LooksRare V.S. X2Y2: Who Will Unseat the Monopoly by Issuing Token?

Author : @CryptoScott_ETH, @RealResearch_DAO

The emergence of NFT has created a new digital consumption and investment scene. As an information intermediary, NFT Marketplaces play an impotent role in the NFT’s industry chain. Opensea, the leading NFT marketplace occupying 99% market share, plans to go public, drawing backlash from collectors and Crypto communities who want an Opensea token drop instead. Seizing the opportunity, more and more competitors are springing up, trying to unseat the monopoly by issuing token. Among them, LooksRare and X2Y2 have attracted a lot of attention recently. In this article, we will compare LooksRare and X2Y2 in all aspects.

1. Tokenomics

1.1 Token Allocation

The Allocation of LOOKS and X2Y2 token, source: LooksRare, X2Y2
The Allocation of LOOKS and X2Y2 token, source: LooksRare, X2Y2

The token allocations of them are roughly the same. The first biggest difference is the Presale and the second is the liquidity management.

Strategic Sale / Presale

  • LooksRare: 33,000,000 (3.3% of total supply) LOOKS, the native token of LooksRare, were sold for 69 KOLs found as early investors and the price is unknown.
  • X2Y2: 15,000,000 (1.5% of total supply) X2Y2, the native token of X2Y2, divided into 1,000 shares (15,000 X2Y2 per share), each sold for 1.5 ETH through Initial Liquidity Offering (ILO). A total of 1,500 ETH was raised. The participants of ILO were able to mint AYOR, an NFT Collection issuing by X2Y2, for free. The price of ETH at the ILO was $3,000, meaning that the presale price of X2Y2 was $0.3.

Liquidity Management

  • LooksRare: 17,000,000 (1.7% of total supply) LOOKS are allocated to Liquidity Management. At the beginning, 5,000,000(0.5%) LOOKS token was used to incentivize liquidity for the LOOKS token by giving rewards for users that stake LOOKS-ETH Uni LP tokens over the next 70 days. The remaining 12,000,000(1.2%) tokens may be paired with ETH and deposited into Uniswap as the initial liquidity. As more and more CEX, such as FTX and OKX, listed LOOKS, the team discontinued the Liquidity Rewards Program on day 37 (Approximately 2022/02/15) and reallocate the leftover tokens to pair with ETH to add as Uniswap liquidity themselves.
  • X2Y2: 15,000,000 (1.5% of total supply) X2Y2 are allocated to Liquidity Management. 10,000,000 (1%) X2Y2 tokens + 1,500 ETH raising from ILO were deposited into Uniswap to bootstrap the initial liquidity, meaning that the initial market price of X2Y2 was $0.45. The LP tokens generated by bootstrapping liquidity were burned to lock the liquidity permanently. The remaining 5,000,000 (0.5%) X2Y2 are used to incentivize liquidity for the X2Y2 token by giving rewards for users that stake X2Y2-ETH Uni LP tokens.

1.2 Release Schedule

Release Schedule of LOOKS Token, Source: LooksRare
Release Schedule of LOOKS Token, Source: LooksRare
Release Schedule of X2Y2 Token, Source: X2Y2
Release Schedule of X2Y2 Token, Source: X2Y2

Presale / Strategic Sale

  • X2Y2: unlocked linearly per block in 360 days.
  • LooksRare: locked until day 180(Approximately 2022/07/11).

It is noteworthy that, both can share the trading fee in WETH, no matter if they are locked or unlocked.

Trading Reward

  • LooksRare: 4 phases with differing reward rates 30 days(1/11-2/9),90 days(2/10-5/11),240 days(5/12-2023/1/7),361 days(2023/1/8-2024/1/3)
Trading Rewards of LooksRare, Source: LooksRare
Trading Rewards of LooksRare, Source: LooksRare
  • X2Y2: unlocked linearly per block in 720 days.
Trading Rewards of X2Y2, Source: X2Y2
Trading Rewards of X2Y2, Source: X2Y2

The trading reward decays successively like LooksRare will have a certain impact on the trading volume and the price of LOOKS token during each phase change. Unlocked linearly per block in total trading reward period like X2Y2 can avoid the impact.

1.3 Strategy to Incentive Trading Volume

There are two strategies to incentive trading volume

  • Trading Rewards: bilateral Incentive, incentive buy side and sell side.
  • Listing Rewards: unilateral incentive, just incentive sell side.

LooksRare

  • Trading rewards → Trading rewards + Listing rewards
    • Trading Rewards: 2022/01/11 - 2022/04/19, buyers and sellers receive equal incentives based on the weighted average distribution of trading volume.
    • Trading Rewards + Listing Rewards: 2022/4/20 - , In the second stage, 250,000 will be allocated from the 1,361,587.5 trading rewards for listing rewards; the third stage will continue with Listing Rewards, with 200,000 per day, of which 100,000 is obtained from the original Trading Rewards, and the other 100,000 is obtained from Treasury ( 5/12-6/11). After June 11th, the Treasury part will be adjusted according to the situation.

