CryptoSlam has flagged 80% of recent trades on Blur as “inorganic”. But does this mean it’s NFT wash trading?
NFT sales rapidly accelerated the past two months, with a week in February recording over $500 million worth of Ethereum NFT trades – and it’s mostly happening on Blur.
Blur, an upstart NFT marketplace popular for its tokenized trading rewards and zero-royalty transactions, has recently surpassed OpenSea in trading volume, and maintained its spot on the throne.
Data from DappRadar shows that in the past 7 days, Blur has traded $536.36 million, while OpenSea logged in $111.81 million. However, from these transactions, Blur had 50,313 traders, while OpenSea had 119,642. But why is that?
According to leading NFT analytics platform CryptoSlam, it may be “market manipulation.” In an announcement last week, CryptoSlam said that it would remove $577 million worth of Blur trades as it does not reflect accurate data, and that it will proceed to filter future Blur trades through an updated algorithm that flags suspicious sales.
💥CryptoSlam Update: We're Cleaning Up the Wash Trades
⚡️We're taking action to remove nearly $500 Million in wash trades, retroactively as well as applying an updated algorithm to prevent future wash trades.
— CryptoSlam! (@cryptoslamio) February 24, 2023
And CryptoSlam may be right. On-chain data shows that Blur’s sudden spike in NFT trade volume is mostly done by whales – traders who have significant holdings of any given asset, and are constantly buying and selling NFTs via a marketplace’s bid pools to “farm” token rewards for the next airdrop.
Anyway, people in the NFT space have been in disagreement on calling this method of trading that’s kind of like token flipping a form of NFT wash trading.
What is NFT wash trading?
NFT wash trading is when traders trade NFTs between their own wallets, often in inflated sums to artificially boost prices, with motives to give the illusion of liquidity, and to generate hype. This method of trading can also be done in a coordinated fashion to work towards increasing a token’s price. In other words, market manipulation.
NFT wash trading is typically done to inflate trading volume metrics, or game token reward models – just like what has happened with NFT marketplaces LooksRare (generated $8.3 billion worth of wash trading) and X2Y2 (suspected of over $116 million).
While Blur argues that analytics on Dune indicate a smaller percentage of wash trading happening on the platform – an all-time of 13.65% (approximately worth $2.6 million) rather than CryptoSlam’s alleged 80% (worth nearly $824 million), this may be an indication of how the NFT market has changed, focusing on gaming the system rather than uplifting artists.
NFT trading trends today
It’s safe enough to say that NFT marketplaces like Blur have changed up the NFT game, in a space where everyone is eager to hustle more to earn more.
Blur’s marketplace model has gained popularity with many traders, as it incentivises heavy activity with token rewards, and specifically rewards traders for using bidding pools which enable bulk trading for NFTs. This method of NFT trading bears similarity to flipping DeFi tokens, where traders rapidly flip assets for profit.
In an email sent out last week, CryptoSlam wrote that the 1% of high-value traders on Blur have been driving up trading volume on the marketplace, flipping NFTs at a rapid rate in order to generate token rewards on the platform.
“This misrepresents the current NFT market,” CryptoSlam wrote in the email, “and puts traders at risk who often chase projects’ rising action.”
Between the past 14 days, CryptoSlam notes that rival OpenSea recorded $6.6 million worth of “NFT wash trades”, making up 2.5% of its total trading volume ($249 million). Blur logged in approximately $824 million out of its total NFT trading volume of $1.02 billion – a whopping 80% of the platform’s total NFT trading volume.
While CryptoSlam has yet to analyse all data from Blur starting from its October 2022 launch until the BLUR token airdrop on February 14, CryptoSlam is saying that under its data, OpenSea is still maintaining organic trading volume, whereas Blur is not.
Randy Wasinger, CryptoSlam’s founder and CEO, says that unfiltered trading data represents an inaccurate picture of what trading trends are today, and that as an analytics platform, CryptoSlam has a duty to separate “true sales from wash, farming, or otherwise artificial on-chain trades.”
“These flagged transactions are the byproduct of token farming incentives recently introduced by Blur in their war with OpenSea and other marketplaces,” Wasinger said. “They’re not arm’s-length transactions between an unrelated buyer and seller.”
Gamifying the NFT trading system
Following the airdrop of Blur’s native token $BLUR on Valentines’ day, Blur began its surge in trading volume, surpassing OpenSea. In the airdrop, Blur launched around $290 million worth of free BLUR tokens to traders, and promised another similar airdrop in a “Season 2” campaign.
