To what extent are whales involved in artificial trading on LooksRare?
The following document belongs to a series of reports that analyze on-chain metrics to identify patterns incurred by whales. This time, we bring attention to the activity occurring on Ethereum’s NFT marketplace LooksRare, aiming to answer the following question: Are LooksRare rewards attracting whale activity?
A whale is a term that refers to individuals or entities that hold large amounts of a specific asset (crypto or NFTs). Whale movement is a simple signal that can significantly affect the price of a crypto or NFT asset depending on the size, magnitude, source, and destination of the transaction.
Since launching on January 10, Ethereum NFT marketplace LooksRare has taken the space by storm. With a solid community-driven approach and a fixed trading fee of 2%, LooksRare has outperformed any other marketplace in the industry by a considerable margin. Two weeks since its launch, it has generated 153% more trading volume than OpenSea and has yielded over 26 million LOOKS ($104 million) in trading rewards in the same period.
The driver behind the massive numbers on LooksRare is artificial transactions carried out by specific users to stimulate LOOKS token rewards. These movements tend to carry a significant monetary value and are thus associated with whale activity.
But how exactly is LooksRare incentivizing this activity? And to what extent are whales involved in artificial trading?
- From January 10, the average transaction size on LooksRare is $201,000 compared to the $950 observed on OpenSea during the same timespan.
- LooksRare has generated $4.7 billion since launching on January 10; 23% ($1.1 billion) of it comes from trading activity between two wallets.
- The top holders (whales) of the four most traded NFT collections on LooksRare have not been involved in any artificial trading activity.
- Meebits, Loot, Terraform, and CryptoPhunks are highly involved in artificial activity; the average sale price of trades involving Meebits surpassed $769,000.
Table of Contents
- LOOKS rewards stimulate high-end transactions
- Trades on LooksRare worth $201,000 on average
- The deep dive
- Are LOOKS rewards luring NFT whales?
- Spotting artificial trading patterns
LOOKS rewards stimulate high-end transactions
LooksRare is an NFT marketplace for Ethereum based collections. The dapp’s central premise is to reward the NFT trading community that uses the platform with an underlying token, LOOKS—stimulating trading activity—arguably required to take the spotlight away from leading marketplace OpenSea.
LOOKS was available to claim as an Airdrop at different ratios based on users’ trading activity registered on OpenSea between June 16 and December 16, 2021. One hundred twenty million LOOKS tokens were initially allocated to the community, with 78% already claimed by more than 116,000 unique wallets at writing.
The most interesting aspect about LOOKS is the rewards model designed by the marketplace. First, LooksRare adds an enticing passive income factor with high staking, auto-compounding yields that surpass 500% APY at writing. Importantly, people who stake LOOKS within the platform are eligible to earn the total share of the 2% trading fees generated from applicable collections (collections with more than 1,000 ETH in trading volume), excluding private sales.
In this way, buyers and sellers receive LOOKS rewards for the trading activity. With the added feature of utilizing them in staking to earn more.
Looking in detail at BAYC #8353, which sold on January 16, we can compare the actual sale on LooksRare and simulate the trade on OpenSea. In this instance, the seller gained $1,789 by using LooksRare, and the buyer got the NFT they wanted, plus around $5,000 in LOOKS tokens. When not abused, the system is working well. However, it’s clear why some are taking advantage.
Trades on LooksRare worth $201,000 on average
The latest wave of artificial activity on LooksRare relates to what is also referred to as wash trades in the traditional finance world. A form of market manipulation where individuals buy and sell the same asset, creating artificial and misleading market activity. In the dapp industry, within the NFT space, the concept works in the same manner.
The owner sells the NFT to another wallet controlled by them to simulate a trade. An individual that becomes both buyer and seller of an NFT in the same transaction will instantly optimize their profits.
The deep dive
Diving deeper into 17,000 NFT sales occurring on LooksRare from January 10 to January 17, 2022, we see that the average transaction size is 61 ETH or $201,000. To put that in perspective, an average transaction on OpenSea in January was around $1,000.
Also, diving deeper into the analysis, we observe specific collections targeted to perform this type of transaction.
Meebits has been the most traded collection with more than 2,200 trades, worth on average 233 ETH or $769,000. There is a drastic difference compared to OpenSea trading numbers, where the average price has been 4.69 ETH in less than 400 trades.
Terraforms, Loot (for Adventurers), and CryptoPhunks reflect the same trend found in Meebits. The activity involving these collections is coupled with high transaction size, signaling the presence of artificial trading.
