David Angliss, an analyst with Australia’s leading cryptocurrency investment firm, Apollo Capital, shares the fund’s weekly take on what’s happening in the fast-changing and volatile cryptocurrency space.

The premier NFT marketplace has been the subject of not one but two “vampire attacks” in the past six weeks, with projects using token incentives to try and steal OpenSea’s userbase.

Last month LooksRare airdropped LOOKS tokens to OpenSea users who had traded on the platform between June and December, but faced community backlash last week after cashing out 10,500 wrapped Ethereum (US$30 million) from its native token and moving it to Tornado Cash, a tool for making anonymous money transfers.

The team defended the move, with one tweeting they’d been “grinding night and day for 6+ months with zero compensation”, but it angered many LooksRare backers.

x2y2 arrives

Just in time to capitalise on the backlash, on Wednesday a similar marketplace launched – x2y2 – also using an airdrop approach to past OpenSea users.

For example, this reporter was entitled to claim 13.2 x2y2 tokens (worth a total of US$30.36) for executing 0.396 Ethereum (US$1,150) in past trades on OpenSea. Users with higher trading volumes would be able to claim more, up to 1,000 x2y2 tokens, which on Friday were worth $2.37 apiece. But claiming the airdrop involved listing an item on the marketplace.

This is what’s known in crypto as a “vampire attack”, and was most famously executed by SushiSwap against Uniswap in September 2020.

By offering token rewards in SUSHI tokens, the SushiSwap team was able to quickly drain US$810 million in liquidity from Uniswap – more than half the value locked in the protocol at the time – as liquidity providers migrated to SushiSwap for the increased rewards. Uniswap eventually had to offer its own token, UNI, to reward users.

~$2 million a day

According to DappRadar, OpenSea on Friday had handled 28,000 in Ethereum (US$81 million) in trades in the last 24 hours alone – 1.49 million Ether (US$4.35 billion) in the past 30 days.

The platform charges users a 2.5 per cent flat fee for each NFT traded, suggesting OpenSea is making about US$108 million a month in Ether.

It raised US$300 million in a Series C round in January that valued OpenSea at a mammoth $13.3 billion.

“None of that fee gets directed back to the community, okay?” David Angliss explained on Thursday. “That’s their internal revenue.”

LooksRare charges a similar fee – 2 per cent of every trade. “But 100 per cent of those fees go to users staking LOOKS tokens on the platform,” Angliss.

“And because of that mechanism, LooksRare was able to offer APYs as high as 800 per cent.”

But the value of that LOOKS token was down to US$1.60 on Friday, from over $2.50 at the start of the week, after the aforementioned 10,500 in wrapped Ether ($30 million) that had accumulated from trading fees was cashed out by the team.

Angliss says there’s strong support in the crypto community for a decentralised version of OpenSea, leaving an opening for x2y2.

“A lot of people are now purchasing x2y2 and staking it, similar to how they were staking on Looksrare,” he said.

The tokeneconomics of x2y2 are different from LooksRare, whose rewards for using its platform may have led to wash trading (selling to oneself). x2y2 rewards customers for listing NFTs, rather than trading them.

The team behind x2y2 also launched mirror.xyz, a web3 toolkit for sharing and funding projects.

Angliss says that Apollo Capital is going to be watching x2y2 closely, but won’t be investing for now.

“We do want exposure to the decentralised version of OpenSea, but it is still early days on these protocols. There’s still a great deal of risk associated with these projects,” he said.

Importance of tokens

What’s going on with LooksRare and x2y2 also shows how tokens can be used to bootstrap a launch.

“So at Apollo, we’re advocates for projects to have tokens,” Angliss says.

“They can deploy very strong incentivise models, like we see with x2y2, where users are being rewarded for staking their x2y2 (with trading fee rewards). That incentivises users to procure x2y2, which is beneficial for the price.

“And the second point is, it also builds a strong community. People like to hold tokens, people like to hold tokens and feel like they’re part of a community.”

A lot of early adopters of OpenSea feel like they’re not getting recognised or rewarded for making the platform what it is today, Angliss said.

“And they’re feeling that sense of community, and it’s evident in all these sorts of attacks on OpenSea that are occurring right now,” he said.

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

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