$19 million smashes the entire NFT market, re-evaluating the liquidity brought by Blur.

Original author: Jack, Cookie, BlockBeats

The NFT market is experiencing an "El Niño phenomenon".

Since the NFT market hit a low point at the end of June last year, the overall trading volume has not shown much improvement. In early November, the frenzy of Art Gobblers created a pulse in the market's weekly trading volume, and also gave Blur its first victory over OpenSea in terms of trading volume. After that, the market's trading volume quickly returned to the average level since the end of June, and Blur ate up more of the liquidity that originally belonged to OpenSea. However, at this point, everyone still feels that Blur has a long way to go to defeat OpenSea.

Until the introduction of the "Bid for Airdrop" incentive mechanism in early December last year, Blur became the "engine" of NFT market liquidity. The last two sudden long lines in the black box section of the following figure tell us that in the past two weeks, this "engine" has been exceptionally "heating up".

NFT market weekly trading volume distribution, with the black box representing the period from the end of June 2022 to present, image source from Dune Analytics

Along with this sudden surge of liquidity, many "abnormal phenomena" that have never been seen before have also appeared in the NFT market. Bids exceeding the floor price, NFT prices "drawing doors", and last weekend's "largest NFT crash in history" have made the current NFT market feel unfamiliar, prompting us to re-examine whether the liquidity in the current NFT market comes from innovative mechanisms or from the internal circulation of existing funds among platforms.

"The Biggest NFT Sell-Off in History"

On February 25th, Nansen researcher Andrew Thurman tweeted that the past two days of selling may be the "largest crash in the history of the NFT market."

Huang Licheng, a Taiwanese singer also known as "Machi Big Brother", sold 136 Bored Ape Yacht Club (BAYC) NFTs within 48 hours from February 24th to February 25th, with the lowest selling price at 58 ETH. After the intense trading, Huang still has 34 BAYC NFTs on sale. According to Nansen, Machi Big Brother sold a total of 1010 NFTs during this "dumping" period, including 90 BAYC, 191 MAYC, 112 Azuki, and 308 Otherdeed, with a total value of approximately $18.6 million.

Under the dual effect of the crackdown and panic, the floor price of BAYC dropped by as much as 25.5%, from 75 ETH to 55.89 ETH, while the floor price of MAYC dropped by 11.7%, Azuki dropped by 11.3%, and Otherdeed dropped by 10% under the influence of MaJi. According to NFTGo data, from February 23 to February 25, the total market value of the entire NFT market evaporated by more than 320 million US dollars.

"Mahjong Flywheel" becomes "Mahjong Big Cut"

Although Huang Licheng quickly bought back most of the blue-chip assets and still has nearly 7000 ETH in his Blur Biding pool, this has not changed the community's view of this dumping behavior: Huang Licheng has once again gone from being a "buddy" to a "buddy who cuts deeply".

Readers who understand the Blur Biding mechanism naturally know why this transaction is called "passive takeover". Simply put, Huang Licheng placed many Bids at an average price of 78 ETH, but he may not have expected someone to sell so many monkeys at once. In other words, our buddy was "sniped". (BlockBeats note, for more information about the Blur mechanism, please read "NFT platform Blur: perhaps the best NFT viewing platform with the best experience" and "Analysis of the operation mechanism, profit model and user experience of NFT market Blur".)

In order to earn more points on the Blur platform, Huang Licheng has been placing a large number of high-priced bids in blue-chip NFT projects such as BAYC, MAYC, and Azuki, while siphoning off blue-chip assets and earning BLUR airdrops, occupying the top spot on the Blur points leaderboard for a long time. Some members of the community have summarized Huang Licheng's strategy as the "Mahjong Flywheel," which can be summarized as follows:

1. Mahjong combined and staked his Bored Ape Yacht Club (BAYC) and Ape tokens to earn Ape rewards. He then converted these rewards into ETH and accumulated them.

