{"id":9129,"date":"2023-07-05T21:22:49","date_gmt":"2023-07-05T21:22:49","guid":{"rendered":"https:\/\/nft.runfyers.com\/index.php\/2023\/07\/05\/could-blur-token-farming-tank-the-nft-market\/"},"modified":"2023-07-05T21:22:49","modified_gmt":"2023-07-05T21:22:49","slug":"could-blur-token-farming-tank-the-nft-market","status":"publish","type":"post","link":"https:\/\/nft.runfyers.com\/index.php\/2023\/07\/05\/could-blur-token-farming-tank-the-nft-market\/","title":{"rendered":"Could Blur Token Farming Tank the NFT Market?"},"content":{"rendered":"

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Few entities have shaken up the Web3 landscape as much as the NFT marketplace and aggregator Blur has in the last year. In November of 2022, it began to consistently rival OpenSea, the previously undisputed NFT marketplace champion of the past six years. By February 2023, it had left the platform in the dust<\/a>, outpacing OpenSea by as much as $400,000,000 in weekly trading volume.\u00a0<\/p>\n

Blur owes its success to a few things; it addressed a major gap in the market by providing a frictionless way to trade NFTs in large numbers via a no-frills interface featuring tools that appealed to serious pro traders. It also took a hardline stance on the Web3 royalties debate<\/a> by making them optional on the platform and later introduced its own native token, $BLUR<\/a>.\u00a0<\/p>\n

Through several airdrops, the token rewarded platform loyalty and user engagement. These users continue to interact with Blur through the promise of more airdrops to come. In May, the company dropped a lending protocol called Blend<\/a>, which was aimed at unlocking liquidity in the space and, by tying protocol activity to token rewards, further motivated users to interact with the platform.<\/p>\n

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While the aftermath of the token launch and Blur\u2019s Blend protocol saw activity spike, even securing the platform 82 percent market share in NFT lending<\/a>, Web3 observers began wondering if the marketplace\u2019s successes didn\u2019t come without a potentially larger cost to the broader NFT ecosystem<\/a>. Blur\u2019s high volumes, while impressive, have a habit of coming from just a handful of traders<\/a>, who \u2014 directly as a result of the platform\u2019s incentivization system \u2014 are often accused of wielding an outsized influence over NFT prices.\u00a0<\/p>\n

Blur is now the subject of a broader discussion in the NFT community about whether and how its infrastructure pushes NFT collection prices down, and fast. To get a sense of the platform\u2019s successes, failures, and effects on the market, we spoke to Web3 observer and OG crypto participant Mihai<\/a>, whose recent blog post<\/a> on Blur\u2019s ability to \u201cnuke\u201d NFT prices has reignited the debate surrounding the platform.<\/p>\n

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nft now: Blur has been the subject of criticism for how it affects the NFT market for months. What made you want to release this blog post now? <\/strong><\/p>\n

Mihai: <\/strong>When Blur came out, I thought it was great; we\u2019re seeing a lot of bid liquidity. I thought it could pump the markets a lot. I had always thought of NFTs as Veblen goods; the demand gets higher when the price gets higher. I noticed some large holders of NFTS were using the bids as a chance to exit their bags at price execution points that should not really be available. <\/p>\n

For example, OSF and Mando got rid of dozens of Apes<\/a>. They shouldn\u2019t have been able to get an execution that good on Blur. The only reason they did was because Blur token farmers bought up their bags and started continuously selling lower and lower.\u00a0I realized you don\u2019t have enough demand to absorb these people. It\u2019s going to start a death spiral. <\/p>\n

If Mando had sold his Apes on OpenSea in WETH bids, it might\u2019ve pushed down the price 10 to 20 ETH. With Blur, you\u2019ve offloaded it to some farmers who are incentivized to always be bidding, who are constantly willing to lose something like 0.01 ETH per Ape every time, it\u2019s very little. As a farmer, that\u2019s fine, just sell it to the next person. <\/p>\n

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NFT Marketplaces are the ones tanking the NFT market<\/p>\n

I’m fully convinced @xerocooleth<\/a> is right<\/p>\n

Here’s why<\/p>\n

The marketplace wars are not fought over volume<\/p>\n

They’re fought over having the lowest floor<\/p>\n

Whoever controls the floor controls the market & future volume<\/p>\n

This means\u2026<\/p>\n

\u2014 trevor.btc (@TO) July 4, 2023<\/a><\/p><\/blockquote>\n<\/div>\n<\/figure>\n

The problem is everyone\u2019s thinking the same way. There is no buyer of last resort. Everyone who buys is also the seller of first resort. So, what might have been an initial 15-20 ETH drop in price from the Ape sell or, because there isn\u2019t enough liquidity, he might not have sold them in the first place, is now a recurring 0.5 ETH drop per day in perpetuity instead of being bought up eventually.\u00a0Because the average NFT buyer is picking NFTs close to the floor, the supply is never able to be absorbed by real buyers. <\/p>\n

