Earlier this month, LooksRare launched by executing a vampire attack on OpenSea. The $LOOKS token was airdropped to users who had traded on OpenSea in the last 6 months, based on their transaction volume. A total of 120 million $LOOKS tokens were distributed, 12% of the total supply. This article aims to investigate it’s launch and what the potential value of $LOOKS is.

LooksRare is an NFT marketplace looking to compete directly with OpenSea, entering the arena by providing tokens directly to the incumbent’s users. This is a pragmatic approach that immediately demonstrates the big differentiator LooksRare aims to highlight: incentive alignment between users, token holders and the platform.

OpenSea was founded in late 2017, and NFT sales initiated in June 2018. Since then, it has grown to generate over $3 Billion monthly volume in NFT sales on the platform. On this, OpenSea charges a 2.5% royalty that they keep. In December 2021 alone, this is the equivalent of $81.25 Million dollars.

Despite the 4.5 years it has been in operation, it has not created mechanisms to redistribute the roughly $400 Million in cumulative royalties it has generated back to the community. This has led to some frustration, as it seems to be at odds with what has been developing as a sort of web3 ethos – namely the alignment of incentives and the drive away from “web2” platforms that centralize and profit from their users, to an ecosystem that aims to drive the profits to all stakeholders. It is this flaw that LooksRare aims to gain market share and dominate.

It rewards the community in 3 ways:

• Staking: Users can stake their $LOOKS to receive more looks and all protocol revenues (2% of sales) are distributed to all stakers in WETH. As of writing, the $LOOKS APR sits around 700%

• LP provision on Uniswap

• Trading Rewards – Traders get rewards in $LOOKS when trading in collections that have over 1000ETH volume on the platform

The $LOOKS tokenomics are highly slanted towards the community, with 75% of the total supply of Billion being earmarked for community rewards. 12% was distributed in the airdrop, and 63% are earmarked for Volume and Staking rewards.

The main driver of value for $LOOKS token is the platform fee redistribution to stakers. This fee is 2% of total volume and is redistributed in terms of WETH.

In the period since launch, the platform has generated over $5 Billion in volume. This equates to around $100M in fees generated, over 10 days. To put this in context, this is more than what OpenSea generated for the whole of 2020. Below is the volume and fee breakdown per day, so far:

This is an impressive start, and is outpacing Open Sea as can be seen below.

However, there are some concerns that this volume is driven by sales of high worth NFTs back and forth to benefit from the trading rewards provided by LooksRare. In any case, these transactions still accrue the 2% fee back to stakers. These concerns are still valid, especially as the volume rewards that drive these trades diminishes, and we will discuss them below.

Estimating LooksRare Revenues:

To evaluate the $LOOKS token, and potential future cash-flows to holders, we have taken the conservative assumption (considering the first 10 days) that LooksRare will have an average volume of 25% of their average between Jan 11th and Jan 19th. We believe this assumption will account for the decrease due to the initial hype and provide a good margin of safety when evaluating the platform.

At the same time, the market provides us with a comparable from OpenSea and their capital raise that valued them at $13.3 Billion. If we consider 2021 full year data, we can estimate the transaction multiples below:

Applying this to LooksRare:

So, if we are to utilize OpenSea’s transaction multiples and apply them to a scenario where LooksRare executes an average 25% volume of their recent performance, then we could set a $LOOKS value in the $35 - $44 range, at least 5x the current price at time of writing (~7$).

This valuation is done around a 10 days after LooksRare’s launch and so is subject to a high level of uncertainty. Other reasons such as identified growth avenues and initiatives, as well as returns on investments already executed could mean that LooksRare would demand a lower multiple than its competitor. However, if we consider different levels for the estimate of the daily volume and the multiple the market could provide to the $LOOKS token, we can see that there is still significant upside from today’s levels:

This gives us security that even if we are optimistic in our assumptions, there is still upside even if the platform significantly underperforms going forward.

Risk to $LOOKS valuation

Despite the high volume it has been able to muster in its first days, there are still two indicators which are worrying for a $LOOKS valuation, namely the number of users and transactions on LooksRare so far.

Open Sea currently has around 30x the number of daily users and 60x the number of transactions for the period between Jan 11th and Jan 19th, as can be seen below:

This is likely a result of whales using LooksRare to game the volume rewards. These rewards are set to diminish over time, which could be a risk for the long term sustainability of the platform, which would negatively impact the outlook for the $LOOKS token price. This will be the main KPI’s we will focus on to validate our numbers going forward. The key to success is developing a better product and attracting users to trade there.

In order to live up to the promising start, LooksRare must either reinforce it’s (intentional?) positioning as the marketplace of choice for whales and keep driving those high value transactions in order to maintain the economic incentive to buy and stake $LOOKS, or work on a strategy to substitute OpenSea as the go-to marketplace for every NFT collection. So far, they have attracted the demand side by providing rewards for large and expensive collections, but a dive into supply side initiatives (i.e. work and reward collections and holders) could provide some benefit and incentivize lower value collections to launch and drive traffic to LooksRare rather than OpenSea. Our current view is that the potential upside outweighs the risks of not being able to deliver on these fronts.

Thank you for reading, and I hope this has delivered value. I am not affiliated with LooksRare, but I am long on $LOOKS. This write-up was designed for informational and research purposes only and does not constitute financial advice.

If you’d like to reach out:

Twitter: @cryptovaluatio1

email: cryptovaluations@protonmail.com

ETH address: cryptovaluations.eth

A list of useful resources and accounts I’d like to thank for this article:

• Richard Chen (@richardchen39) – created Open Sea Dune dashboards as @rchen8

• Hildobby.eth (@hildobby) – Looks rare dune dashboards as @hildobby

• Chainalysis for NFT market data - https://go.chainalysis.com/nft-market-report.html

• DaapRadar Industry Report 2021

• Slowshi.eth (@slowshi) – created https://www.looksrewards.org/ to track your rewards so far