2. Maji takes these ETH to participate in bids on Blur, and uses the received BAYC to pledge and hold.

3. Mahjong received 1.84 million BLUR in the first airdrop, and immediately converted half of it to ETH upon receipt, and participated in Bid again.

Image source from anymose.eth

Actually, Ma Ji's strategy is similar to most players participating in Blur Bid, or rather, this is the basic logic of Blur's continuous liquidity. However, perhaps because the first bird gets shot, the fattest liquidity will always be targeted by others. Ma Ji targeted Blur points, but others targeted the ETH in Ma Ji's hands. Now let's take a look at the whole process of the "Ma Ji Flywheel" being targeted.

麻吉「被狙」始末

translates to

Story of the "Ma Ji" Being Targeted

in English.

Since the beginning of February, when the Blur airdrop points entered the white-hot stage, our buddy has been hanging high bids and slowly raising the floor of BAYC, and also sporadically taking some sell orders of BAYC. However, from the trading chart of Blur, it can be seen that our buddy did not invest too much liquidity during this period. For example, around February 8th, when the price of BAYC rose above 70 ETH, the trading density immediately became very high, but the Bid wall near this price was not thick enough, so the floor was quickly smashed down.

The content you provided is:

The image source is from Blur

However, after the first round of airdrop distribution of BLUR tokens by Blur on February 14th, Maji immediately sold $600,000 worth of BLUR tokens. Subsequently, we could clearly see the Bid wall above 70 ETH becoming thicker. Despite the increased trading activity, due to the wealth effect of BLUR, there has always been sufficient liquidity to maintain the floor price of BAYC. As the top-ranked player on the Blur leaderboard, Maji is naturally a key player in the liquidity of BAYC.

It can be seen that during the period from February 14th to 22nd, the floor price of BAYC has been very stable, and even reached a recent high. Mando and OSF saw this and decided to cash out a large amount of BAYC they held at a time when the price and liquidity were both high. You will clearly see that the trading density of BAYC increased rapidly from February 20th to 22nd, but the floor price remained relatively stable. This is the data performance of snipers like Mando and OSF who are rapidly eating up the Bid wall of their buddies.

Until February 22nd, Maji bought 71 BAYC, Mando, and OSF in one go, cashing out nearly $9 million. The community only began to pay attention to this matter on that day, and nearly 300 BAYC were sold throughout the day. Mando later directly posted on his social media that the decision to sell BAYC was made after careful consideration, in order to profit from the current NFT liquidity.

Perhaps because he had too many BAYC in his hands and was afraid of causing panic in the community, Ma Ji immediately deposited 3900 ETH into Blur, implying to the community that he would not sell these blue-chip assets and end his "Ma Ji Flywheel". Of course, the final situation is that Ma Ji massively sells off in the following two days, blue-chip projects lose "Ma Ji liquidity", Bid walls are instantly smashed, and the liquidity of the entire NFT market collapses as well.

During the season of high liquidity, a mere $19 million caused a major earthquake in the entire NFT market, forcing us to reconsider how much money is really in the NFT market. Is the current liquidity coming from off-platform funds or from rolling stock funds between platforms?

机器人和恶庄，「激素流动性」下的 NFT 百态

Robots and Villains, NFTs in the "Hormone Liquidity" Era

After the appearance of the Blur airdrop, the NFT market was like a shot of adrenaline, and a surge of hormone-like liquidity followed. This was accompanied by various "hormonal side effects", in addition to the "Mahjong Big Cut" incident, there were many similar situations where bids were placed in bulk for NFTs at prices higher than the floor price. We also frequently see NFT projects with high trading volumes at high prices, and there are also many cases where the floor price is "locked". Even in a post on the Ethereum forum on Reddit, there were questions about the Blur team using a bot to brush the BLUR airdrop. For a time, this NFT market even felt somewhat unfamiliar.

