NFT transactions on LooksRare are exaggerated, but the project doesn’t seem to care

The market for non-fungible tokens (or NFTs) was shaken this week as newcomer LooksRare began recording impressive transaction volume figures for ethereum-based NFTs.

But as volumes on OpenSea’s adversarial marketplace increased, it became clear that some traders were manipulating LooksRare’s token-based reward system in a form of “wash trading,” and the platform didn’t seem to care.

LooksRare is built around the LOOKS token, which the platform distributes to 185,000 eligible OpenSea user wallets in an attempt to attract them to the platform.

The platform also pays daily accrued transaction fees to all users who stake LOOKS tokens in the form of Wrapped Ether (WETH).

In addition, LooksRare has a number of LOOKS tokens that will be distributed to users who trade NFTs in selected and verified collections, including Bored Ape Yacht Club (or BAYC) and Doodles.

At the current price of $4.67 per token, the market is issuing more than $12.1 million worth of LOOKS tokens per day, although this number will decrease over the next year.

Currently, some traders seem willing to manipulate the reward model.

Over the past day, LooksRare has conducted multiple NFT transactions between the same two wallets, including two NFT Meebits for about $50 million in WETH. The volume of the two transactions was $100 million.

Sales figures showing back-and-forth transactions from Meebits (Image: CryptoSlam)

According to CryptoSlam’s list of top NFT sales, dozens of other Look and Meebits NFTs were sold for roughly $3 million in WETH in various “back and forth” transactions.

By comparison, Meebits sold for an average of around 4.1 ETH (or $13,800 at current prices) on the main OpenSea marketplace last week, while Looks sold for less than 2.2 ETH (or $7,400).

This is a form of “shuffle trading,” which refers to manipulating the market by making it appear more activity than organic activity.

For example, “wash trading” can be used to increase demand for financial assets or to hide illicit proceeds from illicit activity. Critics have accused the NFT market of high levels of “shuffle trading” and money laundering.

Apparently, in this case, “wash trading” is being done to significantly increase the potential share of trading rewards that users receive for buying and selling NFTs on the site.

Traders still have to pay a 2% transaction fee, as well as the standard Ethereum gas fee (network transaction fee), but Meebits and Look are collections that do not charge creator rights in addition to these fees.

In other words, traders aiming to manipulate the LooksRare reward system are betting that the rewards they earn in LOOKS and WETH tokens will be worth more than the LooksRare transaction fees and Ethereum gas fees they spend in the process.

The LooksRare team seems to be blind to manipulative tactics and may even be encouraging them.

LooksRare has yet to comment officially on its Twitter or Discord, but retweeted a series of tweets, in which one collector, Apparently Seed Investor in LooksRareclaiming that “wash trading” was “deliberately…likely” to happen, and called the method “ingenious”.

looks rare Retweet Again this week, just add “discussion”.

https://twitter.com/LooksRareNFT/status/14812949888818677761

Documents on LooksRare’s website suggest that its market model makes the shuffle trading strategy “extremely disadvantageous” due to fees, but that hasn’t stopped some traders from blatantly selling NFTs flowing into and out of wallets in an attempt to circumvent the system.

Inaccurate data

“Shuffle trading” is significantly increasing the total volume of transactions on LooksRare. After a $509 million release on Wednesday, LooksRare has seen $249 million in trading volume today, Dune Analytics reports.

This compares to OpenSea, which recorded $192 million on Wednesday and $135 million so far this Thursday.

Such shuffle trading strategies to manipulate token reward distribution may not be illegal, but they are distorting market data.

LooksRare may advertise these numbers showing transaction volumes far higher than OpenSea, but when many of the major transactions appear to be executed purely to circumvent the system, the numbers are of little value.

Additionally, by enabling such strategies, which allow users to sell the same NFT at thousands of times higher than the market average price, LooksRare affects the level of rewards other users of the platform receive.

Likewise, LooksRare has not indicated that it will attempt to punish or limit wash trading behavior.

Valuable rewards and increased trading volume may be good marketing for LooksRare in the short term, but will the LOOKS token maintain or increase its value over time, and will users store it rather than sell it And generate profits, it remains to be seen.

More importantly, will LooksRare really steal the limelight from OpenSea given the bloated transaction data?

Only time will tell, although OpenSea’s trading volume has been declining every day, from $261 million on Sunday (9) to $169 million on Monday (10) and $176 million on Tuesday (11).

OpenSea remains on track to have a record month for NFT volumes, with nearly $2.45 billion in January so far, compared with $3.4 billion in August 2021.

CryptoSlam, a major blockchain analytics platform, told decrypt The LooksRare blockchain data stream is being evaluated and may need to change how it is categorized.

Randy Wasinger, founder and CEO of CryptoSlam, said: “We are closely watching the rise of LooksRare and are actively considering how to better handle these types of transactions while gathering feedback from the community.”

“In the short term, we won’t be cancelling deals because we think Meebits, Looks, and other inflated sales are clearly a big story, and our data provides full transparency into what’s happening on the blockchain.”

“If these ‘wash trades’ continue to occur in the long term, we may report them individually to maintain an equal comparison between projects, while still providing full transparency of what is happening on the blockchain,” he added.

*Translated and edited by Daniela Pereira do Nascimento with permission from Decrypt.co.

Leave a Comment

Your email address will not be published.