The FTX incident can be called the “Lehman moment” of the encryption world. The development speed and scope of the incident have far exceeded previous imagination. Whether it is from the traditional centralized exchange (CEX) or various investment funds, they have been continuously hit by the FTX incident, and the crisis has begun to spread to the NFT market. This article deeply restores the slump of BAYC, tracks the impact of well-known NFT projects in the market, and gives an analysis of the reasons for the slump of blue-chip NFTs. So amid such drastic changes, how should NFT participants view the NFT market in a panic environment? How should investors respond?
BAYC’s Plunge and Its Reasons
BAYC plunge and Franklin arbitrage process
BAYC is the leader in the NFT market, and its status can be called the BTC of the FT market. Due to the limited total amount (only 10,000 pieces) and the relatively high proportion of diamond hands, its price changes are more likely to be influenced by large investors. Franklinisbored is the 7th largest holder of BAYCs with 58 apes to date.
Another drop of BAYC floor, another day of the TL “discovering” that I borrow ETH using my apes as collateral, to buy more apes and attempt to flip for profit. And because they aren’t doing it themselves, it’s “bad for the project.”— Franklin has 59 apes (@franklinisbored) November 15, 2022
More buzzwords: “liquidation,” “leverage” etc.
A long time ago, Franklin stated on twitter that he obtained profits by mortgaging BAYC, lending ETH and suppressing the floor price at the same time, and after each execution of this arbitrage operation, he would organize Twitter Space to introduce him to his friends How to carry out arbitrage, announce the method of arbitrage to their friends and discuss whether there is room for improvement. Under this set of operations, even if BAYC’s market is not good and it is in a down state, he can still obtain very considerable profits. Let’s see how he executes the arbitrage operation.
- The low price induces pending orders, and the active acceptance of offers creates the illusion of selling by large investors. Compared with FT, the liquidity of NFT is limited, and for a big blue chip like BAYC, one can easily cost hundreds of thousands of dollars, and the floor price is very easy to be manipulated. Franklin has 58 apes, and the relatively sufficient number provides him with room for arbitrage. He first placed an order at a list price close to the floor price, and the phenomenon of low-price pending orders induced other holders to follow the pending orders, and then he picked 1-2 relatively low offers to accept the counterparty’s transaction invitation. Then this operation can easily create a false impression for others – that is, there are large households who are “clearing out the goods”. The lower price of his pending order formed a positive feedback of panic. And we know that BendDAO’s oracle price feeding mechanism is to get the floor price floor parameter from various platforms such as Opensea\X 2 Y 2, etc. Franklin’s operation triggered a chain reaction through the oracle price feeding, and triggered the liquidation of BendDAO.
- Obtain ETH by mortgaging BAYC, and backhand bid for BAYC at a low price. On the other hand, Franklin put his other 14 BAYC in BendDAO for mortgage and lend ETH. Bid on BendDAO with the loaned ETH and the remaining funds (mainly the ETH obtained by accepting the low-priced offer in the first step), and the bidding range is between 43 ETH and 44.3 ETH.
- Implement arbitrage based on debt repayment within 24 hours. After the above two-step operation, with the drop of the floor price and its bidding on BendDAO. Usually there are two situations:
- If the person who pledged BAYC pays off more than half of the debt within 24 hours (BendDAO has adjusted to 24 hours since the last revision of the rules), then Franklin can get the first bid bonus. The amount is 5% of the total debt. If calculated with 45 ETH, the first bid bonus is 2.25 ETH.
- If the debt is not repaid within 24 hours, Franklin wins the auction, wins the bid for BAYC at a very low price, and sells it backhand on Opensea or X 2 Y 2 . Of course, the premise of this is that the floor price does not drop sharply within this very small time gap. If calculated at the bidding price of 43 ETH, if it is sold at a floor price of about 49 E on OS and other platforms, 6 ETH can be obtained.