New Business! The Great Migration of Robot Strategies

Robots are already very common in the Web3 field, from trading robots, sniping robots to contract robots, they are almost everywhere in the encryption field, and the same is true in the NFT field. According to a robot strategy developer who spoke to BlockBeats, in their view, the entire Web3 is almost all robots. "If you randomly click on a popular NFT collection on OpenSea, most of the offers are bid and sold by these bidding robots. They usually place an order every 30 minutes, and many times the price is driven by these robots. This robot lowers the price by 0.1 ETH, and that robot also lowers the price by 0.1 ETH, so the price slowly goes down, and the same goes for raising the offer price."

So when it comes to the main force of NFT liquidity, it has always been these robots that profit by flipping NFTs on OpenSea. This makes sense, as algorithms can always outperform humans, and capital always flows towards maximizing profits. Following this logic, Blur has also created a new business for NFT robots.

"Previously, NFT robots pursued lossless strategies, aiming to target those 'fat-fingered' users (such as those who mistakenly bid high prices, allowing robots to buy at lower prices and then accept the bid at a higher price), as well as high profit and loss ratios. Combining this with the previous floor price and recent sales of the NFT collection, software analysis was used to make trading decisions. However, things are different now. Basically, all robot strategies have changed to focus on farming points, as long as the purchased NFT does not lose money, even a small loss is acceptable," the robot strategy developer told BlockBeats. Compared to the previous buy-and-sell on OpenSea, the returns from farming airdrops on Blur have higher certainty and investment returns, so from a strategy development perspective, few people will choose to invest heavily in the former."

This is precisely one of the important factors that led to Blur's victory over OpenSea in the liquidity war: they bribed the main force in market liquidity, and these steadfast liquidity providers made the choice to migrate from OpenSea to Blur.

Currently, the vast majority of addresses participating in Bid are bots. "If you randomly click on a homepage of an address and it bids more than one or two hundred times a day, it must be a bot because manually bidding would take a long time just to sign," said a source. So what do NFT bot strategies for emptying airdrops look like? To protect the profits of strategy developers, BlockBeats only displays some of the eliminated scoring strategies here. 

Strategy One: MEV Front-running

This strategy exploits the loophole in the Bid transaction process of Blur to brush points at zero cost. Assuming that the floor price of BAYC on Blur is 70 ETH and the highest Bid is 71 ETH, the bot will place a Bid order of 71.1 ETH. If someone accepts the Bid, their BAYC will definitely be sold to the 71.1 ETH order.

If viewed from the perspective of trading strategy, this transaction is definitely a loss because the highest Bid quickly fell back to 71 ETH after the transaction was completed. However, the Bid acceptance and scoring mechanism of Blur before this transaction was: Bid is accepted, points are settled for the bidder, funds are drawn from the Bid pool, and finally the NFT is transferred to the bidder. This process takes about 5 to 10 minutes, during which the robot uses Ethereum's MEV mechanism to prioritize the "withdrawal of ETH from the Bid pool" operation before the "Blur withdraws bidder funds" operation in the same block where the Bid is accepted. In addition, the "withdrawal of funds" operation can be completed not only through on-chain methods, but even directly through Blur's API.

That is to say, when Blur really needs to take money from the bidder's Bid pool, the funds in the pool have already been transferred away. In this case, Blur will be considered a failed transaction, but the points have already been "free-ridden" by the Bid robot, "the entire process, the cost paid by the robot is only 2U of Gas". A robot strategy developer told BlockBeats that this strategy is particularly profitable on blue-chip NFTs such as BAYC, Doodles, and Azuki, because the Bid orders here only need to be ranked first, even if they only last for 5 minutes, the points' earnings are very considerable.

Of course, Blur has already fixed this vulnerability and added an API interface to cancel pending orders. If an address cancels pending orders or jumps the queue multiple times, not only will they not receive points, but they may also have points deducted and even face account suspension.

