A closer look at the LooksRare platform that has quickly become the leading NFT marketplace by trading volume shows that most of the activity is actually users selling tokens to themselves to help earn rewards in the form of more coins.
The platform was launched in January by two anonymous co-founders — who go by Zodd and Guts — as an alternative to market leader OpenSea during the height of the NFT boom. The site had planned to add new features to lure NFT enthusiasts, according to a blog post at the time. Almost all of those initiatives have focused on the incentive program built around the Looks token awarded to active users of the platform.
About $18 billion of the trading volume on the platform, or about 95% of the total activity, can be attributed to what’s often referred to as wash sales, according to data compiled by NFT tracker CryptoSlam. The transactions are seen as one of the many gray areas in crypto when it comes to regulation. In this case, the sales are done to win new tokens rather than to pump up nonfungible token prices to lure unsuspecting buyers. The marketplace benefits from the fees generated by each transaction.
LooksRare representatives couldn’t be reached for comment. A web page noting the “LooksRare Team” only lists pseudonyms and titles.
At the same time, LooksRare has effectively helped to mask the cooling of demand in the NFT market. Total sales on OpenSea have declined every month since January, according to data from Dune Analytics. The site’s sales volume is down 67% in the last 30 days, according to data from DappRadar. The number of traders has decreased 23%.
The ability to earn tokens, while a prominent aspect of DeFi, is a relatively new feature to NFT platforms. Rarible was among those that pioneered the idea last year. LooksRare’s fees are also distributed to Looks holders. Some legal observers believe wash trading that is driving the volume on the LooksRare platform is illegal.
“I don’t care if it is stocks, bonds, Bitcoin, NFTs, or baseball cards,” said David Silver, a Coral Springs, Fla.-based attorney who works on crypto cases. “Wash trading is a form of market manipulation in which an investor simultaneously sells and buys the same instrument to create misleading, artificial activity in the marketplace.”
The price of the Looks token more than tripled in January before crashing to just above its debut price, according to data compiled by CoinMarketCap.
The DeFi-like model is being adapted by an increasing number of sites seeking to take NFT market share away from OpenSea. LooksRare fees are also lower at 2% versus 2.5% for OpenSea.
“It seems that organic trading is indeed increasing in LooksRare,” said Pedro Herrera, a senior data analyst at DappRadar. “The difference between selling expensive NFTs like BAYC on LooksRare rather than OpenSea can become a 1-2 Ether difference that the seller saves. So it appears that the NFT community is slowly adopting other options outside the incumbent.”
Outside of the Looks token-related trading, LooksRare remains a relatively small marketplace for NFTs compared with OpenSea, which typically has about 10 times more daily active users, per tracker Nansen.