Two weeks after its launch, thanks to a community push, LookRare was portrayed as a massive NFT market challenger to OpenSea, while OpenSea is still experiencing high trading volume. On the surface, it looks like LookRare has carved a niche in the market.

OpenSea has had an impressive journey, with revenue growing from approximately $71 million a year ago to $36 billion today. This increased sales by 50,000. All of this success can be attributed to a surge of interest in NFT amid an explosion of avatars, artwork, collectibles, and in-game items. In its most recent funding round, OpenSea was valued at $13 billion.

OpenSea firmly on its throne?

However, there are a few things that make OpenSea vulnerable. First, OpenSea has never issued a token and there are many reasons for that. OpenSea was born with the NFT craze and as a privately held US based company, a multitude of regulators are watching the market. They may also have concerns about violating US securities regulations. Additionally, there is almost no incentive for those associated with OpenSea to issue tokens.

Another obvious flaw is that the OpenSea platform was launched with an open source license, so anyone could copy it. A third of the participants on OpenSea are users who pay a 2% fee for the platform, and the rest are owners who often pay more attention to the nature of cryptocurrencies.

These vulnerabilities are exploited by many challengers in the market, the most hyped at the moment being LooksRare.

Only launched a few weeks ago, but LooksRare has already made a name for itself.

By releasing its first token, LookRare made headlines with its LOOKS token airdrop to all eligible OpenSea users after NFTs traded for over 3 ETH. On the second day of operation, trading volume on LookRare surpassed that of OpenSea and has remained so for the past 2 weeks since its launch. During this entire period, trade volume in US dollars on LookRare increased more than fourfold compared to OpenSea.

LooksRare and OpenSea Daily Volume | Source: Dune Analytics

Fees are paid back to users of the platform

The secret of LooksRare’s immediate success is token incentives that OpenSea cannot provide.

Like OpenSea, LooksRare charges 2% (in ETH), but the difference is that these fees are passed back to platform users who earn LOOKS as they interact with the platform. Furthermore, users are encouraged to wager their earned LOOKS to earn additional profits and a very high annual return, at least for now.

Also, up to 60% of staking profits are paid out in packaged ETH (WETH) and the rest in LOOKS. Admittedly this is quite rare as not much profitable farming is paid in WETH/ETH.

At the time of writing, LOOKS token is trading at $3.82 while it peaked at $7.1 just before the entire crypto market collapsed in the past few days. The token ranks 117th with a total market cap currently over $658 million, about 5% of OpenSea’s most recent valuation.

What happens when the offer expires?

Of course, cross-platform wash trading is inevitable, but one could argue that LooksRare is popular for its token appeal. People trade NFT on LookRare not because the platform is much better than OpenSea or OpenSea’s leadership, but because they have a fair chance of making money off it. At least the fees do not end up in the pockets of the platform owners.

Does this mean that LookRare’s growth path is strewn with roses? Not quite like that.

While trade incentives are real, yield farming returns tend to decline over time. Will the platform keep the trading volume and what happens when the incentive expires?

Second, LookRare launched without a verified smart contract and without a repository GitHub public, open. That seems out of place and totally irresponsible. Therefore, users must be aware of the technical risks involved.

Trading volume and number of users tend to decrease

Third, and perhaps most important for LookRare’s future, the number of daily users has not been as impressive as the trading volume, which has been declining since its peak on January 19th. Is the drop in trading volume due to the impact of the general bear market at the moment or is it because users are actually leaving LookRare is an unanswered question?

Daily user count from Looks rare and OpenSea | Source: Dune Analytics

In addition to trading volume in US dollars, OpenSea has always had about 100 times higher trading volume in terms of daily transaction count.

Daily transactions from LooksRare and OpenSea | Source: Dune Analytics

Follow Data According to Dune Analytics, LookRare’s daily user count peaked the day after launch with 3,540 users. This metric has been essentially in a downtrend for 2 weeks of activity, falling below 1,000 for the first time on Jan. 24th. In comparison, the daily user count on OpenSea is more than 60,000, with the exception of two days in the same two-week period.

Also, LookRare does not support Layer 2 networks on Ethereum, while at least OpenSea supports polygon sidechains.

The NFT market needs more competition

OpenSea completely dominates the NFT market on Ethereum, at least for now, and is expanding globally. The platform’s market share is around 90% and this centralized structure is in the hands of the founders as well as some venture capitalists. Some argue that the market needs more competition.

OpenSea’s privilege of supremacy has resulted in a number of unfortunate instances of users being kicked off the platform due to intellectual property issues, although this can be ignored. But perhaps the most dangerous thing about OpenSea’s dominance is that wallets use OpenSea’s API to access on-chain NFT data, as Moxie Marlinspike, founder of messaging app Signal, points out. For example, if OpenSea goes down for some reason, people won’t be able to see their NFT in MetaMask.

Whether a new player like LooksRare can change this situation is uncertain, if not impossible. Can LooksRare grow and gain significant market share to replace OpenSea? OpenSea has significant network effects that give the market an advantage. Meanwhile, LookRare has a few important issues to overcome, but on the other hand, the project has an extremely important advantage that has worked many times in this industry: the amazing power of tokenomics (background). token economy).

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