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NFT users are selling to themselves to generate buzz

A deeper examination at the LooksRare platform, which has swiftly risen to the top of the non-fungible tokens (NFT) marketplace by trade volume, reveals that the majority of the activity is really people selling tokens to themselves in order to earn more coins.

During the peak of the NFT boom, two anonymous co-founders – Zodd and Guts – started the platform in January as a competitor to industry leader OpenSea. According to a blog post at the time, the site aimed to add additional features to entice NFT fans. Almost all of these projects have centred on the incentive programme based on the Looks token, which is given to active platform users.

According to data produced by NFT tracker CryptoSlam, around US$18 billion (RM76 billion) of trading volume on the platform, or about 95% of total activity, can be ascribed to what’s known as wash sales. When it comes to regulation, the transactions are considered as one of the numerous grey areas in crypto. The sales are done in this scenario to gain fresh tokens rather than to inflate NFT values to entice naïve buyers. The fees collected by each transaction support the marketplace.

At the same time, LooksRare has effectively helped to disguise the NFT market’s cooling demand. According to data from Dune Analytics, total revenues on OpenSea have decreased every month since January. According to DappRadar statistics, the site’s sales volume has dropped 67 percent in the last 30 days. The number of traders has dropped by 23%.

While earning tokens is a big part of DeFi, it’s a relatively new function on NFT networks. Last year, Rarible was one of the first to propose the concept. The fees paid by LooksRare are likewise transferred to Looks holders. Some legal experts feel the wash trading that drives the LooksRare platform’s activity is illegal. “I don’t care if it’s equities, bonds, bitcoin, NFTs, or baseball cards,” said David Silver, a crypto attorney in Coral Springs, Florida. “Wash trading is a type of market manipulation in which an investor sells and buys the same instrument at the same time to produce fake, misleading activity in the market.” Representatives from LooksRare could not be reached for comment.

According to CoinMarketCap data, the price of the Looks token more than tripled in January before plummeting to slightly above its launch price. A growing number of sites are adopting the DeFi-like approach in an attempt to steal NFT market share from OpenSea. Fees for LooksRare are similarly lower, at 2% against 2.5 percent for OpenSea. “Wash trading is a type of market manipulation in which an investor sells and buys the same instrument at the same time to produce fake, misleading activity in the market.”

Representatives from LooksRare could not be reached for comment. “It appears that organic trade in LooksRare is expanding,” Pedro Herrera, a senior data analyst at DappRadar, stated. “Selling pricey NFTs like BAYC on LooksRare rather than OpenSea can result in a one to two ether difference in the seller’s pocket. As a result, it appears that the NFT community is gradually embracing alternatives to the incumbent.”

LooksRare remains a modest marketplace for NFTs outside of Looks token-related trade, according to tracker Nansen, compared to OpenSea, which has around 10 times more daily active users.