Competitors in the tokenized NFT marketplace competition are still rare, with only a few attempting to dethrone OpenSea. Although LooksRare and X2Y2 were the first to release governance tokens, their usefulness during the current down market needs to be seen. The question of whether token rewards can properly attract persistent users continues, especially in light of wash trading concerns and volatile market circumstances. This article will examine how these platforms have performed since their debut and compare their progress toward being the go-to NFT platform.

Current NFT marketplace landscape

We shall define wash trading for the sake of this article. Please be aware that these definitions may differ from those used in other publications since the data displayed here explicitly reflects the definitions listed below. Wash trading is defined as follows: The seller and buyer's wallet addresses are both owned by the same person, and the NFT purchased returns to the seller's address and/or. The seller and buyer intend to influence market participants or marketplaces by altering the value or volume of an NFT in order to benefit from trade incentives.

Despite making up a significant proportion, transactions inside no-royalty collections on NFT markets will not contribute toward wash trading. To obtain a genuine sense of how much is going on, a tougher wash trading filter is necessary.

Source: Delphi digital

With equal shares of RARI incentives going to sellers and buyers for participating in the community, Rarible was the first NFT marketplace to test market liquidity mining. Due to this, volume increased exponentially over the course of six months, reaching NFT volume domination of 41% in December 2020, the bulk of which was wash trading.

Rarible's venture, however, was a complete failure since the incentive paid to wash trade was higher than marketplace fees. NFT enthusiasts and traders excitedly traded on OpenSea in anticipation of the platform releasing a native token when Rarible's trading incentives began to decline. OpenSea dominated NFT volume on Ethereum, and market share reached 98% in early January 2022 despite widespread criticism surrounding centralized operations, self-serving fees, and regular phishing attempts.

With the aim of stealing OpenSea customers, LooksRare established a tokenized marketplace in a move reminiscent of SushiSwap's vampire attack on Uniswap. In an effort to retain customers, the campaign offered aggressive trading rewards and a substantial airdrop reserved for OpenSea traders. This appears to have been a huge success, as the above data illustrates, as LooksRare quickly took control of 82% of the total marketplace volume.

Similar tactics were used by X2Y2 to draw OpenSea users. However, similar to Rarible, their volume domination decreased as the value of their governance token inclined.

Source: Delphi digital

The contrast of wash trading with the chart right above gives a different picture of NFT marketplace domination. Applying a wash trade filter reveals how heavily liquidity mining influenced fake trading volume. It's crucial to note that this graphic does not completely exclude Rare's wash trading. Websites that analyze data, including NonFungible, declined to keep statistics on wash trading and instead totally eliminated Rarible from their database.

When wash trading was taken into account, the LOOKS token launch by LooksRare only achieved a 12% market share. This suggests that wash trading accounted for 70% of all NFT trading volume during the introduction of LOOKS. The market share of LooksRare has been declining, and it now accounts for just 3% of NFT volume.

On the other hand, X2Y2, which now holds an 18% market share, has been more successful in achieving organic trade volume. Its relative success is partly due to the fact that it offers optional royalty payments in addition to the lowest service fees, which are 0.5% just like Sudoswap.

OpenSea's supremacy has diminished over the last six months, even after the manipulated volume of rivals has been eliminated. It peaked at 98% in January 2022 before falling to 70% now. The need for incentivized trading among NFT enthusiasts and investors means that OpenSea will continue to lose part of its market share to emerging markets. Many people think that this could compel OpenSea to introduce its own token at last. But there's also a rumor that OpenSea will try a more conventional path: an IPO.

NFT markets need to strike a balance between effectively using tokens to draw consumers and developing a self-sustaining business model in the face of market turmoil.

