From OpenSea to LooksRare to X2Y2, and a New Dragon Quest Game

Bitpush News
15 min readFeb 19, 2022


Quick Take

  1. Background
  2. The rise of OpenSea
  3. The story of LooksRare
  4. Disruptor X2Y2 sheds light on the nature of NFT platforms
  5. Summary

1. Background

“People’s Marketplace” or “Greedy Monopolist”?

Despite monopolizing nearly 90% of the NFT trading market share, OpenSea’s road to becoming a giant has not been smooth. They initially adhered to the belief of an “NFT marketplace with everything for everyone” despite all of the challenges, OpenSea fought and survived the crypto winter, and achieved its mainstream status.

In February 2022, the average daily transaction volume of OpenSea is around $250–300 million. Based on its 2.5% trading fee, the average daily income from the trading fee is around $6–7 million, making OpenSea’s monthly income easily over $100 million.

It is true that the OpenSea development team has contributed a lot, but without a large number of loyal NFT users in the crypto field, how could OpenSea have achieved its current glory? Nonetheless, the NFT giant seems to have forgotten that users should be rewarded for their contributions, it hopes to use the profits made on the chain to go public and embrace traditional capital.

On the road of development, OpenSea has drifted farther and farther from the beliefs upheld by Web 3, and the “people’s marketplace” finally turned into a “greedy monopolist” under the power of capital.

The Dragon in the garb of the “People”

If there is a dragon in the story, there will be a hero, so LooksRare was born, “100% transaction fee is shared by LOOKS token stakers”, “huge airdrop”, “By NFT people, For NFT people”… The dazzling marketing slogans and the shout-outs from KOLs make people seem to have seen a new round of Dragon Quest stories in a trance, but is that really the case?

The on-chain data finally exposed LooksRare. On February 7, Twitter user TradFi guy (@0xShitTrader) jumped out, questioning the purpose of the LooksRare team’s transfer of nearly $73 million, and the plausibility of the source of revenue.

According to the on-chain data he collected, LooksRare, which claims to share 100% of transaction fees with stakes, not only staked a large number of tokens for the project team and the so-called “strategic investors” (ie KOLs, a total of 69) in advance, but also withdrew 9169 WETH (about $25 million) since January 26.

As of February 7, a total of 23,116 WETH (about $73 million) had been withdrawn and went directly to Tornado, one of the best-known coin mixing services usually used for money laundering.

Maybe we shouldn’t hold a negative attitude towards cashing out, but how can the project get nearly 50% of the platform’s revenue share through only 10% of the tokens released linearly? This is where the real doubt lies, and that number doesn’t even include the KOL investor segment. This has completely turned into a game of giant whales harvesting retail investors, creating an “invisible Ponzi game” and “sustainable ICO” with word games. (The process will be explained in detail below)

The so-called “hero” is just another “greedy monopolist”

LooksRare and OpenSea are essentially doing the same thing, which is to defend the vested interests of major players such as whales, project parties, and VCs. From a pure profit standpoint, this doesn’t seem to be wrong. But this is contrary to the original intention of Web3. Everyone who contributes to economical activities should have equal opportunities to match their efforts. Although this seems ideal, through effective token economics, reasonable risks exposure allocation, this is not completely impossible.

At this time, the third brave hero, X2Y2, came into being. The project started with “Inclusive Airdrop”, “No private sale” and “No trading rewards, no wash trading”, ideally calling it a social experiment and a game about demand and capital. As for the result, only time can tell the answer.

2. The rise of OpenSea

Devin Finzer, who graduated from Brown University with a major in computer science and has been working in the financial field for several years, originally planned to use the Wificoin project to work in the shared broadband field, but the emergence of CryptoKitties made him want to break into the NFT space. He saw the potential development trend of the NFT field and completely gave up Wificoin to devote himself to it. At this time, OpenSea was born.

OpenSea was not born with a golden spoon in its mouth as everyone imagined, and was even at a disadvantage. In the financing stage, OpenSea only attracted $2 million, while its competitor, Rare Bits, had already completed $6 million a month earlier. This is because the founding team of Rare Bits is alumni from the listed company Zynga, and traditional capital obviously prefers teams that have been successful.

Rare Bits has overwhelmed OpenSea in terms of capital strength for a long time. Actions such as “commission-free”, “gas rebate”, and cooperation with Crunchyroll to launch comic stickers have attracted many users in the short term, while OpenSea charges a 1% fee to survive, streamlines expenses, concentrates on platform applications, and hands over fate to time.

