The NFT craze does not end. On the evening of October 28th Cryptopunk # 9998 was traded, the first to be purchased at a value of more than 100 million dollars: 532 million at the time of purchase, or well 124.460 Ether (ETH). The NFT, which belongs to the collection CryptoPunks (known to be the collection with the largest trading volume on the Ethereum blockchain), it was previously purchased for 110 Ether (ETH), around $ 350,000.
The owner of the NFT would thus appear to have made a profit 1500 times higher to purchase. But the reality of the facts is very different, and this is unfortunately a dynamic that can happen in the crypto industry, but which is not readily recognized: after all, it is not so easy to ‘read’ the transactions that take place in a blockchain. In this case, the exchange that took place for the astronomical figure was a case of so-called ‘pump’ of the price. Basically, the current owner had an interest in increasing the value of their NFT, and the only way to do that was to buy it for themselves, with another address, for a higher amount.
As the user writes mariano.eth its Twitter, the owner of the address starting with 0xef764cb bought the NFT on August 11 for 110 ETH. A different address, on the same day, made him a proposal for 155 ETH to grab the digital avatar, and then retire two days later. After more than two months of absence of new proposals (probably the user was expecting an offer 10 times greater than that expense), the same address 0xef764cb has transferred the NFT to another address of his (0x8e3983), to then begin the complex price increase operation. With the same transaction, in fact, the user has, from a third Street address (0x9b5a5c):
- Loaned 124,457 ETH from different sources (dYdX and Compound, two decentralized credit management platforms)
- Used the ETH to buy the NFT from the address 0x8e3983, who then received that amount
- Transferred the 124,457 ETH from the address again 0x8e3983 at the address 0x9b5a5c
- Repaid the 124,457 ETH of debt
The most interesting part of all this is the mode: the user has in fact exploited a financial instrument unique to the blockchain to perform this operation in a single shot: the flash loan, or instant loan.
What is the flash loan?
The flash loan is an exclusive financial tool of the blockchain industry that allows a user / investor to borrow large sums of money (tokens) and pay it back in the same transaction. The user can then to build, through specialized platforms, transactions that require two or more operations, in the event that there is a direct advantage (profit) in exchanging large amounts of money: for example, if a token has different prices on two or more exchanges, you can take advantage of these differences to buy in the place where the token has a lower price and sell in the place where the price is higher.
Whatever the type of transaction constructed, the flash loan offers guaranteed protection: if even just one of the transactions involved fails for any reason, the whole transaction is not realized, and therefore no one loses money. This is possible because, as long as these operations last the time strictly necessary to remain in the life time of generating a new block on the blockchain (on Ethereum it is 20-30 seconds), there is always time to cancel and act as if nothing. ever happened.
The reason
There are many reasons why someone may have done something like this: for example, they may have wanted to suddenly increase both the price of their NFT (to hope to receive even higher offers) and at the same time increase the volume of NFT trading, which it is newsworthy that attracts new users and therefore new potential buyers. The timing was perfect, as the deal was done shortly after the announcement of Meta, the new Facebook name. Meta will have a strong focus on the metaverse, and there will be integrations with NFTs, which will then become even more relevant as a scarce commodity.
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