Over the last few weeks, several high-profile airdrops have targeted the NFT market and tried to attack OpenSea’s dominant market position. The most promising one of them, LooksRare, seems to have a real shot at challenging a disliked incumbent. This article assesses LooksRare’s tactics and potential to displace OpenSea as the dominant NFT marketplace.
LooksRare’s vampire attack on OpenSea
On January 10, 2022, LooksRare announced that NFT traders that had amassed a certain amount of trading volume on OpenSea were eligible for an airdrop. Users had to place an NFT up for sale on the LooksRare platform to claim and could decide to stake their airdrop afterwards.
This process is known as a vampire attack, whereby a new protocol tries to siphon off users from an existing protocol by offering better rates on liquidity or, as in this case, pays them directly via an airdrop. Over 110,000 wallets claimed theirs, approximately 60% of all eligible wallets.
LooksRare’s goal (unlike that of most other airdrops) was always to not only generate publicity but use this vampire attack to build an immediate user base and steal business from their much bigger competitor. This tactic was first popularised by Sushiswap, a decentralised exchange that tried to divert customers from Uniswap, the bigger and more established incumbent. Although Sushiswap did not become as big as its rival, the plan arguably worked, as it carved out its own niche and became the second-biggest DEX on the market.
Is LooksRare then the NFT market’s Sushiswap?
LooksRare left with work to do
On the surface, the more than $3 billion AUD in trading volume that LooksRare has piled up looks like a good start. But that doesn’t tell the whole story.
Although LooksRare has, according to some estimates, 17 times more users than OpenSea, its rival has processed over 50 times the amount of transactions that LooksRare has. OpenSea’s volume is half of LooksRare’s and that does not take into account the accusations that traders were trying to game the system with wash trading. A group of traders reportedly tried to take advantage of trading rewards by wash trading Larva Labs Meebits, which would reduce the “real” trading volume on the site even more.
Is LooksRare then a failure?
That would probably also be a step too far. The value proposition is there, and LooksRare did manage to build up a massive user base in a short amount of time. Its standard 2% fee model is lower than OpenSea’s, with fees being redistributed among stakers instead of going into the pockets of the site’s centralised owners.
It may just be a question of wrong place, wrong time, with the NFT market dipping hard along with the rest of the market. Although fall saw a dip in trading volumes too, it was nothing like the hefty market correction taking place now. It would thus be unreasonable to expect LooksRare to unseat OpenSea as the king of NFT trading within several weeks. If anything, the incumbent is facing real competition for the first time ever and that can only be a good thing for NFT traders.