Clever NFT traders exploit crypto’s unregulated landscape by wash trading on LooksRare

LooksRare was launched Jan.10, and its NFT marketplace, which has been in operation since January 10, has attracted a lot of attention. Not only were its daily trade volumes more than twice Opensea’s, but it also has become the new playground of wash traders.

Wash trading refers to a series trading activities that involve the same trader buying or selling the same instrument simultaneously. This creates artificially high trading volumes and manipulates the market price of the asset.

Wash trading in traditional financial markets is illegal in the United States since 1936. The most recent scandal surrounding wash trading was the manipulation of LIBOR 2012 in the United States.

Wash trading was previously highly regulated and monitored closely by regulators and exchanges. However, it appears to have found a new way in the unregulated crypto market and NFT marketplaces such as LooksRare.

A community-owned marketplace can be a double-edged sword

LooksRare was founded with the intention of sharing profits within the community. Trading rewards and token incentives were the key to attracting high volumes. However, these same factors have become the weapon wash traders use to flood the market.

LooksRare seems to have anticipated the possibility of wash trading, which could be instigated by lucrative trading rewards. However, according to LooksRare Docs they believed that the trading platform fees and royalty fees would make it too expensive to encourage wash trading. Surprisingly, the reality is quite different.

LooksRare vs. OpenSea volume, unique users. Source: Dune Analytics @elenahoo

LooksRare vs. OpenSea volume, transactions. Source: Dune Analytics @elenahoo

These graphs show that although daily users and transactions from LooksRare represent a small fraction (2% to 3%) of OpenSea’s total, the volumes are greater than triple, or even quadruple OpeaSea’s.

Jan. 19 is an example of the average trade volume for LooksRare. On OpenSea, it is only $3,000. The average trade volume per transaction on LooksRare is approximately $415,000, while it is only $1.676 for OpenSea.

The data shows that there is only a small number of users who execute trades in excess of hundreds of thousands of dollars. This certainly does not sound like a place for NFT buyers. Wash traders can still find a sweet spot for profit and cost with a 2% platform and royalty fee as well as the volatile gas fee from Ethereum.

Let’s take a look at the profits that wash traders make from selling and buying the same NFT.

How are trading rewards allocated

LooksRare’s trading reward allocation. Source: LooksRare

Over four phases, LooksRare’s trading reward are spread over 721 days. The daily reward in Phase A is the largest, with the maximum reward being received in the first 30 days. Phase C has the highest total reward (240 days).

LooksRare’s trading reward allocation. Source: LooksRare

A trader can receive trading rewards for any day by adding the daily fixed LOOKS trading reward (2.866,500 LOOKS) to the trading volume, and the trading volume as a whole. The trader who creates more trading volume will receive more rewards. This creates great incentives to wash trade large volumes.

A portion of platform fees can be earned by traders based on how many LOOKS they stake, as well as staking rewards or liquidity provider rewards. The other rewards, which are not as significant as the trading rewards from wash trading, will not be taken into consideration.

A closer look at a trader who trades $90 million daily

January 19, 2022 was the largest single-day LooksRare trade volume. The graph below shows two wallets that had more than $90,000,000 USD in trades on that day. These two wallets show back-and-forth buy and sells, which clearly indicates wash trading.

Top 10 Traders with the highest volume day — January 19, 2022. Source: Dune Analytics @elenahoo

Wash traders often choose NFTs that have 0% royalty fees such as Terraforms or Meebits. This means that the only costs associated with the trade are the platform fee of 2% and the gas fee. This particular example shows that the trader purchased and sold Loot multiple time on Jan. 19 using two wallets at a cost of approximately 6,500 times the floor.

Here’s an example of Loot washing. Source: LooksRare

Based on the trading reward allocation, and assuming that the two wallets belonged to the same trader; the trading volume was $186,000,000 on Jan. 19, and the trading reward earned is $6.2 Million and the fee is $3.7 Million (using $4.9 LOOKS market price, and 2% platform fees), which results in a net profit $2.5 million. This is equivalent to 1.34% of daily returns or 12,661% annual return.

The whale trader’s two wallets will allow you to buy the amount you need on January 19, 2022. Source: Dune Analytics @elenahoo

The whale trader’s two wallets will allow you to sell the amount on January 19, 2022. Source: Dune Analytics @elenahoo

LooksRare’s wash traders receive the majority of trading rewards

Reward claims made within 24 hours of the time of writing (Jan 24, 2022). Source: Dune Analytics @elenahoo

The top 10 traders received 29% of the LOOKS rewards in the last 24 hours (as at Jan.24). Similar results were seen when we look at Jan. 19, the biggest trade volume day. 28% of the LOOKS rewards went to top 10 traders.

Reward claims made January 19, 2022 Source: Dune Analytics @elenahoo

The majority of the rewards go to a few wash traders. This is not in line with LooksRare’s philosophy “By NFT People, For NFT People.” The majority of the profits go to a small number of traders.

Delphi Digital rightly pointed out that this model is not sustainable in the long-term. The trading volume will likely drop as the wash traders leave the business when it becomes unprofitable.

LooksRare has much to do to be competitive with OpenSea when it comes to user numbers and NFT trade volumes. It will be fascinating to see how dynamic changes occur when the trading reward drops by half in Phase B, which begins on February 10, 2022.

com. You should do your research before making any investment or trading decision.
https://cointelegraph.com/news/clever-nft-traders-exploit-crypto-s-unregulated-landscape-by-wash-trading-on-looksrare

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Donna Burk– Business News My Name is Donna Burk and I am also the main source from the ‘Dailynewssheet.com’ of all the exclusive and most delicate visualization of the activities in the business sector. My first step towards this journey was taken in the very early years of my life. I started with an independent financial consultant. However, I only had almost 4 years of skills and experience in this market. I have always been a free personality and like to fly one place to another, to explore more and more. Moreover, this passion and craze of traveling gave me a chance to report a section for best news associations. Last but not least, I am presently working full-time as an editor.

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