Understanding competition in the Blockchain/NFT landscape

Vampires! Whether you think of Dracula or Mr. Burns on the Simpson’s Halloween special, this single word conjures up an image of a bloodsucker searching for its next victim. Vampire Liquidity, however, all started with a much more innocent-sounding menu item… Sushi.

Let’s take a quick journey back in time to Uniswap. Based on the Ethereum chain, Uniswap was the first big automated market maker (AMMs), a type of decentralized exchange (DEX). AMMs use liquidity pools (LP), which are collectivized pools of tokens locked in smart contracts, to facilitate the permissionless trading of assets. Unlike a traditional market where buyers and sellers trade with each other, AMM users trade against liquidity pools. Each investor adds two tokens in equal weight to the liquidity pool and earns an LP token representing their share of the overall pool. These investors then earn a percentage of the trading fees for swaps in this pool.

Uniswap was the dominant market player and was making millions in fees. Then, in August of 2020 SushiSwap was founded and wanted a share of this burgeoning market. But how could they compete with such an early Goliath in the space? Utility tokens were their answer. To motivate investors to add their liquidity to the pools, Sushi started offering further incentives by allowing the LP tokens to be staked and thus receive even more rewards ($Sushi). Seeing this as a great way to make a quick buck with dual yields, investors flocked to Uniswap to deposit assets and receive LP tokens, which they then transferred to SushiSwap. Uniswap’s deposits rapidly increased from $300 million to $1.8 billion USD. By the time the migration was over, SushiSwap had gained $810 million worth of tokens — roughly 55% of Uniswap’s liquidity. With this, Vampire Liquidity was born and DeFi would never be the same.

This has created both great opportunities and risks for investors. Early incentives to attract liquidity are everywhere. However, if you invest in an LP and the bulk of the liquidity exits while you are not paying attention, your bag can become worthless in a hurry. The trick here is to find projects that have utility for their token and can potentially create a genuine incentive for their platform. Now that we know what a vampire attack is, let’s learn about a few projects attacking Opensea currently.

If you want more information on liquidity providing:

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LooksRare

A vampire attack recently happened to Opensea. This time, the attack incentivized users to use the Looksrare NFT platform. This is similar to how Sushiswap attacked uniswap, and I think it will be successful. The platform offers a chance to earn rewards by listing and selling NFTs there and the ability to stake your earned rewards for a share of the trade volume. As wash trading becomes less profitable after the current reward changes, you can get a more realistic volume chart shown above. These rewards are producing pretty impressive numbers. Recently the project has come under scrutiny for collecting their WETH rewards, but all of this was outlined in their whitepaper. Still, as a company, they now have a lot of operating capital and have secured many new hires as well as added 15 million to the liquidity pool. They are now incentivizing people to try their platform by repaying up to 10 listing approval fees this week.

X2Y2

Another NFT platform that just launched is X2Y2 and has airdropped a token using Opensea contract volume. The platform focuses on small users by capping large volume Opensea traders to only receiving 1000 tokens, whereas Looksrare focuses on large holders. They are also launching with more features to start, and like I have said previously, more competition is good for the space as it creates innovation.

The negatives for this platform launch are the requirements for getting the rewards. You have to approve four listing collections, which will cost around 10-20 dollars for each approval. While this airdrop is very new, and I haven’t seen much info about it, you can find their white paper here, and I recommend looking into these things. Again this is possibly free money airdropped to you for using Opensea at the worst-case scenario, and best case; you can stake it to receive a share of the volume similar to Looksrare.

Just like Uniswap made AMMs famous, and now there are thousands of these platforms to choose from, NFTs growing in popularity can allow competition to be successful. These two vampire attacks will draw a little bit of volume away from opensea, and over time we can see if it spurs opensea into action to improve on their platform. If they don’t evolve, these platforms go the way of Netscape and AOL, straight to the graveyard of the internet.

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