When I saw that, it was startling but not alarming yet. Then Blend was introduced. They removed listing points, and there is no royalty on dumping. Ever since Blend came out on certain collections, royalties have gone down. You no longer have any listing potential, and the majority of the volume is people dumping into bids.<\/p>\n

nft now: The Blur team claims these market dynamics are necessary for the NFT space to grow, as they are at the heart of what allowed other industries to scale. How do you view these statements and ideas?<\/strong><\/p>\n

M:<\/strong> I tend to agree with Pacman on most things. The pre-Blur NFT market was really inefficient, and it might have even been driving people away, which is my speculation. I was very happy with Blur popping up and having a zero friction, zero royalties, instant liquidity situation.<\/p>\n

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\u201cI love Blend. What I don\u2019t like is how the incentives are structured.\u201d<\/p>\n

Mihai<\/cite><\/p><\/blockquote>\n<\/figure>\n

I love Blend. What I don\u2019t like is how the incentives are structured. Blend, simplified, is a kind of mortgage. You put down the down payment and continuously start paying it off. But the average Blend loan is just farmers taking out a loan and dumping an hour later. It functions effectively more like margin trading. Most buy-now-pay-later buyers don\u2019t make it past a day or two because they get auctioned off. <\/p>\n

When you have 90 percent LTV<\/a>s, those only exist due to the incentives to offer a lot of liquidity for an asset. If those incentives weren\u2019t there, what would those LTVs be like? I don\u2019t know.\u00a0I don\u2019t think this is feasible for any real [market] participants. The incentives make it impossible.<\/p>\n

nft now: Part of the reason behind Blur\u2019s native token is to help it achieve financial longevity. Is there a reasonable defense of Blur\u2019s incentivization system, in your view? <\/strong><\/p>\n

M:<\/strong> I see this as a parallel to Curve. If you remember the Luna meltdown last year, Do Kwon was buying massive amounts of Curve\u2019s governance token. You could use that token to allocate how many rewards are given to each liquidity pool. What Do Kwon was trying to do was buy up a ton of Curve to rig the votes to give the UST pool more token incentives. <\/p>\n

The parallel here is that the Blur token is being farmed by mercenary participants, not genuine market participants. Machi Big Brother, for example, has lost thousands of ETH on Blur but still thinks he\u2019ll come out positive after the next token drop. <\/p>\n

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1\/ Blur v2 is live!<\/p>\n

Two BIG updates:
\u2013 Trades now use 50% less gas
\u2013 Trait bidding<\/p>\n

Select collections earn trait bidding points as well. Learn more\ud83d\udc47 pic.twitter.com\/Rl2Mx2zbZ0<\/a><\/p>\n

\u2014 Blur (@blur_io) July 5, 2023<\/a><\/p><\/blockquote>\n<\/div>\n<\/figure>\n

It\u2019s similar with NFTs. USDC and USDT at least claim to be backed. NFTs don\u2019t have any sort of backing. Their floor is zero. There is no downside cap to NFTs; it can go to zero. When you put these parallels together, there is nothing stopping the Blur token from pushing the price of NFTs down indefinitely this way. Farmers aren\u2019t seeing it. Even with the Blur token hitting 30 cents, farmers continue this behavior. It\u2019s like everyone is dumping their UST, but this time the UST is NFTs, and no one is there to absorb it. <\/p>\n

nft now: What does Blur do to get out of this position, if anything? Do you believe Blur feels it should concern itself with its large-scale effects? <\/strong><\/p>\n

M:<\/strong> The reason this is so bad now is because NFT market participants have decreased so drastically. The market is weaker and not able to sustain it. Because of this spiral from dumpers dumping into dumpers, people aren\u2019t incentivized to buy NFTs. You buy three NFTs and, an hour later, 20 more dump right after you. After someone does that once or twice, they learn their lesson. Because the market is so sensitive, it leads people to not buy. My solutions revolve around minimizing this buyer\u2019s remorse. <\/p>\n

My first suggestion is to decrease the step, the minimum increment that you can move the price. On Blur bids, the step is 0.01 ETH, a hundredth of an ETH. What happens is Blur bidders want to bid as high as possible but don\u2019t want to get filled. They\u2019ll lower their bid by 0.01 ETH. <\/p>\n

For an Ape which, let\u2019s say is sitting at 45 ETH, that\u2019s something like 0.02 percent. That\u2019s negligible. But for lower-priced collections, lowering the price by 0.01 ETH is a much more significant figure. So, lower-priced collections are affected much more by this death spiral. Make the step go from one-hundredth to one-thousandth. <\/p>\n

