An NFT Artwork Just Made History… Or Did It?

An NFT Artwork Just Made History… Or Did It?

A CryptoPunk with wild hair and black lipstick — traits that aren’t particularly rare when it comes to the pixelated NFT characters — has sold for a whopping half a million dollars in crypto this past Thursday night.

Did This CryptoPunk NFT Break The Bank?

News of the sales sent the Twitter crypto sphere into a furore as people started to wonder what had happened. Had this been the work of a wealthy, overzealous art fan? Or is something a lot more sinister underway?

If true, this sale would have made CryptoPunk 9998 one of the most expensive NFTs to be sold since the inception of the digital art form. To put into perspective, CryptoPunk 9998’s hefty price tag far surpasses that of Punk 7523 which was sold for $11.8 million in June, as well as the Beeple NFT that fetched a price tag of $69 million in March.

But as much as the world would have revelled in the sheer absurdity of pixels being sold for that much money, the fact of the matter is that this wasn’t an actual art sale. It wasn’t money laundering, nor was it an exploit or a bug in the system. On the contrary, this “sale” was the result of a little fun being had by the owner of CryptoPunk 9998 — in other words, it was a game or a prank.

So what happened exactly?

First, in this transaction, both the seller and buyer are the same person. This is what is called a wash trade in traditional finance and it is a form of illegal market manipulation that makes an item seem more valuable than it is. However, with the way crypto is regulated (or lack thereof), there is nothing to stop market manipulation in this sense.

Secondly, a flash loan provided the funds necessary to finance the controversial wash trade. If you aren’t aware, flash loans are unsecured loans that have become very popular in decentralized finance (or DeFi) and are a form of lending that is not regulated. With flash loans, you basically borrow funds and construct an order of transaction based on your terms with the funds, then pay it back once the transaction has been completed. The smart contract on the blockchain then checks whether the loan has been paid. If it has not, the transaction is reversed and the funds are returned to the lender.

And as far as the CryptoPunk 9998 case goes, the person responsible for the Ethereum address that began with “0xef76” sent the NFT to another address with the tag “0x8e39”. Shortly after, the “0x8e39” address sold the NFT for $532 million in ETH (around 124,457 Ether to be precise).

The completion of this “sale” set off alarms and notifications on social media accounts and bots, and the world of NFT went abuzz with questions like “where did this person get the money from?”

If you’ve paid attention so far, you would have realized the funds came from a flash loan — specifically from three sources of crypto including a majority of 87,000 ETH borrowed. The selling address then immediately returned the 124,457 ETH back to the buyer address, and the buyer paid off the loans. Once done, the buyer returned the NFT back to the original address and the NFT was put back up for sale again — only this time, the price tag went up to double the amount of the wash trade.

It sounds very dishonest and shady, but apparently, this isn’t the first time that people have used the flash loan strategy to purchase CryptoPunks. And without actually knowing the real owners of the addresses, we’re never going to know why the person(s) involved did what they did. They neither made any money from the trade nor was it a marketing stunt per se, but it did cost the person around 800 USD in gas fees.

Now, if you’re interested in purchasing CryptoPunk 9998, you can… if you have around 1 billion USD (250,000 ETH) to spare. Unfortunately, you probably won’t be able to purchase it with a flash loan.