LooksRare team "cashes out" sparks controversy: worth over $30 million, distributed to more than 10 members

Author: Jasmine

Source: Hive Tech

Under the "exposure" of Twitter users, members of the NFT trading platform LooksRare publicly acknowledged that the team has been earning profits by staking the governance token LOOKS on the platform.

On February 8, Twitter user "tradfi guy" claimed that the LooksRare team had cashed out approximately $73 million worth of 23,116 WETH, most of which flowed directly into the mixing tool Tornado Cash.

The "exposure" news continued to ferment in the following days, leading some users to worry that the LooksRare team might cash out and run away. LOOKS also dropped from around $3 to its current $1.9 within a week, with a decline of over 40% in 7 days.

It wasn't until February 14 that LooksRare's co-founder Zodd (online name) responded in a follow-up comment, stating that the amount disclosed by "tradfi guy" was incorrect and should be close to 10,500 ETH, allocated to more than 10 full-time members, as the team had worked for over six months with zero compensation and had collectively borne costs exceeding seven figures before the product launch. The use of Tornado Cash was to protect the privacy of the anonymous team, "We are not going anywhere: we haven't even started yet… The team LOOKS allocation period is 2 years, and the future looks bright."

Zodd's response alleviated some concerns. Staking LOOKS on LooksRare to earn trading fees settled in WETH is one of the platform's publicly announced reward measures and can even be seen as a competitive strategy for LooksRare to surpass the trading volume of giant competitor OpenSea, which does not have a trading fee "dividend" mechanism.

Currently, it appears that the LooksRare team is earning profits in the same way as users. Some users believe this is reasonable, while others have expressed higher expectations, hoping the team can manage funds more transparently.

LooksRare members cashing out raises panic

Twitter user "tradfi guy" has been closely monitoring the earnings situation of the LooksRare team.

As early as January 24, just two weeks after LooksRare's launch, he tweeted, "The LooksRare team has cashed out 9,169 WETH (over $25 million) in less than 2 weeks. The cleverness of the team lies in the fact that they earned a large amount of rewards in WETH rather than LOOKS."

WETH is a wrapped asset of the native cryptocurrency ETH on the Ethereum network. Since ETH is not a "token" under the ERC-20 standard of the Ethereum network, it cannot be directly exchanged for other cryptocurrencies in Ethereum applications. To facilitate the circulation of ETH in various applications, it is wrapped (converted) 1:1 into WETH, which has the same value as ETH.

On February 8, nearly a month after LooksRare's launch, "tradfi guy" updated the data on Twitter, stating that team members had cashed out 23,116 WETH, worth approximately $73 million, not including the value of the platform's governance token LOOKS, with most of the WETH flowing directly to Tornado Cash.

Tornado Cash is a non-custodial Ethereum privacy solution, also referred to as a "mixing tool" in the crypto community. It hides users' transaction details on the blockchain by breaking the on-chain link between the source and target addresses. Protecting users' transaction privacy is the tool's original intention, but it has gradually become a "money laundering" tool for criminals.

The keywords "team's huge earnings" flowing into "mixing tools" in "tradfi guy's" latest tweet sparked panic among users, with some users worried that the LooksRare team might cash out and run away.

Cryptocurrency trading data site Coingecko shows that since February 8, LOOKS continued to decline in its previous downward channel, oscillating around $3.1 to $3.8 for 4 days before breaking below $3.

LOOKS price trend since its secondary market launch on January 10

The news of the LooksRare team's cashing out continued to ferment, and LOOKS kept declining. On February 14, LooksRare's co-founder Zodd (online name) finally appeared, responding in a follow-up comment under "tradfi guy's" tweet.

"First of all, the amount is incorrect: close to 10,500 ETH, we have more than 10 full-time team members." Zodd attached a link to the public distribution explanation of LOOKS, stating that the fact that the team earns WETH has never been a secret. The LooksRare team has been working day and night for over six months with zero compensation until the first distribution of team WETH, "I can also tell you that team members collectively bore costs exceeding seven figures before the launch. I have no objections to the WETH that contributors have received so far, especially given that there has been no compensation for these months, and many may also be used to purchase NFTs again."

