TL;DR Breakdown
- CryptoPunk #9998 sold for 124,457 ETH.
- This NFT Trade was an example of wash trading.
- The crypto and NFT markets are better off without wash trading.
Non-fungible tokens are a known phenomenon in the world of crypto and digital assets. In a short period, they have attracted a massive audience to themselves. The NFT community is growing faster, and the concept is making its way into the mainstream world. Several projects have had their share of the spotlight from worldwide investors. Several NFTs, including CryptoPunk #9998, have been auctioned and sold for millions of dollars.
Projects like CryptoPunks always come up with exciting news and developments to shock the entire industry. It has been a significant factor in popularizing the idea of NFTs among consumers and digital asset enthusiasts.
CryptoPunks is a renowned NFT project that was launched by Larva Labs. The project recently conducted some ‘wash sales’ on the Ethereum blockchain. The results of this sale were something that shocked the entire market and immediately made headlines. It also influences the market trends, as it was believed to be a big deal in the sector.
The details of the transaction of CryptoPunk #9998
A user transferred CryptoPunk #9998 using the address that started from 0xef76. The address of the receiver started from 0x8e39. However, later, 0x8e39 sold that NFT to an address that began from 0x9b5a. The NFT was sold for a mammoth 124,457 ETH. A significant portion of these ETH was borrowed from the Compound. Nonetheless, the headlines of this sale grabbed immediate attention because there is no example of any artwork going this expensive throughout history.
As we dug deep into the transaction details, we found out that the ETH was sent to a smart contract, which later transferred them to the seller. The seller also sent another 124,457 ETH to the buyer, who then repaid the loans. Then, the NFT was given back to the address 0xef67. It was then offered for 250,000 ETH.
Even though these transactions are technically valid, they are not as accurate as they might sound. The NFT is not sold; it is only a mix of transactions between different addresses. Even Larva Labs itself said that it intends to remove notifications for these types of transactions in the future. The transaction might be valid on technical grounds, but no one can bid on the asset. The amount of ETH is offered and removed from the network within a single transaction. Hence, the record for the most expensive CryptoPunk might still not go to CryptoPunk #9998.
The most expensive NFT on the CryptoPunk project was CryptoPunk #7523, sold for a whopping $11.8 million. The second most costly NFT on the network was CryptoPunk #7804, which was $7.56 million. It was then followed by CryptoPunk #3100 for $7.52 million. The most expensive NFT that was sold legitimately was EVERYDAYS: THE FIRST 5000 DAYS by Mike Beeple. Winkelmann. The NFT was sold by Christie’s for a record $69.3 million. The NFT market increases as more money are invested in different projects, and investors spend massively on different NFTs. Therefore, the record set by EVERYDAYS might break eventually, but it was not to be done by CryptoPunk #9998.
How does NFT wash trading manipulate the market?
The type of transaction that was followed to sell CryptoPunk #9998 is a clear example of how to wash trading works in the NFT art industry. Recently, it has been practiced in the sector that has alarmed the NFT community. Through the wash trading process, a trader buys and sells the NFT to spread false information to the market. As the market is highly reactive to such news, traders use it to spread FUD and FOMO in the market. In simpler words, a trader acts as both the buyer and the seller to carry out a wash trade.
In the NFT space, wash trading also accounts for any sale or purchase made, not for the sole purpose of buying or selling a product. Wash trading heavily influences the statistics of the market. The NFT art industry relies on market statistics and analysis for better-investing plans, and therefore, wash trading impacts that practice negatively. Such huge figures can distort the natural market, and people can be driven to make investing choices through the rumors spread in the industry.
As a result, the NFT projects are forced to clean and set their records right. They have to differentiate between actual transactions and fabricated ones. This is why wash trading complicates the entire process, and the stakeholders face more problems while making a choice. It becomes hard for them to do so without knowing the absolute value of the product they buy or sell.
Several crypto experts have also noticed and commented on the role and influence of wash trading on the market. They believe that the practice has become more common in recent times, and many traders and investors are using it as a tool or a loophole to manipulate the market. A blockchain analyst firm, Nansen, also agreed with the idea and further commented that the NFTs are ‘spotted by profit-seeking practices.’ The firm also added that upon examining the pattern of transactions, it could be said that new token founders are purchasing and selling the same NFTs at low prices, which also falls under the category of wash trading.
Conclusion
In conclusion, it can be said that the crypto and NFT market is better off without wash trading. Also, for an exciting and emerging new sector, like NFT, it is better to eliminate such practices to have a more transparent and reliable environment. If they fail to do so, then the popularity of NFTs might receive a significant dent, and several investors and NFT projects will have to bear the consequences. Moreover, NFT projects, like CryptoPunks, should acknowledge wash trading in its network and find ways of dealing with it. Raising awareness about these vague transactions and educating people about them could be the right way of coping with wash trading.