A comparison of X2Y2 and LooksRare

Valuation

Immediately upon introduction, the price of the LOOKS token increased, mostly due to the substantial dual staking incentives in the form of LOOKS and Wrapped ETH (WETH). Regarding LOOKS' value in comparison to OpenSea's enormous $300 million round at a $13.3 billion valuation, there was a lot of speculation.LOOKS reached its highest price of $7, giving LooksRare a $7 billion FDV. LooksRare, a worthy rival with artificial volume painting, surpassed OpenSea's valuation by 53%. This was short-lived and quickly reversed as a consequence of intense sell-side pressure brought on by wash trading, token emissions that caused hyperinflation, and general market turmoil. LOOKS is currently trading at $0.22, down 97% from its peak.

Similar tales of hefty dual staking payouts and a $4B FDV peak price are told by the X2Y2 token. The distinction is that X2Y2 introduced a supply-burning mechanism to counteract sell-side pressure in an effort to correct the "wrongs" of LOOKS. Early in February and midway through June, there were significant increases in the supply of LOOKS, 2.5x and 2x, respectively. However, since its launch, the amount of X2Y2 in circulation has risen. Despite both having a total supply of 1 billion tokens as of this writing, LOOKS has issued over 400 million more tokens than X2Y2.

Due to a parameter mistake, 56% rather than the intended 18% of the 200M X2Y2 staking incentives were distributed during the first 30 days. This mistake, combined with token burning, definitely fueled the drop in the price of X2Y2's token. Burning tokens is a two-pronged strategy since you are effectively burning token incentives to draw and keep platform users. The price of X2Y2 is down 98% since launch, demonstrating that the theory that incentives should be burned to lessen selling pressure has not worked out thus far.

Tokenomics

Source: LooksRare

Source: X2Y2

The token distributions of X2Y2 and LOOKS are very similar. Only modest adjustments were made to LooksRare's token scheme by X2Y2. The distinction is that X2Y2 distributed 2% of the presale equally between trading and staking incentives. Once more time, X2Y2 has put the needs of the community first.

The slight flip was a partial response to the scrutiny directed at LooksRare by anonymous crypto-Twitter influencers and advisors. But, more importantly, to the ability of strategic sales participants and team members to obtain WETH staking benefits. X2Y2 presale investors can also earn market fee incentives, although they get 66% less, which pleases the community marginally.

Despite the LOOKS tokenomics' transparency, there was opposition to the private auction and the inclusion of team and development tokens as qualified recipients of fee distribution awards. The fact that the locked tokens were marked as "non-tradable" caused many members of the community to believe that staking yield was unattainable. It's vital to remember that WETH awards, not LOOKS incentives, are available for team tokens and private sale tokens.

Airdrop

Between the two platforms, there was a clear disparity in the number of airdrop tokens claimed.

Within the constrained nine-week period, 82% of the 120 million LOOKS tokens airdropped to OpenSea users were claimed. As previously said, launching a vampire attack on a popular platform first has proven to be a successful marketing and user-acquisition tactic (as per SushiSwap vampire attacking Uniswap). In the case of LooksRare, significant NFT influencers like Pranksy, Zeneca, and others who supported the platform, along with OpenSea's not releasing tokens, made it the talk of early 2022.

A month after the effective launch of LOOKS, X2Y2 started its time-limited airdrop. Only 19% of the 120M X2Y2 tokens were claimed. This was partially a result of them targeting OpenSea users who had traded during the entire year 2021, as opposed to LooksRare who only focused on users within a 6-month time frame. Numerous people also cautioned about the launch time and "effortless" fork of X2Y2 as possible rug-pullers.

Staking program

With over 260M tokens staked in January, retention of LOOKS on the LooksRare platform got off to a solid start. The attractive staking benefits offered to airdrop recipients encouraged them to stake their tokens. To discourage their newly established community from dumping airdropped tokens, protocols now frequently include hyperinflationary emissions (given as rewards) with a token launch. As a result of their tokens being "free", the recipient's tendency becomes more risk-tolerant.

Over 8% of all tokens were staked in each of the two months that followed. Given that nearly 33% of all available LOOKS were staked in the first month, a decline in MoM staking following a significant inflow in January was inevitable.