This rewards model incentivizes traders to gamify the system as it dangles free tokens once they remain loyal to Blur (using Blur exclusively and not using rivals like OpenSea and X2Y2), and trade via the platform’s bidding pools.
As of current, Blur’s trading model shows us that its heaviest users are constantly buying and selling assets, with many NFTs flipped in prices multiple times a day.
In the creation of Blur’s token incentive model, a representative said that the firm had “been extremely careful” to not reward trades based solely on the sheer amount of trading volume, in reference to LooksRare, and instead focus on rewarding liquidity.
According to public data, approximately 50% of Blur’s NFT trading volume last week was generated by only 300 wallets, with 565 wallets out of approximately 50,313 total wallets making up 74% of the total asset value locked in Blur’s encouraged bid pools.
Hey! Here are some fun facts about NFT volume:
20% of Blur's volume comes from only 15 wallets.
50% of Blur's volume comes from less than 300 wallets.
Watch the top 500 farmers drive artificial volume live over any timeframe with source below ⬇️ pic.twitter.com/chDM6B7uMv
— poof (@poof_eth) February 22, 2023
This shows that there’s only a small number of users who are actively trading NFTs en masse in a method that some consider as wash trading on Blur, and are heavily skewing recorded data.
Is what’s happening on Blur wash trading?
Upon being asked about CryptoSlam’s claims of NFT wash trading, Blur representatives pointed to data on Dune.
“We typically like to reference analysts who have a history of doing thorough research with well-documented methodologies, rather than taking bold claims at face value,” the Blur representative said. “Intellectual rigour is required to develop an understanding of what’s happening so that we can improve the space.”
Dune, compiled by pseudonymous Web3 data analyst Hildobby, shows nearly 14% of Blur’s total trade volume since its launch in October is wash trading. Before Blur’s recent surge in early February, Hildobby previously declared Blur’s trading volume as “legit”.
Under Hildobby’s methodology, Dune flags wash trades if:
- The buyer and seller used the same wallet
- If a given NFT is traded back and forth repeatedly between multiple wallets
- If the wallets involved have purchased the same NFT three or more times (only applies for NFTs using the ERC-721 token standard)
- Or if the wallets from both buyer and seller have been initially funded by the same wallet.
— hildobby (@hildobby_) February 15, 2023
While it’s true that Blur has seen a huge increase in trading volume over the past month, there’s been calls to better classify what constitutes wash trading.
Wasinger says that CryptoSlam previously used criteria similar to Hildobby’s, but now has expanded its criteria to “identify a new class of wash trades,” where it flags sales from traders who provide liquidity to NFT trading pools, regardless of the NFT’s status as a collectible or unique digital asset.
“This new class of wash trading is more difficult to detect and involves a key determination—that during a small time period, a particular wallet’s trading activity signals that it has no regard for the metadata of a particular collection,” Wasinger said. “So we assume that it is trading an asset that has a similar risk profile and is ‘substantially identical’ to other assets that were recently traded.”
Essentially, while both Hildobby and Cryptoslam are recording wash trading, they have different criteria on what constitutes as such. Cryptoslam has expanded its criteria to cover another phenomenon happening in the NFT space called airdrop farming – a method of trading where NFTs are traded en masse with the motive to boost the amount of token rewards on a platform.
As methods of trading like what’s going on with Blur’s token incentive model and airdrop farming become more popular, debates in the NFT space now revolve around how flippers are forcing major market shifts – such as OpenSea’s decision to axe out creator royalties upon Blur’s rise to market dominance.
Meanwhile, some users are of the belief that this is merely just natural evolution for the NFT space, as financial gain has been a constant key motivation for NFT traders. While some feel uneasy about the fact that some NFTs are traded and flipped just like fungible tokens, the drive to earn profit might perhaps prevail.
Rather than “NFT wash trading”, Wasinger says that “inorganic trading” is a better way to describe what’s happening at Blur – as it broadly encompasses other considerations to flag what may spike up trading volume.
Whether one would call what’s happening in Blur wash trading or inorganic trading, it’s still provoking huge market shifts in the NFT sector, impacting its rivals and even data analytics platforms. As NFT trading spikes may not actually reflect real data, players in the space are now left to reconsider and rethink how they use, trade, and collect NFTs.