Is the Boring Ape’s plunge an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

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?

1. The process of BAYC’s plunge and its reasons — the crazy operation from the big player Franklin

1.1 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 easily influenced by large investors. Franklinisbored is the 7th largest holder of BAYC with 58 bored apes so far.

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 (see “borrow ETH using apes…, attempt to flip for profit” in the picture above), and After each execution of this arbitrage operation, he will also organize Twitter Space to introduce how he conducts arbitrage to his friends, announce his arbitrage method to his friends and discuss whether there is room for improvement. Under this set of operations, even if BAYC’s market is not good and the market is in a down state, he can still obtain very considerable profits. Let’s see how he executes the arbitrage operation.

First, the low price induces pending orders, and the active acceptance of offers creates the illusion of large traders selling. 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 BAYCs, and the relatively sufficient number provides him with room for arbitrage. He first placed an order at a list price that was close to the floor price. The phenomenon of low-price pending orders induced other holders to follow the pending orders, and then he picked 1 or 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 is a large accountant who is “clearing out the stock”, and the behavior of placing an order at a low price and accepting the offer at a low price has caused panic among other holders, so there is a situation that is higher than his. The lower price of the pending order forms a positive feedback of panic.

The Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

And we know that BendDAO’s oracle price feeding mechanism is to get the floor price floor parameter from various platforms (Opensea\X 2 Y 2, etc.), Franklin’s operation triggered a chain reaction through the oracle price feeding, and triggered BendDAO’s liquidation.

Second, obtain ETH by mortgaging BAYC, and backhand low-price bidding for boring apes. On the other hand, Franklin put his other 14 BAYC in BendDAO for mortgage and lend ETH. Bid on BendDao through 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. (Prices are shown on the right side of the picture below)

The Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

Third, 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 mortgaged the monkey 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 the bidding price of 43 ETH is calculated, 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 first step and second step.

1.2 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 remarks on Twitter, he is a firm believer in monkeys rather than FUD. Judging from his twitter space speeches and subsequent actual operations, we have no reason to believe him It’s a panic attack.

2. The relationship between the BAYC incident and the FTX thunderstorm—is there really any funds on the FTX platform?

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 the panic of the boring ape 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.

2.1 Does Alameda Research under FTX 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 to obtain profits. 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 US 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.

The Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

In addition, among the 31 BAYCs, there are 3 super rare “golden monkeys” (golden hair), and the base price of BYAC for this feature is 1000 ETH. There are also 4 “Psychedelic Fur” monkeys, and the monkey floor price for this property is 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.

2.2 Does Yuga have a large amount of funds deposited on FTX?

According to public information, in March 2022, FTX participated in the seed round financing of YugaLabs. 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 Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

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 it in its official Discord (see the “btw, got some random concerned… Doesn’t affect our operations” section below)

The Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

Unfortunately, the NFT platform Compass tweeted that YugaLabs has 18,000 ETH and 57,473 APE stored on the FTX platform, and announced its hash transaction records, questioning the statement of the above-mentioned yugalabs co-founder.

The Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

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.

The Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

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)

3. The boat leaked and it rained all night. Will the NFT market be affected by this?

3.1 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 percent. (As shown below)

The Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

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% in the same period.

The Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

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.

3.2 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.

The Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

The Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

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.

The Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

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.

The Boring Ape plummeted, is it an aftershock of FTX or a precursor to a thunderstorm in the NFT market?

3.3 Summary

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, from the analysis of the current statistical results, more than 80% of NFTs are not affected (see the statistical table in the previous section).

Therefore, the author believes that FUD’s current NFT project should not follow suit, as it 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.

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