Spotlight Analysis: LooksRare, On-Chain Outlook, Edition #25 (04/02/2022)
Qluster Data Labs cuts through the noise around LooksRare, a challenger marketplace for NFTs. Read on for a spotlight analysis and see if there is any substance behind the chatter... 👇
What LooksRare? A definitive analysis of an NFT challenger marketplace
The year 2021 brought about a surge in mainstream adoption of Non-Fungible Tokens (NFTs), with billions of dollars traded on various market exchanges.
Amongst this widespread adoption, numerous NFT marketplaces arose offering different collections and functionalities—with OpenSea currently the dominant leader in the space.
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This report analyses LooksRare, a tender entrant into the battlefield, which launched earlier this year on the 10th of January. This marketplace has recently stolen the spotlight in the NFT community, in particular by airdropping its token—$LOOKS—to market participants who traded NFTs on OpenSea.
Assessing LooksRare in comparison to a clear NFT marketplace leader OpenSea, let’s take a deep dive into some of the key metrics:
Marketplace Daily Volume
Since the launch, the total trading volume on LooksRare is 2.8x the volume captured by OpenSea, at ~$6.2 billion versus ~$2.2 billion
When assessing daily trading volume, Qluster Data Labs (QDL) perceives a peak in volume around the 19th of January. Interestingly, this correlates with the peak in the $LOOKS token in the days after—see the date 20/01.
The chart above highlights LooksRare dominance in daily volume versus OpenSea, in the time since its inception.
Despite the clear difference in favour of LooksRare, QDL identifies two essential metrics which completely changes the positive newcomer story for LooksRare. Specifically, these metrics include:
Number of users transacted
Amount of daily transactions
Q commences the scrutiny by dissecting the number of users and transactions on LooksRare…
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Number of Users
The total number of daily users for OpenSea is at a significant premium with a 17x multiple compared to LooksRare.
The data indicates there are ~320k users for OpenSea versus ~19k for LooksRare.
The chart above highlights the relative significance of OpenSea’s daily users compared to LooksRare since LooksRare’s inception.
Number of Transactions
The total number of transactions for OpenSea is also significantly higher at ~1.4m compared to ~24k, which is notably a 58x multiple.
The chart above highlights the relative significance of OpenSea’s daily total transactions compared to LooksRare since LooksRare’s inception
But, there might be an explanation for this obvious discrepancy between marketplace metrics…
After assessing the above two metrics and observing how users and share of transaction figures are skewed positively towards OpenSea.
Despite the bigger trading volume captured by LooksRare, this apparent skew towards OpenSea establishes the basis for the following conclusions:
A smaller number of users on LooksRare are boosting trading volume by transacting NFTs in large quantities. The rationale behind this motive is to increase rewards paid to those who stake the $LOOKS token, as rewards are directly correlated with trading fees.
In continuation from point (1), wash trading may be a concern considering the nature of the trades—i.e. a small number of users transacting in large quantities with unusual repetition.
To better understand the concept of Wash Trading, let’s examine the following case study to answer the question…
What is Wash Trading?
Case Study involving Meebit ID #13687
In exploring our wash trading hypothesis formed in point (2) above, let’s deep dive into the Meebit collection which currently sits in the number one spot for daily trading volume on LooksRare.
Meebit #13687 is an example from the collection that traded continuously on the 11/01 between three discernable wallets:
Screenshot above is Meebit #13687 sourced from LooksRare
Transactions: Frequency & Timing
The below highlights the frequency and timing of how these three wallets transacted #13687 amongst themselves on the 11th of January.
Immediate red flags arise:
In total, there are 25 trades of #13687 comprising a total USD sum of ~1.5m on 11/01
The average trading price of the #13687 on this day was $59,000 USD (~20 ETH) which is significantly higher than the ~3.63 ETH floor price during that trading day
By now, suspicions around the peculiar trading activity might be abreast in the case study of Meebit #13687.
To surmise, both the frequency and timing around the trading of #13687 are considered to be highly suspect. These suspicions are expounded after considering that the asset was exchanged multiple times amongst the same three wallets—and on the same day.
Meebit #13687 change in ownership by time (UTC) on 11/01
For alternative views of the trading history for #13687 at a summary level & transaction level, see Appendix A.
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In confirming concerns of potential wash trading in LooksRare, Qluster Data Labs underscores the next steps for prospective participants:
Continue observing the daily volume versus daily users (and transactions) in the next three to six months. Monitor for signs of a complete drop off in NFT volume-liquidity across top collections, such as Loot or Meebits, as this will likely further confirm the hypothesis.
A more detailed investigation into quantifying the amount of NFTs per collection may allude to more evidence of systemic wash trading.
Using the example of Meebits #13687, the next steps could include identifying how many across the 20,000 Meebits collection display similar trading characteristics. These characteristics include:
Frequency and Timing of trades
Number of duplicate wallets involved in a particular asset’s ownership
Irregularities in the trading price range
And further to the steps above:
Assess the performance of the $LOOKS token, over the next three to six months relative to the rest of the market. If there is a significant drop off in token price in conjunction with decreased marketplace volume, it could further confirm the proposed wash trading hypothesis that centres on boosting rewards for token stakers.
See you again for the next update.
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