However, when the price of LOOKS dropped, a negative feedback cycle started. Lower prices had a negative impact on trade incentives and yields. This resulted in less staking and more selling. The quantity of X2Y2 staked has dropped by 41% since then, though still much less than LOOKS. Since X2Y2's early staking was not as big, it has had a modest but upward trend in staking. In August, X2Y2 staked 52M, breaking its previous record and growing by 2.6x since its launch. As we shall see later in this article, this tendency is correlated with the platform's adoption.

At first glance, both tokens' rising trajectories are bullish since staking seems to have successfully slowed down the supply. Direct percentage comparisons of the tokens locked between X2Y2 and LOOKS, however, are skewed in favor of the latter.

The 94% of X2Y2 tokens staked are artificially inflated due to a series of burns that are being performed on the circulating supply. 11% of the circulating supply of X2Y2 was burnt on March 26. In two years, 36% of the total supply will have been destroyed with a monthly burn in place. Although the total amount of LOOKS staked is 25% less, it is still amazing because it still has a total supply of 1 billion tokens.

Stakers on both platforms have been in a quandary since their inception. Stakers profit from service fee incentives on all trades, whether they are organic or washed. Staking incentives, on the other hand, are mostly dependent on market manipulators, and service fee rewards will collapse after LOOKS trading rewards have been sold. The issue for stakers is evaluating the cost-benefit ratio during staking vs. selling. Unfortunately, all users after the first month of staking have suffered a massive loss.

Wash trading volume

Source: Delphi digital

It would be an understatement to say that LooksRare successfully sucked in NFT traders upon introduction. Over 29,000 ETH were traded in the first 24 hours, amounting to more than $100 million USD in early January 2022. In comparison, X2Y2's first-month volume was mere $11 million USD. Wash traders believed that the benefits they received in WETH and governance tokens were more significant than the service and gas fees combined.

In an unsuccessful attempt to prevent wash trading, Rarible took the step of barring addresses from their platform. Its successors, on the other hand, were open to similar behavior. As shown in the graph above, the fall in trading incentives resulted in a decrease in the volume traded. 2.9 million LOOKS were available for trading rewards every day in the first 30 days, with values ranging from $5.7 million to $14.3 million. For the following 90 days, the number of LOOKS available was reduced by more than half - a targeted "halving" of rewards. Volumes clearly indicate the influence of this.

LOOKS rewards are currently down 99.9% from their January highs. X2Y2 has a daily trading emissions schedule of 625,000 X2Y2 per day, which has helped to sustain volume. Volume on X2Y2 has been three times that of LooksRare during the last four months. Despite having planned for a continually incentivized runway, X2Y2 lowered rewards by 39% on October 5th.

Organic trading volume

It's hardly surprising that LooksRare's volume plunged 97% in January when a wash trading filter was applied. The same is true for X2Y2, whose volume has dropped 92% in the last four months.

Surprisingly, trading rewards had little effect on organic volume on either platform. Organic transactions happened whether or not incentives were present. From an ordinary user's point of view, why would he or she use an NFT marketplace like OpenSea when he/she may enjoy lower costs and earn tokens by just utilizing another?

With almost comparable UI/UX and added product features, the transition is simple. The activity stream on LooksRare auto-refreshes, and you may quickly adjust the price of the NFTs featured. In OpenSea, users must re-list their NFT to update their offer. X2Y2 allows you to check out with a basket of various NFT collections, exclusive over-the-counter sales, gas-free listings, and more.

Organic trade highs emerged in April as a result of the release of highly anticipated collections such as Moonbirds and VeeFriends Series 2. This supports the notion that organic traders are more concerned with other issues such as good pricing than with reward schedules or maximizing rewards. Trading incentives are only a bonus.

In the absence of greener pastures, incentivized markets will continue to draw organic volume away from OpenSea. As organic volume grows, wash trading should diminish as incentives become more evenly distributed.

Unique users and sales

Source: Dune analytics

Source: Delphi digital

Volume comparisons across washed and organic sales and trades are made indiscriminately. Organic NFT Sales on X2Y2 accounted for 47% of all sales on the platform, with LooksRare a bit higher at 48%.

