On Jan. 12, a computer-generated image of a pixelated human was sold in about $50.6 million worth of cryptocurrency on a new online marketplace that is specifically targeted at unfortenable tokens.
Things have become more interesting.
Five minutes later, the same "Meebit" NFT — a fictional character wearing purple shorts and green sneakers — sold back from buyers to the original seller for about $49.6 million.
Are you confused? Welcome to the weird and wild world of NFT, a new type of crypto asset that stands for digital projects, from images and videos to avatar costumes. Over the past year, they have exploded as part of an emerging, largely unregulated economy in the much-talked metaspace.
Meebit can be used as a personal photo, exchanged between two anonymous cryptocurrency wallets. While the underlying blockchain technology creates a public record when the NFT is sold, it does not record the names of those involved. A person can have multiple wallets, acting as both a buyer and a seller in a transaction.
According to a Reuters review of publicly available blockchain records, the digital character is one of dozens of NFTs on the LooksRare market that were sold back and forth between a handful of wallets at unusually high prices last month.
Since Jan. 11, for example, another Meebit NFT -—— this product with sportswear and ponytails — has been passed between three wallets in more than 100 sales, mostly between $3-15 million. During the week of January 12-19, a "Loot" pack NFT, which represents the virtual rig of online adventure games, made 75 transactions between the other two wallets, with a price of $30,000 to $800,000 each.
According to data provided by market tracker DappRadar, these activities have helped LooksRare generate at least $10.8 billion in trading volume since its launch in early January.
According to DappRadar's data as of Jan. 31, the top 27 most expensive sales recorded in the entire NFT industry in January, totaling $1.3 billion, came from just two wallets traded on LooksRare, while the first 100 sales, worth $2.3 billion, came from 16 wallets traded on the platform.
Mostera Masoit, director of finance and research at DappRadar, said: "There is a lot of activity that takes place between several wallets, such as wallet one selling to wallet two, and then wallet two reselling. "It's probably not really a requirement, and these transactions are not computationally meaningful."
DappRadar and CryptoSlam (another data provider that reported artificially inflating the volume of transactions on LooksRare) said such transactions could be related to the platform's reward structure, though Masoit added that there was also "real" activity on the site.
LooksRare describes itself as "a community-first NFT market with rewards for participation," referring to its reward system, which involves rewarding tokens to traders of the day based on the proportion of the overall sales volume they are responsible for.
According to a LooksRare spokesperson, these tokens, known as LOOKS, can be used in a process known as "staking" in order to get a portion of the revenue from the 2% fee charged by the platform for all transactions.
Asked about the deals reviewed by Reuters and whether they artificially boosted volume, the spokesman said the practice was risky because traders had to pay for transaction costs they could not guarantee recoup.
Traders don't know before the day closes whether they traded enough LOOKS tokens, or how many, because they don't know how other people are trading.
The spokesperson added that LooksRare's structure is designed to reduce the long-term profitability of LOOKS' "yield-per-farm" approach in the long term.
"The LOOKS deposit reward system is the core reward structure of the token, according to which 100% of the transaction fees are earned by the LOOKS pledgee. This promotes the common goal of the user and token pledge community, even if the platform becomes the best platform," the spokesperson said.
'BYE BYE WASH TRADERS'
Bye bye, trader
Still, trading activity provides a window into the ambiguity and speculation of the NFT industry, which attracted $25 billion worth of sales in 2021.
Art collections such as CryptoPunks and Bored Apes have fueled the boom in this new market, and these algorithm-generated portraits can sell for millions of dollars. They've gained the favor of celebrities, with socialite Paris Hilton and TV host Jimmy Fallon recently showcasing their boring apes.
From Coca-Cola to Gucci, several large companies are testing the market with their own NFTs. Meanwhile, in the art world, more than $1 of every $20 in revenue from top auction houses last year came from NFTs.
Chief Executive John Egan, an independent subsidiary of BNP Paribas that researches new technologies, described the Reuters-reviewed deals on LooksRare as "shuffle deals" that are prohibited in traditional markets such as stocks or debt because they give the illusion of an appetite for assets.
However, two cryptocurrency legal experts told Reuters that such a transaction is not illegal in this nascent industry because there are no corresponding rules to govern NFTs.
Egan added that LooksRare "has no responsibility per se" for the deals. "It's a marketing incentive," he said. "LooksRare is actually paying large investors to use their website, attracting a lot of attention and new users in the process."
For proponents of the platform, this could be a plausible strategy to thrive in the virtual gold rush, as tech giants like Meta and Microsoft spend billions of dollars advancing the vision of the metaverse they own and paving the way for future profits.
According to DappRadar, the bumper harvest event in January means that LooksRare surpassed the four-year-old market leader OpenSea to become the NFT market with the largest monthly trading volume, although there are fewer than 3,500 traders per day, compared with 57,000 to 90,000 in OpenSea.
OpenSea did not respond to a Reuters request for comment on this article.
A Twitter user named "dingaling" told Reuters that he is an investor and advisor to the platform, and he wrote a post on Jan. 12 saying that the wash trades on the platform look bad but could be part of a "necessary step" to gain market share and provide a more transparent, decentralized market for the NFT community.
"People have been resistant to purge transactions, but it's hard for me to understand why. It's a free market," Dingaling added. "Once the real volume prevails, say goodbye to the whipsaw traders."
WITH IN MEATSPACE?
Meet at Meatspace
From a regulatory perspective, authorities around the world fear that the rise of crypto assets could more broadly undermine the financial system, fuel crime and hurt investors.
Efforts to date have focused on cryptocurrencies, rather than NFTs, which raises new questions such as how they should be classified because they are disposable, irreplaceable, and highly diverse in nature.
Hagen Rooke, a partner at global law firm Reed Smith, said: "In general, if each NFT represents a truly unique project, for example, a unique collection, artwork or media content, most jurisdictions agree that NFTs should not be regulated as financial products. ”
Traditional institutions may also need to bridge the cultural divide.
LooksRare's founders are only pseudonyms Guts and Zodd. The spokesperson described them as "NFT nerds" and said the platform's teams were spread across different time zones, with most of them "never even seen each other in Metaspace."
Meatspace is a term used by Internet enthusiasts to refer to the physical world.
A frequent NFT trader known as "Rizzle", who mainly uses OpenSea, is one of the big players in the market attracted by ThelooksRare's bonus model.
Rizzle first joined LooksRare after receiving some free LOOKS tokens, which he staked for a profit, and since then he has been using the market for trading, saying he likes some of those features.
"I wouldn't be surprised to see bigger initial incentives on other platforms to try to reach the same audience," he said. ”