Strategy 2: Unlimited Bid for New NFT Collection

This strategy relies on the ban on trading newly listed NFTs through Blur to achieve a certain degree of "infinite scoring". Since Opensea identifies stolen NFTs, Blur does not allow recently transferred NFTs to be traded within 3 hours of the transfer transaction to prevent Bid participants from receiving stolen NFTs. Therefore, the robot can bid without worry during these 3 hours, for example, if the floor price of a certain NFT collection is 1 ETH, the robot will compete to place Bid orders of 2, 3, or even 10 ETH. At this time, the seller cannot accept the Bid, but the bidder is eligible to earn points.

The Blur team also fought fire with fire and recently made changes to this policy. They adjusted the ban on trading new NFT collections from 3 hours to 1 hour. According to some strategy developers, many people bought large quantities of NFTs priced at 3 ETH or 5 ETH, only to find out that they were actually floor NFTs worth only 0.1 ETH. This led to serious errors in robot strategies.

Of course, strictly speaking, we cannot call the losses caused by the team change mechanism a mistake. However, according to some robot players, there are indeed some "clumsy" players in the current NFT robots, who suffer from fund losses due to strategy loopholes. For example, some bidding robots calculate the bid range by crawling the floor price of OpenSea, but sometimes NFTs on OpenSea adopt other bidding mechanisms, such as accepting USDC for transactions. However, some robots do not distinguish the pricing unit, so they mistakenly calculate 10 USDC as 10 ETH, which can cause significant losses.

According to a strategy developer, it has been revealed that the high-priced bulk access to blue-chip NFTs circulating in the community is mostly not due to robot errors, but rather due to people thinking that Blur can bid on rarity like OpenSea. These users gave high bids after filtering for rarity, only to realize later that they were bidding on all NFTs.

There is also a robot that crawls the official popularity ranking list of Blur and calculates a reasonable bid range. However, due to the airdrop activity in the first phase of Blur, the project party can also earn points by posting projects on Blur. Therefore, many "evil dealers" set up traps, artificially increase trading volume and raise prices, and then dump the market. For robots that are eating "airdrop low insurance" in Bid Pool 2 or 3 (the price range where Bid Wall ranks second and third), it is easy to be caught off guard by market makers and become "bagholders".

Yes, robots are often used as appetizers by the bankers, which leads to the next topic: how do "evil bankers" "harvest" in the current NFT liquidity?

More liquidity = more and worse market makers

On one hand, they are shouting "high and hard liquidity", on the other hand, there is the "painting door incident" of NFT projects such as Franklin and Concave World, which is the current situation of NFT liquidity. It must be admitted that Blur's Bid mechanism and airdrops have indeed brought some off-market funds to the market, but it needs to be seen that this part of off-market funds is not much. As we can see, the NFT market is harvesting through the false name of liquidity, and retail investors are cashing out, while project parties are hunting for the limited liquidity.

A founder of an NFT project told BlockBeats in an interview that many small NFT projects now use the mechanism of Blur for insider trading. These project parties will first brush up the trading volume on OpenSea, and then go to Blur's discord to list their NFT collections. After having a bottom price on OpenSea, they will slowly raise the Bid order and earn points on Blur. During this process, some project parties choose to list some NFTs at the same time, so even if their Bid is executed, they can still partially recover the cost of selling the NFTs. While some project parties hold most of the NFTs in the collection, so they can arbitrarily raise the price to earn points, and they will not sell their NFTs to others who bid on them.

Of course, the ultimate goal is to attract retail investors or robots to participate in the Bid. Retail investors are driven by FOMO emotions caused by the rapidly rising floor price, while robots are attracted by the higher trading volume. Once the Bid wall reaches the expected thickness of the project party, they will immediately withdraw their own Bid and then sell their NFTs to these bidding retail investors and robots.