Of course, there is also a situation at this time that the borrower fails to repay the debt within 24 hours and a third party happens to win the bid (of course, the probability is very small), at this time Franklin will continue to place orders to hit the floor price and continue to bid, that is, repeat the second One step and two steps.
Is it panic or arbitrage?
From the above analysis, we can see that he has implemented this strategy for a long time and it is open, and he still buys when the floor price of BAYC falls. Therefore, we come to a conclusion: his strategy is short-term short-term but long-term monkey-based long-term, using the mechanism of BendDAO to sell high and buy low, and get the first bid bonus given by the platform. And judging from his own twitter name (franklinisbored) and his comments on twitter, he is a firm believer in BAYC rather than FUD. Judging from his twitter space speech and subsequent actual operations, we have no reason to believe him It’s a panic attack.
The relationship between the BAYC incident and the FTX thunderstorm
From the above, we can see that although the sharp drop in the floor price of BAYC was caused by the big player Franklin, in fact, before Franklin carried out the above-mentioned arbitrage, there were already a lot of rumors about the FTX and BAYC incidents in the market. So is BAYC’s panic really related to the FTX thunderstorm? The author has investigated FTX’s NNT holdings and investment in the BAYC series. It is true that there are many debates about the collapse of yugalab under the FTX incident. Generally speaking, the main doubts in the market have the following two aspects.
Does FTX’s Alameda Research hold a large BAYC position?
Alameda Research owns rare NFTs worth millions of dollars, a Coindesk source confirmed. The NFT series held by it contains 31 rare BAYC and 26 pieces of Otherside land. Alameda has previously used BAYC transactions as part of its NFT trading strategy, arbitrage in the market for profit. According to Nikolai Yakovenko, founder of NFT valuation website DeepNFTValue, the value of BAYC held by Alameda is estimated to be between 4,000 and 5,000 ETH (about 4.7 million to 5.8 million U.S. dollars). Although it is not large in the overall scale of FTX, this amount is not a small amount for the NFT market, and it is fatal for the BAYC series itself.
In addition, among the 31 apes, there are 3 super rare “golden apes” (golden hair), and the base price of BYAC for this feature is 1000 ETH. There are also 4 “psychedelic fur” monkeys, and the property has a BAYC floor price of 599 ETH. It can be seen that compared with the NFT market, the blue chip position held by FTX is still not small. If it sells, it will bring great selling pressure to the NFT market, especially the BAYC series it holds.
Does Yuga Corporation have a large amount of funds deposited on FTX?
According to public information, FTX participated in the seed round financing of YugaLabs in March 2022. This round of financing YugaLabs is estimated to be 4 billion US dollars, and the total financing amount is 450 million. It is led by a 16 z, and FTX, Animoca Brands and others participated in the investment. Therefore, we can see that this round of financing was led by a 16 z, and FTX participated in the investment.
The #BAYC floor is collapsing, but I told everyone last week who theor largest investor was. Idk why this is shocking. 🤝 Everything #ftx has touched is a liability. pic.twitter.com/F4uMwoduHn— VivaLaCoin (@VivalaCoinBTC) November 14, 2022
In a follow-up event, Garga, the co-founder of Yuga Lab, said on Twitter that Yugalab did introduce FTX in the seed round of financing, but its investment amount was relatively small and it had already received FTX payment a long time ago (check). Yuga Labs has never used FTX, and has no funds or assets on it. And explained in its official Discord.
Unfortunately, the NFT platform Compass tweeted that YugaLabs had 18,000 ETH and 57,473 APE stored on the FTX platform, and announced its hash transaction records, questioning the speech of the above-mentioned yugalabs co-founder.
Yo @yugalabs you okay?— Compass (@compass_nft) November 11, 2022
We’re working on something related to royalties and noticed you sent over 18k eth of your otherdeed royalties income to FTX intl.