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The #1 Blur farmer just withdrew 7842 ETH from the Blur pool and rage quit farming after the trait bidding update<\/p>\n

By himself he made up 10% of Blurs TVL and something like 8% of the total farming points\u2026 pic.twitter.com\/j0LKPsvnC7<\/a><\/p>\n

\u2014 Cirrus (@CirrusNFT) July 5, 2023<\/a><\/p><\/blockquote>\n<\/div>\n<\/figure>\n

That way, farmers can keep dumping into each other, but instead of lowering by one percent a day, it might lower by 0.1 percent a day. That would cushion the amount of damage the industry is facing right now. The longer the NFT bear market goes on, the lower the potential of the industry to make a comeback will be. It\u2019s way harder for large businesses to justify partnering with NFT projects when it\u2019s considered a scam. <\/p>\n

The second step would be to actively punish Blend recyclers. The idea is for farmers to maximize the liquidity that they can get for bidding. They take it from the lenders because it\u2019s nearly risk-free. Both the lenders and bidders are essentially wash trading. The reason I say that is they pay zero fees when they dump. If you trade at the same price with no fees, that\u2019s basically a directionless bet, and it\u2019s just noise in the market that isn\u2019t doing anything. Fees create more honest traders. People have to evaluate if their strategy is worth it; the answer is usually no. It inflates Blur\u2019s volume and TVL but creates a lot of what I consider to be wash trading. <\/p>\n

The third solution is for Blur to reimplement a 0.5 percent royalty to dumping on Blend. There\u2019s no reason why you should be incentivizing people to use market orders and limit orders. In every other market system that exists, people are incentivized to add liquidity to the markets. You want liquidity to be thick, but you want it to be organic. If you make every participant pay the same fee, you go back to being organic. <\/p>\n

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\u201cWe have to be honest here: this issue is already past the tipping point. It\u2019s about minimizing the damage now.\u201d<\/p>\n

Mihai<\/cite><\/p><\/blockquote>\n<\/figure>\n

Lastly, phase in listing points again. We have to be honest here: this issue is already past the tipping point. It\u2019s about minimizing damage now. The only way for real NFT buyers to get NFTs back from farmers and end the cycle is if farmers list them. If you re-add a listing point incentive. <\/p>\n

nft now: Do you think Blur has any real motivation to implement any of the changes you suggest? Their goal is to keep their volume up, which draws in funding. Would they realistically consider doing anything that could negatively affect that volume?<\/strong><\/p>\n

M:<\/strong> It\u2019s not a win-win situation, sadly. One side has to lose for the other to win. That\u2019s unfortunate. Blur does get a lot of volume from these Blend recyclers. While that creates huge volume and makes it seem like Blur killed OpenSea.<\/p>\n

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As little as $80M in token incentives to lower NFT floors could wipe out the whole Ethereum NFT market cap ($4B)<\/p>\n

Blur’s token incentive is $100M at the current spot price<\/p>\n

Machi nuked floors taking losses of $14M over the past four months, expecting he will make it back from\u2026 pic.twitter.com\/0fQJmbjiDz<\/a><\/p>\n

\u2014 trevor.btc (@TO) July 5, 2023<\/a><\/p><\/blockquote>\n<\/div>\n<\/figure>\n

What\u2019s implementable would be the step change. Change it from one-one hundredth of an ETH to one-one thousandth. It would continue the recycling but without moving the prices lower. That would stop the bleeding and allow more confidence to come back into the NFT markets. It also fixes the demand issue. Suddenly, if Mutants show sustained interest above seven to eight ETH, people might think NFTs are in better shape. <\/p>\n

This is just about how much pain Blur is willing to endure in order to facilitate saving the market.\u00a0I think a lot of what they\u2019re doing is misguided, not malicious. <\/p>\n

nft now: What role do NFT buyers and Web3 projects have to play in all of this?<\/strong><\/p>\n

M:<\/strong> Projects need to have a say in this, too. If you\u2019re a project creator or owner, focus on getting NFTs out of farmers\u2019 hands. Blur can add individual asset and trait bids, for example, to help this. If you know exactly which NFTs are in a farmer\u2019s hands, you can bid on that asset; bid 0.01 ETH more than what the floor bids are. <\/p>\n

Then the farmer is selling into you and not into other farmers. It stops the bleeding. The only thing worse than a price nuke, something like a 20 percent decrease in price in one day, is a consistent one-percent-down for months and months that makes people lose faith in the project. It\u2019s in every project\u2019s interest to minimize the amount of NFTs in farmers\u2019 hands. <\/p>\n

Editor\u2019s note: During nft now\u2019s interview with Mihai, Blur introduced trait bids and reminded users that listing points are available for collections that do not have the platform\u2019s Blend protocol enabled. <\/em><\/p>\n<\/p><\/div>\n