Unreal demand? Irregular sales worth billions fire up wild NFT market

LONDON, Feb 7 (Reuters) – On Jan. 12, an image of a computer-generated pixelated person was sold for about $50.6 million worth of cryptocurrency on a new online marketplace that caters for non-fungible tokens.

It gets stranger.

Five minutes later, the same “Meebit” NFT – a virtual character clad in purple shorts and green sneakers – was sold back from the buyer to the original seller for around $49.6 million.

Confused? Welcome to the weird and wild world of NFTs, a new breed of crypto assets that represent digital items, from images and videos to clothing for avatars. They have exploded in popularity over the past year as part of a fledgling and largely unregulated economy for the much-hyped metaverse.

The Meebit, which can be used as a profile picture, was exchanged between two cryptocurrency wallets – which are anonymous. Although the underlying blockchain technology creates a public record when an NFT is sold, it doesn’t record the names of those involved. A person can own multiple wallets, acting as both buyer and seller in a trade.

The digital character was among dozens of NFTs on the LooksRare marketplace that were sold back and forth between a small number of wallets in quick succession for unusually high prices last month, according to a Reuters review of publicly available blockchain records.

Since Jan. 11, for example, another Meebit NFT – this one with a sporty outfit and ponytail – has been passed between three wallets in over 100 sales, mostly in the $3-15 million range. In the week of Jan. 12-19, a “Loot” bag NFT, representing virtual equipment for online adventure games, was exchanged across 75 sales between two other wallets, for $30,000-$800,000 a time.

The activity has helped LooksRare generate at least $10.8 billion in trading volume since it launched in early January, according to data provided by market tracker DappRadar.

The top 27 most expensive recorded sales across the whole NFT industry in January, totalling $1.3 billion, came from just two wallets transacting on LooksRare, according to DappRadar data as of Jan. 31, while the top 100 sales, worth $2.3 billion, came from 16 wallets trading on the platform.

“There is a lot of activity happening between a couple of wallets – let’s say wallet one selling to wallet two, and then wallet two reselling it,” said Modesta Masoit, DappRadar’s finance and research director. “It’s quite likely that this is not real demand, that these trades are not organic.”

DappRadar and CryptoSlam, another data provider that reported artificially inflated volumes on LooksRare, said such trades could be linked to the platform’s reward structure – though Masoit added there was also “real” activity on the site.

LooksRare describes itself as “the community-first NFT marketplace with rewards for participating”, referring to its reward system which includes awarding tokens to the day’s traders based on the proportion of overall sales volumes they…