When comparing the number of sales, the disparity becomes more apparent. Despite its delayed launch, X2Y2 facilitated over 1.1 million organic sales – 7.5 times more than LooksRare's 294,000. This is due to the reduced fees, collaborative NFT releases, and optional royalty payments of the former. Because just a small percentage of users are categorized as wash traders, there isn't much of a difference after applying the filter. Wash traders account for only 0.68% and 1.5% of all users on X2Y2 and LooksRare, respectively.

However, the benefits of X2Y2 may harm the community's development, as promoting wash trade might have long-term consequences. Organic price discovery of NFT collections is much less efficient if collections are consistently traded at the same price. Traders have a negative experience as a result of this. Fortunately, NFT aggregators like Gem and Genie have alleviated this problem by expanding the quantity of NFTs available for purchase. As prices are compared across different markets, data from wash trade becomes less distorted, resulting in smaller price spreads for collections throughout marketplaces.

Fees

Fee type	OpenSea	Sudoswap	LooksRare	X2Y2
Service Fee	2.5%	0.5%	1.5%	0.5%
Royalty Fee	Up to 10%	0%	0.5% service fee	Optional
Reward	N/A	TBD	100% to stakers	100% to stakers

X2Y2 has been through several fee iterations. To compete with the highly anticipated AMM marketplace, Sudoswap, X2Y2 service fees were lowered from 2% to 0.5% in July. Sudoswap pushed their hand once again on royalties. Royalties were made optional in late August, causing outrage within the NFT artistic community. LooksRare originally supported the EIP-2981 royalty standard, which meant that the fees signaled by the author (inside the NFT) took precedence over the seller's royalty fee decision. After eliminating royalty fees, LooksRare is now distributing 0.5% of its service fees to creators.

Source: Dune analytics

With LooksRare previously charging a 2% service charge, approximately $2 million USD in fees were collected and given to stakers in revenue within the first 24 hours of launch. The majority of this activity, as expected, was generated by wash trading. However, total fees have fallen in the last three months. LooksRare earned an average of $97,000 each day in October, a 39% decrease from the previous month. Despite generating 7.5x more sales, X2Y2 made 30% less revenue during the previous three months. After reducing royalties, LooksRare has now distributed 25% of its service fees to creators. Stakers' earnings will fall, narrowing the difference between the platforms.

So far, X2Y2's user-friendly features have not generated enough volume to contend on fees with LooksRare. Royalties contribute 18% of LooksRare's fees, making it a more appealing platform for creators and consumers who want to support the creative economy.

The LooksRare crew moved roughly 10,000 WETH, totaling $30 million, to their own wallets in February. Within the first month of introduction, hundreds of millions of dollars were traded, with 2% going to stakers and the LooksRare team. Despite the fact that it was explicitly disclosed in their whitepaper, LOOKS holders and the larger crypto community voiced displeasure with the team's lavish remuneration. So far, the treasury, strategic sale participants, and team have received 32.7% of all WETH allocated to stakers.

Source: Token terminal

When we compare the price-to-sales ratio (P/S) of each platform, we can observe that X2Y2 has a far lower multiple than LooksRare. A lower ratio indicates that when the circulating market cap is compared to the revenues of each platform, X2Y2 trades at a more favorable multiple than LOOKS.

As previously stated, X2Y2's circulating supply has endured a series of burning. This helps to explain why its P/S multiple is smaller. LooksRare and X2Y2's P/S ratios have grown since late September.

Conclusion

LooksRare and X2Y2 are now in a predicament in order to stay alive, let alone compete with OpenSea. Before wash traders are disincentivized by low trading rewards, both platforms must reach some level of escape velocity. If wash traders are suddenly enticed by more attractive incentives with a longer runway, token investors would lose trust in the platform's capacity to make enough money to justify their commitment.

More competitors will enter this market. Blur, a highly anticipated NFT marketplace, revealed its token at the time of writing this post. It will be fascinating to observe how wash traders behave. Will they be drawn to brighter pastures? Or will emerging markets limit their reliance on wash traders to create volume?

Disclaimer:
This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.

X2Y2 versus LooksRare: Incentivized NFT marketplace battle