X2Y2

  • Listing Rewards → Trading Rewards
    • Listing Rewards: 2022/02/15 - 2022/03/31, Using Complex formulas with centralized parameters leads to frequent reward errors.
    • Gas Rebate for Sales: 2022/04/1 - 2022/04/30, Cancel Listing Rewards, and instead reward based on Gas spent on trading.
    • Trading Rewards for Sales: 2022/05/1-2022/05/13, Rewards are allocated to sellers based on trading fees.
    • Trading Rewards for Buyers and Sellers: 2022/05/14 - , Sellers can share 604,902.80 X2Y2 tokens based on trading fees, and the remaining 20,000.00 X2Y2 tokens go to buyers, based on points (AYOR holders can boost points).

From the incentive strategies of them, it can be seen that everyone is more inclined to incentivize the sell side. X2Y2 currently has more tokens used for rewards every day that it can change the incentive policy more flexibly.

1.4 Token Value Capture

Sharing Trading Fees Revenue

Both of LooksRare and X2Y2 share 100% of trading fees revenue with their token holders who lock LOOKS / X2Y2 tokens in the Staking Pool.

Earning Staking Rewards

  • LooksRare: Divided into four phases, the first phase rewards 1,228,500 LOOKS per day, and the reward is halved for each new stage.
  • X2Y2
    • Plan: Divided into four phases, the first phase rewards 1,235,000 X2Y2 per day, and the reward is halved for each new stage.
    • Reality: Due to the wrong parameter setting, 56% of the staking rewards were distributed in the first phase. X2Y2 had to lower the rewards of the third and fourth stages.

Others

  • X2Y2: Investors who participated the ILO can mint an AYOR NFT for free. The AYOR holders can enjoy more benefits in the future which may dilute token holders’ equity.

2. Material Events

LooksRare

  • 2022/1/11: NFT Marketplace and Token launch; The first stage of trading rewards was started, with 2,866,500 Looks/day; Trading volume surpasses Opensea; FTX lists LOOKS spot and perpetual futures.
  • 2022/1/13: OKX lists LOOKS for spot trading.
  • 2022/2/8: The team has transferred 23116WETH ($73M) to the Tornado, a decentralized protocol for private transactions, which was fermented in the media.
  • 2022/2/10: Phase 2 of rewards begins.
  • 2022/3/30: Stakers can automatically compound WETH rewards into LOOKS tokens by LOOKS Compounder.
  • 2022/5/12: Phase 3 of rewards begins.

X2Y2

  • 2022/2/4: X2Y2 Beta Launch,0 trading fees & 0 royalties.
  • 2022/2/6: Update tokenomics.
  • 2022/2/14: ILO.
  • 2022/2/15: Add Liquidity to Uniswap and burn the LP.
  • 2022/2/15: Official Launch, 2% trading fees.
  • 2022/2/16: Pause Airdrop claim due to some errors.
  • 2022/2/18: Reopen Airdrop claim and update the requirements for the claim.
  • 2022/2/18: @bitfish1, a Chinese crypto influencer, questions the security of X2Y2’s smart contract.
  • 2022/2/19: Update smart contract and apologize to the community.
  • 2022/3/3: Listing Rewards claim period extends to 14 days, and the rewards not claimed within 14 days will be burnt.
  • 2022/3/12: Update the algorithm of Listing Rewards.
  • 2022/3/18: Staking Reward Investigation Report shows that 56% of Staking Rewards has been allocated to staker in the first stage due to calculation error.
  • 2022/3/26: Burn 16 million X2Y2 tokens which haven’t been claimed within 14 days period.
  • 2022/3/30: Airdrop claim expires and there are still 91,956,222 X2Y2 tokens haven’t been claimed. The ownership of the Airdrop contract has been burnt meaning that the tokens will never circulate.
  • 2022/4/1: Listing Rewards is replaced by Gas Rebate. 0 platform fee for sellers in April.
  • 2022/5/1: Gas Rebate is replaced by Trading Rewards. 0.5% platform fee for sellers in May.

3. Competitive Strategy

Compared to Opensea, LooksRare and X2Y2 both have NFT scarcity display, bulk purchase bulk shelf, Ethereum chat room and make offers to the entire Collection.