Did you manage to get it out?https://t.co/2TyVWUkZR1 pic.twitter.com/NsbFG4NdOT
Obviously, YugaLab co-founder Garga’s statement is not convincing. After questioning Compass’s 18,000 ETHT and 57,473 APE, another co-founder of YugaLab tweeted: “The FTX incident did not affect us, although our partners will use FTX, but we do not Used FTX.COM. We had some funds on FTX.us but moved it to Coinbase for escrow earlier this week” and published the transaction hash on Etherscan. And the rest is in bank accounts and some treasury bonds.
It hasn’t affected us. We never used https://t.co/O2Im4zSXkx though some of our partners did. We had some money on https://t.co/VAZ9TQbSFB but we moved it out earlier in the week. Heart goes out to anyone who has been hurt by this insanity. https://t.co/UQF3yi4Gbs— GordonGoner.eth (Wylie Aronow) (@GordonGoner) November 11, 2022
It can be seen from this, combined with the transaction records announced by the two co-founders of BAYC and the performance of the subsequent BAYC price rebound, it seems that YugaLab itself is not affected much by the FTX incident, which is very likely to be a false alarm. The current premise of this judgment is that FTX does not sell the position of BAYC (as of now, no FTX sell-off has been seen)
Will the NFT market be affected by this thunderstorm?
The status quo of the NFT market under panic
Under the influence of the FTX thunderstorm incident, it is obvious that the NFT market has been greatly affected. Since November 7, indicators such as NFT sales, market value, daily trading volume, and number of traders have all declined.
It can be seen from the data analysis platform NFTGO that the blue chip index has fallen sharply in the past few days. And we know that the NFT series that make up the Blue Chip NFT category include top blue chips such as BAYC, Cool Cats, CryptoPunks, Art Blocks, and CloneX. Since Nov. 7, the index has fallen 6%.
In addition to the decline in the blue chip index, the total market value and sales volume of the NFT market have both declined. According to NFTGo data, since November 7, the total market value of the NFTs market has fallen by 8%, and the total sales volume has dropped by 32% during the same period.
The daily transaction volume on Opensea has dropped by 41%, which is in a state of extreme shrinkage. Other platforms such as NFTX, LooksRare, etc. have all experienced sharp declines, and the LoosRare platform has even fallen by 48%. It can be seen that the entire market is greatly affected by panic and the FTX incident.
Tracking analysis of NFT project affected by FTX event
In view of the fact that the BAYC series is affected by the aftermath of FTX, we have tracked some well-known projects in the current NFT market, and it seems that some NFT projects are still affected. Whether it is affected by the FTX event and the extent of the impact is shown in the table below.
Among them, NFTs such as CloneX, Doodles, CoolCats, and fat penguins have almost no funds stored in FTX. An NFT project with a greater impact is Star Atlas. About 50% of the project’s treasury funds are stored on FTX, and the current game development has not yet been completed. And we know that NFT game projects require a lot of funds to develop and operate. Under the current bear market conditions, there is no doubt that the boat leaked and suffered overnight rain. In a letter to the community from Star Atlas CEO Michael, we can see that the project may not continue to operate without follow-up funds.
Other projects have had relatively little impact. And some NFT projects have been publishing documents one after another, indicating that they have no position on FTX. The most prominent of these is Pudgy Penguins, who even provided details on how their funds were distributed. That is, 70% of the funds are in the bank, 20% are in the multi-signature wallet, and the remaining 10% are in the gnosis wallet.
To sum up, the thunderstorm of BAYC in the NFT market is more like a false alarm in the overall bear market environment. In such a turbulent environment in the encryption market, it will inevitably be affected to a certain extent but will not collapse. Judging from other NFT projects, it is true that some NFT project parties may be affected by the FTX incident, either accept FTX investment, or have funds deposited on the FTX exchange. However, according to the current statistical results, more than 80% of NFTs are not affected.
Therefore, one should not follow the trend to FUD the current NFT project, which is limited by the FTX incident. Let us hope that the aftershock of FTX will pass as soon as possible, and the encryption market will recover as soon as possible. With the integration of various tracks of NFT encryption, we look forward to the early arrival of the next NFT spring.