Moreover, we analyzed the top 100 most valuable NFT trades across the industry in the last 30 days. We found that 99% happened on LooksRare involving Meebits, Loot, or CryptoPhunks, supporting the previous idea. Also, it is interesting to see that the same two wallets were involved in the top 25 trades from the sample. These two wallets (wallet 1 and wallet 2) artificially generated over 362,500 ETH or $1.1 billion for these 25 trades in 8 days.
As a royalty-free collection, Loot attracted a lot of questionable transactions that can easily qualify as artificial transactions. However, to limit this phenomenon, on January 25, 2022, Loot introduced a 5% royalty fee which will be deducted at every sale. Resulting in a hefty gain for the treasury, as people continued wash trading Loot NFTs unaware of the royalty changes on LooksRare. According to Etherscan records, the Loot Treasury received around 450 ETH in royalties fees shortly after the mechanism was set up.
Are LOOKS rewards luring NFT Whales?
After reviewing the main reasons behind the incremental inorganic activity occurring in LooksRare, it is time to answer whether LOOKS rewards are attracting whales. At first glance, one could think the high-end activity involves whales to some extent. However, our analysis says the opposite.
Even though Meebits and Terraforms are the two most traded collections on LooksRare, the wallets of the top 10 holders (whales) of both projects were not found in the sample. These 20 wallets have not been involved in a single trade on LooksRare as of January 17.
In the case of Loot and CryptoPhunks whales, some of their top holders have been active in the marketplace. However, after ad-hoc analysis of the whale wallets’ transactions, no signs indicate they aimed to wash trade. More than 20 trades were identified on seven whale wallets from these two collections, but the trading activity looks normal.
Although high-end transactions might signal whale activity, it is safe to say that this is not the case on LooksRare. The top holders of the most traded NFT collections within the marketplace have not been involved in artificial trading at all. All the signals point toward artificial trading on LooksRare being used to farm LOOKS. At the same time, warping the NFT landscape, along with floor prices for the mentioned collections.
Spotting artificial trading patterns
While whales are not involved in artificial transactions, it is important to identify this type of activity as it creates misleading information in the market. Using the previous analysis, we can identify specific patterns present in most artificial trades.
1. No royalty fees
Trading collections with 0% royalty fees facilitate artificial trading. Collections like the Meebits, or Loot have been highly present. Other collections with 0% fees like the n project or dotdotdot are observed as well. Also, this doesn’t mean that collections with these royalty fees are all artificially traded, but these collections certainly increase the potential reward from this activity.
It is common for NFTs with a high demand to switch hands regularly; however, if an NFT is transferred to different wallets more than twice in less than 24-48 hours, the activity behind might be related to wash trading. Especially when the sale price looks off and the wallet is linked to trading the same asset. In the same way, if the same NFT is being sold several times in a short period of time, it can be a sign of artificial activity.
Besides the high activity, the price for which an asset sells can also indicate artificial trading; NFTs sold 50 or even 100 times higher than the average collection price should trigger alarms. The price pattern is the rule by which artificial trading falls under the watch of whale movement.
The sum of these three patterns may serve as a base to identify this type of activity. A clear example of artificial trading is dotdotdot #3111, traded 26 times between the same wallets in one week. 23 of the 26 sales were for 150 ETH or more. For reference, dotdotdot’s floor price is 0.13 ETH and the highest sale recorded on any other Ethereum marketplace was for 24 ETH.
Since launching on January 10, Ethereum NFT marketplace LooksRare has taken the space by storm. With a community-driven approach and a fixed trading fee of 2%, the marketplace has onboarded a significant amount of users in the last two weeks.
A particular aspect that has stood out is the inorganic activity often labeled as wash trades. This type of movement is where NFTs are artificially traded for millions, triggering a yield effect in fees generated from the artificial activity. Hence, it is fair to say that the LOOKS reward mechanics stimulate transactions with the intention of farming LOOKS rather than a malicious intention of wash trading.
Furthermore, it is interesting to observe that collections with 0% royalty fees are targeted for this activity type. Meebits, Terraforms, and other collections that fit this model have generated high inorganic volumes. Also, worth noting that the whales or top holders of these collections are hardly involved with the marketplace and have not incurred in artificial activity.
While inorganic activity will probably cool down as time goes by, it is important to identify it. Teams behind targeted projects are already adjusting. Such is the case of Loot which has included royalties to trades happening in LooksRare. Plus, the LOOKS distribution rate will decrease with time. If the marketplace adoption goes in the right direction, rewards from the inorganic activity will stop being profitable.