Unreal demand? Irregular sales worth billions fire up wild NFT market

London, February 7 (Reuters)-January 12, computer-generated images of pixelated people sold in cryptocurrencies worth about $ 50.6 million on a new online marketplace for non-alternative tokens it was done.

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Five minutes later, the same “Meebit” NFT (a virtual character wearing purple shorts and green sneakers) was sold back from the buyer to the original seller for about $ 49.6 million.

Messed up?Welcome to the strange and wild world of NFTA new type of crypto asset that represents digital items, from images and videos to clothing for avatars.They have exploded in popularity over the past year as part of a fledgling, almost unregulated economy for the fuss. Metaverse..

Meebit, which can be used as a profile picture, was exchanged between two anonymous cryptocurrency wallets. The underlying blockchain technology creates public records when NFTs are sold, but does not record the names of stakeholders. A person can own multiple wallets and act as both a buyer and a seller in a transaction.

According to a review of blockchain records published by Reuters, digital characters are among the dozens of NFTs on the LooksRare marketplace and sold in a row at very high prices among a few wallets last month. it was done.

For example, since January 11th, another Meebit NFT (which has a sporty outfit and ponytail) has sold over 100 between three wallets, primarily in the $ 3 to $ 15 million range. It was handed over. During the week of January 12-19, the “booty” bag NFT, which represents a virtual device for online adventure games, was exchanged between the other two wallets for $ 30,000- $ 800,000 at a time, with 75 sales. ..

According to data provided by market tracker DappRadar, this activity has helped to generate at least $ 10.8 billion in trading volume since LooksRare launched in early January.

According to DappRadar data as of January 31, the top 27 sales recorded across the NFT industry in January totaled $ 1.3 billion from two wallets traded on LooksRare. 16 wallets traded on the platform.

Modesta Masoit, Director of Finance and Research at DappRadar, said: “This is not real demand and these transactions are likely not organic,” he said.

DappRadar and CryptoSlam, other data providers who reported artificially inflated volumes on LookRare, said such transactions could be linked to the platform’s reward structure, but Masoit also has “real” activities on the site. I added that it was there.

LookRare describes itself as “the community’s first NFT marketplace with rewards for participation” and a reward system that includes awarding tokens to traders of the day based on the percentage of overall sales volume in charge. Point to.

According to a LookRare spokeswoman, these tokens, called LOOKS, can be used in a process called “staking” to claim a portion of the platform’s revenue from a 2% fee charged for every transaction. increase.

When asked about a transaction reviewed by Reuters and whether the transaction artificially increased transaction volume, such a practice is very difficult as traders have to pay transaction costs that are not guaranteed to be collected. Said it was dangerous.

Traders do not know what others have traded, so they will not know if they have traded enough to earn LOOKS tokens, or how many they have traded until the end of the day.

A spokeswoman added that LooksRare has a structure designed to reduce the profitability of LOOKS’s “yield farming” in the long run.

“The LOOKS staking reward system is the core reward structure of tokens, where 100% of transaction fees are earned by LOOKS stackers, which allows users and token stackers to share the common goal of maximizing the platform. The community will be nurtured, “said a spokeswoman.

“BYE BYE WASH TRADERS”

Nevertheless, trading activities provide a window to the vague and speculative nature of the NFT industry. $ 25 billion It is equivalent to the sales volume in 2021.

The topic of this new market is underpinned by art goods such as CryptoPunks and Bored Apes, and portraits generated by algorithms that sell for millions of dollars. They are in the spotlight of celebrities, with social celebrity Paris Hilton and television moderator Jimmy Fallon showing off a boring ape lately.

From Coca-Cola to Gucci, several large companies are testing temperatures with their own NFTs. On the other hand, in the world of art, $ 1 for every $ 20 Last year’s top auction house revenue percentage was from NFTs.

John Egan, CEO of L’Atelier, BNP Paribas’ Technology Research Division, said Reuters-reviewed LooksRare transactions, assets in traditional markets such as stocks and debt.

However, such transactions are not illegal in this early industry, as there are no equivalent rules governing NFTs, two crypto legal experts told Reuters.

Eagan added that LooksRare “is not responsible for itself” in the transaction. “It’s a marketing incentive,” he said. “Looks Rare effectively pays large investors to use the site, attracting a lot of attention and attracting new users in the process.”

For platform supporters, this may be a healthy strategy to succeed in the virtual gold rush. Meta When Microsoft Spend billions of dollars to promote their own vision of the Metaverse and pave the way for future profits.

According to DappRadar data, January bumper activity also overtakes 4-year-old market leader OpenSea, with less than 3,500 traders per day compared to OpenSea’s 57,000-90,000. Regardless, it meant becoming the largest NFT marketplace in monthly volume.

OpenSea did not respond to Reuters’ request for comment on this article.

A Twitter user called “dingaling,” said Looks Rare, Reuters is a platform investor and advisor, wrote a thread on January 12th to gain market share, although disguise trading on the platform looks ugly. He said it could be part of the “necessary steps” of. Providing a more transparent and decentralized marketplace for the NFT community.

“People are really crazy about clothes trading, but I’m having a hard time understanding why. It’s a free market,” Dingering added. “Goodbye to wash traders once the actual volume is taken over.”

Did you meet at MEAT SPACE?

From a regulatory perspective, authorities around the world are concerned that the rise of crypto assets can undermine the financial system, foster crime and harm investors.

Previous efforts have focused primarily on cryptocurrencies rather than NFTs. Cryptocurrencies are one-time, irreplaceable, and inherently very diverse, creating new issues such as classification methods.

“Generally speaking, the majority of jurisdictions should not regulate NFTs as financial instruments if each NFT represents a truly unique item (eg, unique collection, work of art, media content, etc.). We are aware of that, “says partner Hagen Luke. At Global Law Office Reed Smith.

Traditional authorities may also need to close cultural gaps.

The founders of LookRare are only identified by the pseudonyms Guts and Zodd. A spokeswoman described them as “NFT geeks,” saying that the platform teams are spread across different time zones, and in most cases “have never met each other in the flesh space.”

Meat space is a term used by internet enthusiasts to refer to the real world.

One of the most frequent NFT traders known as “Rizzle”, who primarily uses OpenSea, is one of the market’s leading players attracted to LooksRare by its reward model.

Rizzle first joined LooksRare after receiving free LOOKS tokens bet for profit. Since then, he has been using the marketplace for trading, saying he likes some features.

“It wouldn’t be surprising to see other platforms pop up with even greater initial incentives to reach this same audience,” he said.

Report by Elizabeth Howcroft; Edited by Pravin Char

Our criteria: Thomson Reuters Trust Principles.