During the 2018 crypto winter, Rare Bits was countered by the money-burning strategy, quickly ran out of financing, and was eventually eliminated by the market.

“It was our willingness to be in the space for the long haul, regardless of the immediate growth trajectory. We wanted to build a decentralized marketplace for NFTs, and we were fine for it to be small for 3–4 years.” — — Devin Finzer

He did it, and this concept has accompanied OpenSea to grow into a giant in the NFT field.

In late July 2021, the well-known venture capital Andreessen Horowitz (a16z) conducted in-depth research on OpenSea and led OpenSea’s $100 million Series B financing, which was valued at $1.5 billion at that time.

Within two months after a16z announced the investment, the total volume of OpenSea transactions surged to $6.4 billion, and the platform fee income also rose.

In early December 2021, OpenSea founder and CEO Devin Finzer confirmed that the company was in discussions with investors to raise additional capital, including A16Z, Founders Fund, Coinbase, and Blockchain Capital. According to people familiar with the matter, it plans to complete a $1 billion financing at a $12 billion valuation.

Its chief financial officer, Brian Roberts, said OpenSea could soon have an IPO, meaning the company’s stake could be sold to the public on a stock exchange for the first time ever. Roberts told Bloomberg: “When you have a company growing as fast as this one, you’d be foolish not to think about it going public.”

However, due to the community’s crazy resistance to the IPO, OpenSea said it would suspend the IPO plan, but this is obviously just a delay. How could the institutional capital behind OpenSea compromise so easily with the community?

At this time, the community gradually woke up from the dream of OpenSea issuing a token. The once brave hero has already become a greedy dragon with the erosion of time and capital.

3. The story of LooksRare

First of all, let’s briefly introduce LooksRare, a self-proclaimed “community-first NFT marketplace with rewards for participating.” It was developed and launched by an anonymous team, and launched a “vampire attack” on OpenSea as a starting aid, which became an instant hit.

Vampire attack is a crypto-native phenomenon. The term originates from a marketing war that SushiSwap launched against Uniswap users using governance tokens and transaction fees as bait. The result was that Uniswap lost nearly $1.2 billion in liquidity in a relatively short period of time, and this huge amount of liquidity successfully helped SushiSwap complete its initial launch plan.

With its native token $LOOKS as a selling point, LooksRare is issuing airdrops to all NFT users who have traded at least 3 ETH on OpenSea within 6 months. There are nine levels of airdrops for $LOOKS tokens — The more transactions on OpenSea, the more $LOOKS tokens a user can claim.

The project party also displayed the entire token distribution ratio in a “transparent and open” way.

The holdings of the team and early strategic investors only account for 13.3% of the total number of tokens.

Thanks to this series of incentives and transparency in public documents, LooksRare’s trading volume reached $320 million on its launch day, twice that of OpenSea. Attracted by the subsequent trading rewards, within a dozen days after the launch, the trading volume of LooksRare has always ranked first on the NFT exchange.

Here, LooksRare still maintains the image of “the brave”. But after the project actually started, the problem gradually surfaced. According to the mechanism, LooksRare will reward all trading users with 2,866,500 LOOKS per day in the first month.

There are two main ways to monetize:

  • $LOOKS holders can stake their tokens to earn.
  • Buy eligible NFTs and get LOOKS rewards, the so-called “trade mining” (the series of NFTs have a transaction volume of more than 1,000 ETH)

The way the team obtains yield is very smart, which is not realized by selling LOOKS, but by staking LOOKS to obtain transaction fees. This is also the reason why their duplicity was discovered after a long delay.

First, let’s explore trade mining.

This reward mechanism seems to directly reward the basic behavior of platform participants — “trading”, but it does not touch the core of the NFT trading platform -”commodities”.

The logic of this incentive mechanism is very similar to the fact that some content platforms use “tokens” as incentives to encourage creation. The original intention was good, but the reward was used in the wrong place. The final result is that the mechanism will be abused, the basic behavior of platform users will eventually be distorted by incentives, a large number of users will participate in as “deal-hunters”, high-quality users cannot be retained, speculative users will also leave due to unprofitability, and the platform is completely reduced to a no man’s land.

LooksRare apparently went down a dead end, and the rewards of transaction mining eventually evolved into a game of “sweeping”. Although its transaction volume was consistently above OpenSea at the end of January, the average daily user count was only 1,000–2,000, while OpenSea’s user volume was stable at 40,000–50,000. The inflated trading volume per capita is the hallmark of LooksRare’s bubble.

