Why two 'NFT nerds' built LooksRare — and where they want to take it next

OpenSea has dominated the non-fungible token (NFT) landscape since the NFT boom began last year, maintaining around 90% of trading volume.

Yet this month a new competitor launched, one that — unlike others previously — has managed to attract a significant amount of trading volume and has garnered some traction in the community. 

The launch of this new marketplace, called LooksRare, caught much of the crypto community by surprise. But it quickly grabbed attention of the NFT crowd by offering one thing that OpenSea doesn’t: a token. 

The token, whose ticker is LOOKS, was not only used to attract the attention of big spenders on OpenSea (who received it as an airdrop) but it was also used to incentivize trading on the platform. Anyone who makes a trade on the platform receives a share of a set number of tokens that are handed out each day, encouraging traders to make fake large trades to themselves (so they’re seeing large volumes without spending much).

Yet details about LooksRare remain scant. That includes information about its two anonymous co-founders — known as Guts and Zodd — and whether they were new to crypto or old hats.

But, as it turns out, these founders were no strangers to NFTs.

In an interview with The Block, a spokesperson for LooksRare explained that the co-founders are “NFT nerds” who have been active in the NFT ecosystem for a while now and are known under different pseudonyms. 

According to the spokesperson, the whole idea to create LooksRare came from the founders’ sustained frustration with using current NFT marketplaces and their desire to build something that suits their needs. On this basis, the founders intend to build features that the greater NFT community wants as well.

Rather than simply duplicate OpenSea and throw in a token, the founders elected to build a new marketplace from the ground up. “While it might look and feel similar to competitors, we realized early on that we couldn’t do what we wanted to do by just forking another existing project,” the spokesperson said.

In doing so, they developed the website and coded the marketplace’s smart contracts in a “modular way.” The spokesperson said this will help them make big changes to the site at a rapid pace. LooksRare also is designed to be able to support layer two networks, which are used for making faster and cheaper transfers of value. 

“We built it with the future in mind: LooksRare is [layer two] compatible out of the box… we just haven’t got around to it yet!” they said.

What’s being done about wash trading

Since LooksRare has gone live, it has seen huge volumes.

According to The Block’s Data Dashboard, LooksRare has seen $1.77 billion in volume so far this month and it only launched on January 10. By comparison, OpenSea has seen around $3.11 billion in volume this month. This has also resulted in $176 million in revenue for LooksRare in the last 30 days — which is handed out to token holders — compared to just $105 million for OpenSea, per TokenTerminal.

Yet while introducing a token brought attention, new users and volumes — it has also incentivized those wanting to game the system via fraudulent trading. 

The so-called wash trading, in which traders are buying and selling the same assets in order to record high trading volumes, has been focused primarily on Meebits, Terraforms and Loot, since these NFTs are eligible for 0% royalties to the creators. The wash trader only has to pay the 2% marketplace fee (from which they may even get some kickback) and in return, they receive plenty of LOOKS tokens as a reward for their high trading volumes.

As a result Meebits — which normally sell for 5 ETH — are selling for 50 ETH or more on a constant basis.

This wash trading activity can be seen on data tracker Cryptoslam. It shows that these three NFT collections have seen breathtaking rises in sales volume, with volumes up between 22,000% to 35,000% this month — with most of the activity on LooksRare. The transaction data also shows sales for multiple times the going rate for each NFT.

LooksRare takes the view that such wash trading is a gamble that might not pay off and one that should become unprofitable over time. The project’s spokesperson said that the practice is risky because traders don’t know how much volume other traders are going to make. 

“Just within the first week of the platform’s launch, this kind of farming has actually been unprofitable for many who attempted it,” the spokesperson said.

They added that the site is preparing updates designed to make this kind of wash trading less efficient. But they wouldn’t specify details.

Despite the rampant wash trading, the mysterious team behind LooksRare remains convinced that token incentives are a good thing, according to the spokesperson. “Right now, the monopoly in the NFT market space means that the majority of volume and the majority of marketplace fees benefit only a select few actors. We envision a near future where the fees from NFT trading actually benefit the NFT community itself."