  • LooksRare competes mainly by optimizing its product strategy
    • Auto-refresh Activity, easy for users to keep an eye on sniper sweeps
    • Collection creation with manifold which can be easier to issue on-chain NFT (NFT issued by Opensea's Lazy mint will not be on-chain until it is sold).
    • One click to higher the selling price.
  • X2Y2 competes by optimizing the product and price war strategy
    • Trading fees as low as 0.5%, and may rise gradually according to price elasticity subsequently.
    • To get traffic from the project side, it requires NFT project go to X2Y2 to set royalties so that the project side could receive royalties. The majority of blue-chip NFT project currently do not set royalties, so users trading in X2Y2 can save money.
    • Different collections can be added to the shopping cart and purchased with one click.
    • Private Sale, designated user specified price for trading, free of fees and royalties forever (equivalent to OTC)
    • Warning that this NFT may not be traded on Opensea.

4. Valuation Analysis

4.1 LooksRare Valuation Analysis

Since there are a large number of wash trades, it is necessary to restore the real trading data, providing two methods to restore.

  • Filter out trades where the same NFT was traded back and forth between two wallets. After filtering the wash trades, the highest daily trading volume reached 70 M, currently maintained at about 2 - 5 M.
LooksRare Wash Trades Filtering, Source: DuneAnalytics(@hildobby)
LooksRare Wash Trades Filtering, Source: DuneAnalytics(@hildobby)
  • Excluding trades without royalties, it peaked at 70 M at the end of April and is currently holding at 2 - 5 M.

Comparison of Opensea and LooksRare valuations after filtering the wash trades.

LooksRare trading volume without the wash trades is 10% of Opensea, relative valuation method estimates LOOKS valuation at 13.3 B * 10% * 80% = 1.064 B. Since now and the start of phase 3 Trading Rewards which will last 240 days, there will be no price impact brought by Trading Rewards halving in the short term. Therefore, LOOKS valuation is cheaper than Opensea.

4.2 X2Y2

Since most of X2Y2's blue-chip Collections do not have royalties, it is not possible to restore the real trading data by excluding trades without royalties, and both of them have Trading Rewards incentive, so we compare LooksRare’s and X2Y2’s total trading volume with the wash trades.

Wash Trading Analysis

  • X2Y2 Daily share of 604,902.80 X2Y2 for sellers and 20,000.00 X2Y2 for buyers, i.e. only 3.3% rewarding buyers negligibly, equivalent to unilateral rewarding sellers.
  • Looks Buyer and Seller share 437,468.75 LOOKS per day and listing share 200,000 LOOKS.

In X2Y2, only the seller can receive the reward. In Looks, buyers and sellers can receive the reward based on trading volume. Therefore, for the same reward case, Looks can reduce half of the trading operations.

  • Breakeven Trading Volume:
    • LooksRare = 290,233.125 / 2% = 14,511,656.25
    • X2Y2 = 124,980.56 / 0.5% = 24,996,112

With the same trading reward, X2Y2 contributes more volume (LooksRare:X2Y2 = 36%:64%) and more wash trading migrates to X2Y2 after the end of LooksRare phase 2 Trading Rewards (2022/5/11), and this situation is sustainable.

LooksRare & X2Y2 Volume, Source: DuneAnalytics(@cryptuschrist)
LooksRare & X2Y2 Volume, Source: DuneAnalytics(@cryptuschrist)

Valuation multiple comparison

The token incentive policy of both sides will not change much for a long time, so we will take the recent trading data for comparison, with the current daily trading volume of 5k ETH for LooksRare and 10k ETH for X2Y2.

LooksRare & X2Y2 Volume, Source: DuneAnalytics(@cryptuschrist)
LooksRare & X2Y2 Volume, Source: DuneAnalytics(@cryptuschrist)

X2Y2 trading fees is cheaper compared to LooksRare. The fee can be adjusted later based on the measured price elasticity. the fee change may affect the trading volume, but it has little impact on the overall revenue, so the current revenue is considered sustainable. Therefore, X2Y2 valuation is cheaper than LooksRare.

Summary

  • Since LooksRare and X2Y2 were launched, they have seized a part of Opensea’s market share. We believe that issuing tokens is an effective way to unseat the giants.
  • From the tokenomics, the four-stage trading rewards of LooksRare has a large impact on trading volume, while the rewards of X2Y2 are smoother that have less impact on it; both exchanges are focusing on incentivizing the sellers' market.
  • In terms of material events, X2Y2 has had several “black swan events” that have caused the token price to overshoot.
  • In terms of competitive strategy, LooksRare mainly through product optimization strategy, X2Y2 through not only product optimization but also price war strategy. Noteworthily, X2Y2 has a new traffic channel by asking NFT project owners to set royalties.
  • The Valuations of LooksRare and X2Y2 are much cheaper than Opensea’s, therefore, there is a possibility of underestimation of them. LooksRare has gained the support of some KOLs and exchanges and has a certain popularity, while X2Y2 has less popularity and hasn’t been listed on major exchange, so there is more room for growth than LooksRare.

Risk Warning

  • A bear market with less than expected growth in the NFT market.
  • Fierce competition in the industry and less-than-expected platform revenues.
  • Black swan events due to potential contract security risks.

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