If the development team has no way to eradicate this issue as soon as possible, it will be doomed to be countered by trade mining.

Next, let’s dive into its staking mechanism.

Although the project disclosed the entire token distribution, no one clearly informed users that they had participated in the staking in advance before the airdrop, including “strategic investors”.

If other users have not participated, team 2%, treasury 1%, and private sale 3.3% are fully pledged in the pool. This actually means that the vast majority of transaction fee shares and looks rewards are divided between whales and project parties.

The picture below shows the 20 million $LOOKS staked by the project side.

And 10 million $LOOKS staked by its Treasury.

Then came the story mentioned above that from January 26 to February 7, the project cashed out nearly $73 million through Tornado.

KOL Cobie also expressed that LooksRare’s token economics are similar to a ponzi ICO, where each participant is the base of a new pyramid.

Invisible Ponzi game

Indeed, it seems that every participant will benefit, but in essence, it is still a Ponzi game, as time goes by, the reward decreases, and it will take longer for each participant to pay back or earn money.

The early investors have already left the market with more than ten times the WETH, and their $LOOKS will continue to stay on the platform. As long as the platform continues to operate, these $LOOKS will bring them continuous yield, they also have no intention of selling, because the current returns have already covered all the risks.

With the passage of time and the increase of participants, the high proportion of yield occupied by the team and early strategic investors will gradually be diluted, and at this time, the vested interests have already made a lot of money.

So eventually someone will jump out and say, “ Look, how fair the $LOOKS are in the end! Retail investors are getting more and more points!”

This statement is right, but not entirely true. Every time the bottom of the new layer of the pyramid is completed, the proportion of the pyramid tip will naturally become smaller and smaller, and the bottom of this layer will continue to be responsible for carrying the entire pyramid.

This does not mean that it is a shameful thing, because to a certain extent, human society can also be called an invisible Ponzi structure.

Just from common sense, when people get enough benefits, they are often reluctant to work hard.

LooksRare has very good token economics, which has to be amazing. But the problem is that the project team used it in the wrong direction of incentives, like cutting down a tree with a well-crafted nugget pick, and the final result is likely to be unsatisfactory.

4. Disruptor X2Y2

OpenSea and LooksRare can be seen as a new round of battle between competitors:

  • As a market leader, OpenSea did not take the community seriously and ultimately chose to go public with an IPO rather than benefiting community users.
  • LooksRare seems to be breaking this mold, as it does take the community seriously, but it’s just the KOLs and whales in the community. It seems that its mechanism gives the community a way out, but this way out is to build a new base of the pyramid by distributing a small amount of interest to retail investors. It may work for a very long time, but it does not solve the pain points of product demand.

OpenSea, LooksRare’s approach from the perspective of vested interests is not a problem from the perspective of traditional company development, but it gives X2Y2 the soil for survival.

X2Y2 appeared in the image of an OpenSea challenger, focusing on the concepts of fair sale, NFT listing, and mining.

X2Y2’s token distribution model:

  • Initial Liquidity Offering 1.5% (1000 users, per capita 1.5ETH, total 1500ETH)
  • Liquidity management 1.5 %
  • Team 10 %
  • Airdrop 12 %
  • Staking reward 65 %

As opposed to LooksRare, X2Y2 abandons the way of trade mining, thus avoiding falling into an infinite loop of trading rewards-washing trading-withdrawing and smashing the market. X2Y2 finally chose the strategy of “token staking” + “Listing as Stacking”.

The yield is huge at the beginning (the APR once soared to 12357.5%), and gradually declines in the later period.

What’s really worth discussing is its “ Listing as Stacking” innovation.

Listing as Stacking

The core weapon used by X2Y2 to compete with OpenSea is “Listing as Stacking”. When users list NFTs on X2Y2, they can regularly get a certain percentage of X2Y2 tokens as rewards according to the rules, and the ratios are shown in the figure below.

In short, if you list a blue-chip NFT (have a large transaction volume and high market recognition) and the price is low enough, you can get higher rewards.

The subtlety of this design is that it locks in the core needs of the NFT trading platform — high-quality trading products, not the volume locked by LooksRare.

Unlike pure trading volume, it is difficult for high-quality trading products to create false bubbles by “wash trading”.

But listing high-quality collections requires trust in the platform, as the listing of expensive collections faces many risks such as code loopholes.