With more abundant liquidity, the market has also encountered a more treacherous trading environment. According to a Bid participant, such projects were very common during the Blur airdrop period, and he himself has been cut many times. "If the robot is bidding for collections based on the Blur popularity list, the probability of encountering such projects is basically 100%. One night, I fell asleep without watching the market, and when I woke up, all the money in the robot was gone."

Sometimes, this situation even occurs in projects with a certain community foundation, such as Cool Cats and Art Gobblers. For example, in the past, many bidders lost a lot of ETH due to the skyrocketing and plummeting prices of Franklin and Concave-Convex World's floor paintings. Therefore, before placing a bid, users must carefully understand the relevant information of the NFT project, such as trading activities on OpenSea, unique holder ratios, and recent Bid and transaction activities on Blur. If there are few selling behaviors but Bid walls continue to accumulate, extra attention to risks is needed.

Of course, after the increase in volatility, we also need to start cultivating some new habits, such as real-time monitoring of the NFT floor price to prevent our "low bid" from being passively traded. We can use SnipeNFT on Discord or Etherdrops on Telegram to receive real-time alerts. In addition, before depositing ETH into the Bid pool, we need to ensure that our Bid is not disabled due to insufficient funds, to prevent the situation where the Bid is activated after ETH is deposited and then NFT is bought at a high price.

散户鲸鱼谁是赢家，NFT 市场变得更好了吗？

translates to

Who is the winner between retail investors and whales? Has the NFT market improved?

According to the data released by NFTstatistics.eth, the research director of PROOF, from February 15th (the start of the second season of Blur airdrop activity) to March 1st, the trading profits of the top 10 Blur Bid Farmers were all negative.

The image source is from NFTstatistics.eth

Corresponding to this data, only 17 wallet addresses contribute to 20% of the total trading volume of Blur, and 292 wallet addresses contribute to 50%. In the Blur Bid Pool, the top 1% of wallets in terms of deposited ETH contribute to over 73% of the total pool amount. Whales seem so confident that Blur's second round of airdrops will cover all the costs they paid in the "Bid War" that @ShaneCultra, who used to be a market maker at the Chicago Options Exchange, said, "Traders on Blur cannot be called market makers. They just think that the profits from Blur's airdrops will cover their trading losses and roll into a tornado, rather than maintaining a reasonable spread measured in $BLUR between their Bid and List prices."

On the active project of whales in the encryption industry, retail investors have obtained the "dream package" that was previously unattainable - a minimum of 0.5% optional royalties, 0% platform fees, lower slippage and better depth. It seems that this time, retail investors and whales have won together. However, the "dream package" is actually a "paid service" provided by whales to retail investors in a way of trading wear and tear in order to pursue the potential profits of Blur airdrops. Will this happiness last? In addition, @takenstheorem analyzed 100,000 transactions as of February 14th and found that 80% of Blur's trading volume is concentrated in the top 24 projects, while OpenSea's 80% trading volume is dispersed among the top 90 projects. Blur is making big players and big projects stronger. In response, some say, "Don't blame Blur, it's just that your project is garbage." Is this fair to the vast community of small and medium-sized creators?

NFT has the same liquidity as FT, which is what NFT players dream of. But now, are we pursuing better liquidity solutions, or have we already made NFT liquidity the greatest value of NFT?

NFT needs to have an FT-like experience, but it is not about aligning with the value logic of FT. Liquidity solutions are the "catalysts" rather than the "raw materials" for the NFT market. The NFT market bubble can be amplified, but it requires practical application scenarios, solid brand development, and constantly updated development narratives to make the bubble land steadily.

Are these aspects really advancing? Or are they really being cared about? If not, does the foam generated by the "catalyst" with unchanged "raw materials" really make the NFT market better? When a token-based incentive for NFT infrastructure replaces the attractiveness of NFT projects as the "engine" of liquidity, and when small and medium-sized creators become increasingly difficult to navigate in this market, we should feel a hint of danger.

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