps, as follows:

1. Determine the leading platform in the industry

2. Establish a platform with both competitiveness and strategic advantages

3. Provide generous rewards for those users who migrate

The main difference between SushiSwap and LooksRare's vampire attacks is that SushiSwap copied almost all of Uniswap's code (also known as a fork) and formulated Token incentives based on it, while according to LooksRare's documents, they seem to have established their own smart contract. However, the rest of the approach is the same for both:

1. Determine the industry-leading platform: In this regard, it is better than OpenSea.

2. Build a platform with both competitive and strategic advantages: LooksRare built looksrare.org.

3. Provide generous rewards for those migrated users: issue LOOKS Token.

initial incentives

Due to the open-source nature of the blockchain, the LooksRare team was able to identify OpenSea users who had traded at least 3 ETH worth of NFTs in the previous six months and airdrop LOOKS Tokens to them. However, in order to obtain these Tokens, users must first publish an NFT on the LooksRare trading platform.

The effect of airdropping Token to those active NFT trading communities is remarkable, and NFT has also flooded into new markets as a result. LOOKS Token rose to a price of about $7 10 days after its release, and achieved a market value of $1 billion.

Token airdrops aren’t the only incentive, though.

other incentives

In addition to the initial airdrop, users of the LooksRare platform can also earn more Tokens by staking their LOOKS Token and the NFT they trade on the platform. LooksRare charges a 2% commission per transaction (compared to 2.5% for OpenSea).

After the pledge, that is, after the LOOKS Token is locked in the smart contract, the user is entitled to receive all the fee income. In addition, stakers also have the opportunity to obtain additional LOOKS Token.

At the time of writing this article, the annual interest rate of LOOKS’ pledge income has exceeded 500%, which is amazing.

LooksRare's trading incentives are quite interesting, and the principle is very simple: users only need to buy and sell NFT on LooksRare to earn LOOKS Token. LooksRare will determine the reward ratio based on the daily transaction volume. At present, LooksRare distributes about 2.8 million LOOKS every day, and its market price is about 10 million US dollars.

It’s safe to say that the free airdrop is enough to get people to the platform, and the $10 million daily rewards give LooksRare an edge over OpenSea in terms of daily transaction volume. However, if we carefully observe the number of daily users of LooksRare, we will find that its amazing transaction volume is not as simple as we imagined.

Brush transaction

While LooksRare has twice as many transactions as OpenSea on any given day, OpenSea has 20-40 times more active users than LooksRare. This suggests that LooksRare's trading volume is the result of opportunistic manipulation by a small number of traders in order to earn LOOKS.

Since the daily reward amount on LooksRare is determined by the trading volume of the day, even if there are transaction fees, users are willing to use their wallets to buy and sell the same high-priced NFT back and forth. In this way, if someone can complete 10% of the trading volume of the day by brushing the volume, then he can get LOOKS worth 1 million US dollars.

But the problem is that users have to pay a 2% fee for each transaction, and it is calculated in ETH. Calculation results show that the fee paid by the trader in ETH is roughly equal to the amount of LOOKS rewards received. Therefore, traders are basically exchanging LOOKS with ETH. When LOOKS appreciates relative to ETH, users will get corresponding benefits.

Essentially, it's a gamble, because if the LooksRare platform succeeds, early adopters of the platform stand to gain.

Real volume on LooksRare

Admittedly, LooksRare's phenomenal trading volume is really only due to their various incentives. However, that doesn't mean that LooksRare is just flashy.

Crypto Slam estimated at the end of January that about $8 billion of the $9 billion in transaction volume on LooksRare in January this year were fake transactions. However, the remaining $1 billion in NFT transaction volume still exceeds the combined annual transaction volume of other NFT markets such as Rarible, SuperRare, Foundation, Makersplace, and Aysnc in 2021.

Even removing the influence of fake transactions, LooksRare is still a successful platform. Plus, they offer other interesting and novel features, like private buying and selling with no fees, or a single offer for an entire NFT collection. As a result, LooksRare's "real volume" is continuing to grow.

Can trading rewards last?

LooksRare’s transaction rewards will gradually decrease over the next two years, at which point it will have to rely on its product and community to compete in the market. Whether LooksRare can continue to expand its market share without generous rewards will also depend on the anonymous team behind it.

We can get a glimpse of the future of LooksRare from SushiSwap. In many ways, SushiSwap has continued to grow long after its initial rewards have been distributed. Through continuous innovation and multi-chain deployment, the total lock-up value of SushiSwap has reached nearly 5 billion US dollars today.

However, the development of SushiSwap has not affected the status of Uniswap. Uniswap eventually launched its own Token (some speculate that OpenSea will do the same one day), and remains the dominant DEX in the Crypto field, with a total locked value of more than $7.5 billion today.

Not only that, there haven’t been any controversial hard forks (Bitcoin Cash, Ethereum Classic, etc.) or vampire attackers (SushiSwap, Swerve, etc.) that have replaced existing platforms.

Although Sushiswap has achieved success now, it has also experienced some setbacks. Internal conflicts between its core team and SUSHI Token holders have caused Sushiswap to lose several core team members, including the project's chief technology officer.

When the LooksRare team transfers governance rights to LOOKS Token holders, it may find that DAO governance is still immature and full of problems.