And “Listing as Staking” is the key to exchanging interests for trust from the initial stage, and once the trust is built, it can be spread and enhanced.

Users who are really willing to put good products on the platform are rewarded because they have a positive push for the development of the platform, and these rewarded users will be more willing to put their collections on X2Y2 and transmit this trust. With a good NFT and a reasonable listing price, it will naturally attract effective transactions, the transaction volume will increase, and the platform popularity and reputation will also increase, thereby attracting more NFT players to list and contribute transactions at reasonable prices. In the end, a positive feedback effect is formed, which continuously pushes the platform forward.

This is also the magic weapon for X2Y2 to defeat LooksRare.

Potential problems with X2Y2:

It is true that X2Y2 is currently facing a lot of problems, such as the external doubts caused by the suspension of airdrops, the public controversy surrounding “made in china”, etc.

Questions from the outside world are the trust issue, which can be solved through multiple channels such as project auditing and user interaction at a later stage. This is a process that every project may go through.

The so-called “made in china” is a human nature issue to a certain extent, as stereotypes are the most annoying, but also the most common way of thinking, not everyone is willing to take the time to understand every new thing.

But this stereotype is not entirely a bad thing for teams that are willing to work seriously. If the team can prove itself and build trust with practical actions, it will become a driving force. Once people change their prejudices, they will eventually burst into a huge public opinion force.

It is inevitable for a novice to experience challenges, but staying true to the original intention and persevering along the way is the key to the transformation from novice to brave hero.

Working hard can turn defense into offense.

5. Summary

Let’s put these products aside for now and think carefully about the nature of NFT trading platforms.

Trading is inseparable from four cores: greater, faster, better, and more economical.

  • “Greater” and “Better” on the NFT trading platform represent whether enough high-quality NFTs have been listed, whether the prices are reasonable.
  • “Faster” is whether the platform itself is user-friendly enough.
  • “More economical” means lower fees and fewer transaction friction losses (relatively low priority)

The NFT trading is very similar to the second-hand market, and they have the following things in common:

  • The boundaries between buyers and sellers are blurred, and they are all consumers of corresponding products.
  • The trading needs are similar, and they all expect that there are plentiful and high-quality products on the market at reasonable prices.
  • Platforms need to be trusted to operate as intermediaries.
  • Expect low transaction rates and reduced frictional losses.

The difference between NFT and second-hand trading is that NFT does not have the problem of frictional losses, and what you see is what you get.

With this in mind, let’s look back at the three platforms:

  • OpenSea: In the early days, OpenSea grasped the two cores of “Greater” and “Better”, and carried out long-term accumulation around the product itself. In an underdeveloped market, an easy-to-use platform will naturally attract high-quality products and traders, resulting in the flywheel effect described above. OpenSea eventually grew into a giant, and is now very solid, thanks to its unshakable collection of varieties, almost every NFT discussed on the market can be found on OpenSea, and usually at reasonable prices.
  • LooksRare: Efforts have been made on the two cores of “Faster” and “More economical” that OpenSea does not pay much attention to, in order to break the monopoly of OpenSea. Now it seems that the effect is remarkable. But this efficiency comes at the cost of trust to a certain extent. While the project cash out through WETH, it also creates natural obstacles for itself in the two development paths of “Greater” and “Better”.
  • X2Y2: The core idea is to try to catch up with OpenSea as quickly as possible on “Greater” and “Better” through a good incentive model. Supplemented by “More economical”, combined with the advantages of small volume, it can quickly make up for the pain points of “Faster” in the later stage.

At present, X2Y2 has clearly grasped the core of the development of NFT trading platforms, that is, products. Players like LooksRare that rely solely on the wash trading will ultimately be short-lived, no matter how large the early user base is and how hot the marketing is. because these so-called “trading volumes” do not bring real value to platform users.

At this point, X2Y2 is very similar to the early OpenSea. Its long-term vision and patience in polishing products destined it to eventually be rewarded by the market, an ongoing process.

X2Y2 is also telling an incremental narrative, contributing to the interests of the early stage to attract more users to participate in the platform economy. High-quality NFT plus reasonable prices will benefit more users. In this process, the platform team survives only with fees and delivers more resources to the parts required for the development of the platform.

But no one can be sure, a good original intention, an experienced technical team, and an excellent economic model will definitely bring success, they just increase the probability of the project surviving.

No matter what the future holds, it is always fun to follow and learn more about projects like X2Y2, and we will continue to follow up and report.

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