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

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Smart NFT traders exploit the unregulated cryptocurrency landscape by laundering trade based on LooksRareMARKET analysis.

LooksRare debuted on January 10th, and the newly launched Non-Fungible Token (NFT) Market generated a lot of interest, not only because daily trading volumes were more than double those of OpenSea on its second trading day, but also because it has become a new marketplace for merchants. laundry. .

Fraud trading is a series of trading operations in which the same trader simultaneously buys and sells the same instrument, creating an artificially high trading volume and manipulating the market price of the underlying asset.

In the United States, money laundering in traditional financial markets has been banned since 1936, and the last widely discussed money laundering scandal was the manipulation of the LIBOR rate in 2012.

While the money laundering trade is heavily regulated and heavily monitored by stock exchanges and regulators, it appears to have found a new path in the unregulated cryptosphere, especially in NFT markets like LooksRare.

The public market is a double-edged sword
LooksRare started with good intentions to share profits with the community. Token incentives and trading bonuses were basically the secret weapon that attracted huge volumes and surpassed OpenSea at the speed of light immediately upon launch, but those same factors also became the source of the laundering of weapons that dealers used to flood the market.

It seems rare to foresee the possibility of commercial money laundering that could be driven by lucrative trading bonuses, but according to the LooksRare Docs, I thought the cost of trading due to platform fees and royalties would be too high to create any incentives for money laundering. Interestingly, reality shows the opposite.

LooksRare size and number of unique OpenSea users. Source: Dune Analytics @elenahoo

LooksRare and OpenSea volume and transactions. Source: Dune Analytics @elenahoo
The graphs above show that daily users and daily transactions from LooksRare are only a small fraction (2% – 3%) of OpenSea, but volumes are more than three and even four times that of OpeaSea.

For example, on January 19, the average trading volume on LooksRare is about $380,000 per user, while on OpenSea it is only $3,000. Likewise, the average trade size per transaction is about $415,000 on LooksRare, while it is only $1,676 on OpenSea.

The data basically shows a very small group of users running hundreds of thousands of dollars worth of contracts. This certainly doesn’t look like a playground for the average NFT buyer. With a 2% platform fee and fluctuating royalties and gas fees on the Ethereum network, it seems like traders can still find a good place to balance costs and profits.

Let’s see how traders profit from buying and selling the same NFT.

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How to calculate trading bonuses

Set up your LooksRare trading bonuses. Source: LooksRare
The LooksRare Trading Bonus is distributed over a total of 721 days in four installments. The daily reward is highest during the first 30 days in stage A, and the total reward is highest in stage C (240 days).

Set up your LooksRare trading bonuses. Source: LooksRare
The amount of trading bonuses that one trader can receive on a given day is the product of the fixed daily LOOKS trading bonus (2,866,500 occurrences) and the ratio between the individual trader’s trading volume and the total trading volume for the day. Therefore, the more trading volume a trader creates, the more rewards he receives. This mechanism creates great incentives for high-volume laundry business.

In addition to trading bonuses, traders can also receive a portion of the platform fees charged based on the number of LOOKS accumulated, as well as liquidity provider bonuses and bonuses. However, compared to the trading bonuses received from the laundered trade, the rest of the bonuses are very small and close to the rounding error, so they will not be taken into account here.

Source: CoinTelegraph

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