Interpreting LooksRare's Alternative Rise: How to Surpass OpenSea?

Source: RbC Office

Part 1: Why LooksRare Can Surpass OpenSea

As one of the earliest participants in NFT trading, OpenSea has shared the dividends of the rapid growth of the NFT market, currently holding about 97% market share. However, the user experience that needs improvement and the recent emergence of centralization tendencies have brought considerable controversy to OpenSea.

For potential competitors, these negative factors of OpenSea undoubtedly present opportunities. Among many competitors, the recently launched LooksRare platform poses the biggest challenge to OpenSea's market position since its launch on January 10.

The platform's transaction volume has surpassed OpenSea for several consecutive days, and on the most recent complete trading day (January 18), the transaction amount ratio between LooksRare and OpenSea reached approximately 4.3 to 1. This rapid momentum has made LooksRare one of the most关注 projects in the crypto community recently.

Chart 1 Recent Transaction Amount Comparison between LooksRare and OpenSea (Unit: USD)

Will LooksRare change the current monopoly of OpenSea? To answer this question, we need to compare the characteristics of these two platforms.

OpenSea's biggest moat lies in its liquidity. By allowing users to create and sell NFTs for free, OpenSea lowers the participation threshold and expands the supply of long-tail creators, thus attracting users and liquidity in both primary and secondary markets. Since NFTs are non-standardized products, coupled with the low liquidity characteristics of NFT products themselves, their liquidity is difficult to transfer, making it harder for competitors to capture market share.

On the LooksRare side, its improvements targeting OpenSea mainly focus on two aspects: first, it has improved some of the experience shortcomings of OpenSea, such as providing one-click bidding/cancellation, instant royalty cashback, and ETH+WETH mixed payment functions.

On the other hand, it fully mobilizes user activity through a token incentive mechanism, specifically including two points: first, liquidity mining, where users can earn looks tokens by trading NFTs; second, staking dividends, where transaction fees are returned 100% in WETH to users who stake LOOKS tokens on LooksRare.

From the data, the pressure LooksRare brings to OpenSea stems from its token incentive model: a recent comparison of trading data between LooksRare and OpenSea shows that although LooksRare's transaction amount has exceeded OpenSea for several consecutive days, the comparison of user numbers and transaction counts shows a significant imbalance. For example, on the most recent complete trading day (January 18), the transaction amount ratio between LooksRare and OpenSea was about 4.3 to 1, but the user numbers were 1:45, and the transaction counts reached 1:92 (see the chart below).

Chart 2 Recent User Number Comparison between LooksRare and OpenSea (Unit: People)

Chart 3 Recent Transaction Count Comparison between LooksRare and OpenSea (Unit: Transactions)

In this way, we have reason to believe that the recent high transaction volume of LooksRare is not only due to the attractiveness of the token incentive model but also likely due to the operations of a few arbitrage teams. In fact, if we compare the hourly user numbers, transaction volumes, and transaction counts of LooksRare and OpenSea, this trend becomes even more apparent—As seen in the chart below, as a global NFT trading platform, LooksRare and OpenSea have relatively stable user login numbers at different times.

However, in terms of transaction amounts and transaction counts, LooksRare shows a significant peak at certain times of the day (even at certain hours), which is clearly caused by one or several teams conducting continuous large-scale high-frequency transactions at a specific time.

Chart 4 Recent Hourly User Participation Comparison between LooksRare and OpenSea, with no significant fluctuations in their curves (Unit: People)

Chart 5 Recent Hourly Transaction Volume Comparison between LooksRare and OpenSea, with LooksRare's transaction volume showing a sudden surge at certain hours of the day (Unit: USD)

Chart 6 Recent Hourly Transaction Count Comparison between LooksRare and OpenSea, showing a significant transaction peak at a fixed time each day (Unit: Transactions)

From the above data analysis, although LooksRare's philosophy hopes to transform users from "airdrop recipients" to "platform users," thereby enriching the quantity and variety of goods on the platform in its early stages and ultimately surpassing OpenSea, this goal is far from being achieved. At least for now, what supports LooksRare's transaction volume is more of "platform arbitrageurs."

Part 2: Can LooksRare Lead the Development of Web 3.0?

Returning to the competition between OpenSea and LooksRare, the reason this competition has attracted much attention is that, to some extent, it is not merely a competition between NFT trading tracks, but a struggle for discourse power in web 3.0.

Although there is currently no universally recognized authoritative definition, "decentralization" has long been considered one of the important connotations of web 3.0. By providing a decentralized verification function for digital ownership, NFTs are seen as a key step for Web 2.0 users to transition to web 3.0, and OpenSea, as the largest NFT trading platform, is also regarded as one of the products most likely to realize the concept of web 3.0 first.

In some aspects, OpenSea does exhibit the openness of decentralization, for example: it naturally builds a wallet system, the trading process is recorded on ETH, and there are no centralized review steps when users create NFTs, etc. However, on the other hand, OpenSea seems to lack an important decentralized feature of web 3.0: a closer connection between brands and communities.

A typical case is its previous IPO inclination, which means OpenSea may share the fruits of users' collective efforts with Web 2.0 residents, a behavior that clearly does not align with the web 3.0 philosophy in the eyes of the community. Potential competitors, including LooksRare, are precisely stimulating the community's emotions towards OpenSea through the concept of "shared benefits," thereby securing a place in the web 3.0 track.

So, is LooksRare a product that is closer to web 3.0? It is still too early to draw conclusions. This is not a doubt about LooksRare's "shared benefits" philosophy, but more a wait-and-see attitude towards the sustainability of LooksRare's existing incentive model. In fact, the concept of "liquidity mining" already has precedents, including FCOIN and COMPOUND.

Historically, if the token mechanism is poorly designed, this model can easily be exploited by miner teams through quantitative trading, thereby controlling the circulation of tokens and ultimately turning the trading platform into an arbitrage platform. In such cases, once negative news arises for the platform (such as extending the settlement period), it can easily trigger a negative feedback spiral, making it difficult to maintain the entire economic model.

Therefore, for LooksRare, whether it can change the NFT platform landscape in the future, or even open a new era of web 3.0, requires close observation of the following points:

1. Whether it can design relevant mechanisms to avoid large-scale occurrences of wash trading (for example, avoiding transaction mining dividends covering transaction fee costs), thereby encouraging traders to engage in normal trading on LooksRare rather than speculative arbitrage. If the platform's tokens are concentrated in the hands of several arbitrage institutions, it will put the platform in a relatively passive position for future operations.

2. Whether it can maintain data transparency and traceability through methods such as staking assets on-chain, which is a necessary condition to maintain user confidence and avoid asset runs.

3. Whether it can quickly improve the user experience on the LooksRare platform, cultivating transaction volume stickiness, and transforming LooksRare from a trading platform into a normal exchange. In fact, just hours after its launch, LooksRare experienced a brief offline due to a DDoS attack, causing some users to be unable to connect their wallets and list NFTs, indicating that there is still significant room for improvement in user experience.

Conclusion

Vitalik once commented on Twitter: "The true web 3.0 world should have a continuous transition spectrum, with a large number of transitional states adapting to different application scenarios between the best centralized platforms and the most difficult self-hosted servers." In the foreseeable future, most products we see are likely to fall somewhere in between.

Although it carries a lot of community sentiment, just as the current OpenSea has not completely slipped into web 2.0, the current competitors targeting OpenSea may not be able to immediately carry the community's web 3.0 vision. This may stem from the subjective intentions of the teams or objective business laws. Although people's intentions to transition to web 3.0 are already strong, the hills that appear in this process still need to be crossed one by one.