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The sustainability of trading volume on LooksRare is in doubt as it is suspected of ‘Wash Trading’.
While it seems as though the Non-Fungible Token (NFT) marketplace currently has its dominant players, the new marketplace LooksRare may just be a new force in town. The trading platform recorded as much as $119 million in trading volume on the very first day it was launched as NFT collectors swarmed the platform for a number of incentives it offered.
While LooksRare seems to be the latest marketplace, its promise of true decentralization is one of the leverages it is wielding towards other established competitors like OpenSea, and Coinbase NFT amongst others. LooksRare airdropped its native token, $LOOKS to OpenSea users, an initial move that drove massive interest in the marketplace. The airdrop was targeted at OpenSea users who transacted at least 3 ETH (about $9,776 as of today) on the marketplace between June 16 and December 16, 2021.
The emergence of LooksRare can be likened to a phenomenon tagged a ‘Vampire Attack’ which occurs when a new platform lures users from another through unique rewards. OpenSea has often been criticized for not having a platform token and operating more like a centralized marketplace in a decentralized world.
The LooksRare debut saw the platform generate as much as 613 ETH in trading fees, all of which are meant to be distributed as additional rewards to the platform’s LOOKS token stakers. A major difference between LooksRare and OpenSea is that the new marketplace charges just 2% in trading fees, as against the 2.5% that is charged by OpenSea. While the former rewards its users with the generated fees, the latter takes all for itself, another flaw that NFT collectors are bound to weigh in some more in the near future.
How Sustainable is the Trading Debut of the New LooksRare NFT Marketplace?
Making a grand impression in the NFT marketplace is a great feat for the LooksRare platform, one that might keep it on track in terms of trading volume for the duration of its incentive period run which is 30 days after its launch. However, the sustainability of trading volume on LooksRare is in doubt as it is suspected of ‘Wash Trading’, a situation in which traders transact on the platform in an unnatural way so as to meet the terms to qualify for the reward the platform offers.
“Each trade on LooksRare (except for private sales) incurs a platform fee of 2%, and typically a royalty fee of between 5%-10%. The total LOOKS rewards for trading each day are also fixed, and distributed based on traders’ contribution to total trading volume, meaning that there’s no guarantee of the amount of rewards that a wash trader could earn in a day,” LooksRare said in its documentation.
That ‘Wash Trading’ may not be profitable for those engaged in it as noted by the platform does not imply many traders are not involved in it, and it still remains to be seen if the trading volume can be sustained after months of operation.