When it comes to NFT sales, CryptoPunks is one of the most dominant names. Created by NFT originator Larva Labs, hundreds of “Punk” NFTs have changed hands on secondary platforms, allowing the creators to rake in billions of dollars to date.
However, just before the 2021 Halloween weekend, CryptoPunks became the most-discussed subject on the internet. Everyone in the crypto community was astounded that someone actually paid $532 million worth of ETH (ether) to purchase CryptoPunk 9998, one of the 10,000 pixelated JPEGs.
A Peek Behind The Scenes Of The Record-Breaking Sale
As soon as the Twitter CryptoPunks Bot account tweeted the announcement, highlighting that a certain address had bought the NFT for 124,457.07 ETH, cryptoverse experts jumped in on the action. Social media users quickly pointed out that the sale may have been a planned “publicity stunt” since CryptoPunks are among the most sought-after NFTs. But speculations took an interesting turn as a few hours later, after discovering that it wasn’t legitimate although a sale had occurred.
Red flags started popping up as more and more industry experts started investigating further details of the transaction. While some suspected a brazen act of illicit money laundering, others assumed it to be just another day of “wash trading.” At the same time, people wondered why someone would dare such a risky endeavor on a decentralized network like Ethereum, which is known for its transparent record-keeping.
Following in-depth research, crypto experts pointed out that somebody transferred the pixelated NFT between Ethereum addresses before selling it for such a high price. Apparently, all of the funds were borrowed, especially from the DeFi lending platform Compound.
So what happened here?
Well, the sale of CryptoPunk 9998 is a well-executed flash loan attack. It didn’t involve any money laundering, but someone used a collateral-less DeFi loan to artificially “inflate” the value of the NFT. They borrowed more than 124,000 ETH via a flash loan, sold the NFT, and then purchased it back with the original account and repaid the loan simultaneously.
While the DeFi ecosystem needs to implement better measures to ensure these kinds of instances aren’t repeated, it is also essential to appreciate the beauty of the underlying blockchain technology. Within a matter of hours, the crypto community could decipher the string of transactions connected to the wallet holder’s address. The transparent nature of the distributed ledger technology (DLT) played a critical role in illustrating that the buyer and the seller were the same individual.
Per Sascha Epp, Co-Founder of Creaton, “The 500 million flash loan, no matter what the individuals’ reasonings were, showcases the sheer endless and immense possibilities true decentralization, DeFi and NFTs can provide. Seeing that the community had full transparency of the transaction also speaks volumes about the power of blockchain. There is so much intrinsic value and versatility that is often overlooked in this space, which is clearly illustrated in this case.”
The CryptoPunk 9998 sale, although no longer considered a valid transaction, has still made its mark as an example of things that could go wrong in the evolving world of DeFi and NFTs. At the same time, it also showcases the inherent quality potential of blockchain technology and the importance of transparency in financial transactions.
Talking about the future of NFTs, Lior Yaffe, Jelurida Co-Founder and Director, notes, “I’ve been thinking a lot about the combination of NFT and digital artwork and how they can be used together but things still don’t add up. True, some physical modern art work does bear some resemblance to these digital pixelated gifs that people are supposedly trading for millions on chain, but it is not the same since protecting digital content is much more difficult than protecting physical content and there is no adequate legal framework at the moment to protect the rights of digital content owners against copycats. Therefore I expect this trend to gradually disappear.”
Are NFTs just another “internet trend” that will fade away sooner than expected?
Will DeFi ever be able to serve its true purpose?
The answers to these questions will come to light with time as nascent technologies continue to evolve and adapt to real-world scenarios. But for now, we can rest assured that decentralization has endless and immense possibilities, the majority of which remain untapped.
According to Sascha Epp, the Co-Founder of Creaton, “The 500 million flash loan, no matter what the individuals reasonings were, showcases the sheer endless and immense possibilities true decentralization, DeFi and NFTs can provide. Seeing that the community had full transparency of the transaction also speaks volumes about the power of blockchain. There is so much intrinsic value and versatility that is often overlooked in this space, which is clearly illustrated in this case.”
In the meantime, the new owner of the “now infamous CryptoPunk 9998” has listed it for sale. It could be yours for 250,000 ETH (roughly a billion dollars), but you can no longer exploit a flash loan to purchase it, thanks to blockchain technology.
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