Regarding the use of mixing tools, Zodd explained that they encourage everyone on the team to use Tornado Cash, "Privacy is a fundamental right, and as an anonymous team, it is actually a requirement, welcome to decentralization." As for the users' concerns about the risk of running away, Zodd said, "We are not going anywhere: we haven't even started; we have goals to achieve and enough passion and motivation to achieve them; financial stability eliminates external concerns and allows for more focus; the team's LOOKS allocation period is 2 years, and the future looks bright."

Zodd's explanation eased some users' doubts, but LOOKS continued to decline.

Coingecko data shows that since LOOKS launched on the secondary market on January 10, it reached an all-time high of $7.1 on January 20, and then began a downward trend. After the exposure by users on February 8, LOOKS continued to decline, reporting $1.9 early on February 15, with a decline of over 40% in 7 days, down 72.4% from its peak.

The brilliance of LooksRare and the risks of LOOKS

In this series of tweets divided into 6 explanations, Zodd attempted to clarify that the ETH worth over $30 million corresponds to the salaries of more than 10 members of the LooksRare team over the past 6 months, and using Tornado Cash is a way to keep this team anonymous.

On February 7, LooksRare's official Twitter account posted a tweet welcoming 2 new members to the team, along with a chart of 14 members' nicknames and positions. This implies that prior to this, the platform had a total of 12 members, with an average monthly salary of $416,000. The salaries of this newly established NFT trading platform are indeed not low.

LooksRare's published member information

As "tradfi guy" pointed out, the brilliance of LooksRare lies in the fact that the team's earnings are not realized by selling LOOKS but by staking LOOKS to earn trading fees.

Staking the governance token LOOKS to receive 100% of the trading fee dividends is one of the reward rules established by the LooksRare platform. The platform charges a 2% fee on all NFT sales (excluding private sales), and the fee is not calculated in LOOKS but settled in WETH. All WETH collected from these fees is distributed to LOOKS stakers on a 24-hour cycle.

So how is LOOKS distributed?

According to LooksRare's public distribution metrics, 12% of the total supply of 1 billion LOOKS was airdropped to trading users of the NFT trading platform OpenSea, which is also a way for the platform to attract traffic from competitors; 64.7% of LOOKS will be provided as rewards to trading users, liquidity contributors, and LOOKS stakers, with a large number of users already boosting their volume on the platform for rewards; additionally, the founding team holds 10% of LOOKS, the platform treasury holds 10%; and 3.3% of LOOKS is allocated for strategic sales.

According to LooksRare's regulations, all LOOKS holders can stake to receive fee dividends, and the team holding 10% of the total supply of LOOKS is certainly included. The LooksRare team members and users are on the same starting line in terms of how they earn profits, and this profit is in "hard currency" like WETH, rather than the volatile governance token LOOKS.

From this perspective, the LooksRare team has not sacrificed the interests of LOOKS holders, and fee income has always been the core profit source for trading platforms. The platform attempts to break OpenSea's monopoly on profits and share platform earnings with trading users.

In contrast, the value and function of LOOKS have become clearer after this incident. Its governance function may far exceed its economic function and is firmly tied to NFT traders on LooksRare, meaning it is more valuable to trading users on the platform. In other words, purely speculative users trading LOOKS need to bear the volatility risk of the secondary market.

After the "cashing out" storm involving LooksRare team members, although the co-founder responded to the controversy, some people were not satisfied with this answer, demanding that the team buy back LOOKS tokens instead of retaining ETH worth millions. For such demands, some have raised different opinions, stating, "Users do not have the right to demand that team members use their salaries to buy back governance tokens, but the use of the platform's treasury funds should be disclosed."

Todd supports team members using Tornado Cash on the grounds of protecting privacy and decentralization, while for users, their expectation for "more transparency" in the use of LooksRare platform funds is also a reasonable voice. After all, differentiating from OpenSea is precisely why the outside world is optimistic about LooksRare. Ambition is not just a superficial label; the platform needs to provide trustworthy governance methods to gain the trust of its users.