Metaversal is a Bankless newsletter for weekly level-ups on NFTs, virtual worlds, & collectibles
Dear Bankless Nation,
The shocking collapse of the FTX empire this week was the darkest episode yet for the fledgling cryptoeconomy.
It’s a “Mt. Gox 2.0” moment.
Many users of FTX stand to lose everything if a full rescue package isn’t put together, and such a package may not happen.
Amid these historic levels of chaos, we’ve seen a major wave of uncertainty hit the space. The Bitcoin Fear & Greed Index, which tracks sentiments around large crypto communities, reached Extreme Fear today.
Understandably, this skittishness has bled over into NFT markets, too, as evidenced by the fact that trades in WETH have surged on OpenSea, the largest NFT marketplace.
What’s this mean, though? Why’s the WETH uptrend telling here?
Allow me to explain for today’s post ⬇️
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WETH volume up as NFTers accept bids
As a “CeFi” crypto exchange without proof of reserves, FTX had an opaqueness to its off-chain operations that obscured its wild dealings until things were too late for users.
That’s why the transparency afforded by on-chain movements is so powerful.
On-chain data can give you a real direct view of the state of activity flows — the good, the bad, and the ugly — because the data is all out in the open and readily reviewable.
A great example of this capability in action is how the recent boom in WETH volume on OpenSea shows how the fallout of the FTX blowup has reached NFT markets.
Wrapped Ether, or WETH, is the ERC20 version of ether. While ETH has to be authorized at the time of payment, WETH transactions can be pre-authorized, which is why WETH is used for offers and auction bids on OpenSea and other NFT marketplaces.
When you go to an NFT collection on OpenSea and see “1.01 WETH best offer,” for example, it means the highest pre-authorized bid for any NFT in that collection is currently 1.01 WETH, and that bid’s offerer is waiting for the first person, if any, to accept that price.
Placed by deal hunters, these WETH offers are lower than a collection’s floor prices, which are instead set by holders. What WETH offers lack in price, though, they make up for in immediate actionability. That is to say, listing your NFT at a “Buy Now” price isn’t guaranteed to sell — like if the market drops further — but an outstanding WETH bid can be immediately accepted and then converted into ETH, stables, USD, or what have you.
All that said, since the FTX collapse WETH trades on OpenSea have surged to new heights. See for yourself:
Everyone accepting the bids that are out there.
This is up from 40% when I tweeted this chart earlier.
Why does this matter?
OpenSea is the NFT marketplace juggernaut where the majority of NFT trading occurs. The percentage of WETH trades reaching over 50% of OpenSea’s daily volume for the first time ever thus offers a direct glimpse into how a considerable flow of NFT traders have accepted lower-than-floor bids since the FTX chaos broke out.
There’s a couple of reasons for this. Like I mentioned earlier, WETH bids are immediately actionable, so they make sense for people who prefer speed at the expense of getting the best price. And with the FTX drama having injected a big dose of fear and uncertainty into the cryptoeconomy for the near future, the greater liquidity and convertibility guarantees of WETH (and thus ETH, other ERC20s, etc.) are simply more attractive than holding illiquid NFTs for many people at the moment.
“Better to be liquid now considering all the unknowns” is the rationale we’re seeing in this WETH uptrend movement. That’s certainly fair considering this historic week, and in light of everything that’s happened I don’t take for granted that we can analyze sentiment in this way courtesy of on-chain WETH activity levels.
There’s a certain aura that comes with on-chainness, to be sure, and part of that comes from the transparency. These past few days have reminded us all just how bad things can get when opaqueness reigns instead.
📊 Catch up on new on-chain analysis of the FTX collapse in Bankless
🔮 Read my previous write-up The future of NFT royalties if you missed it earlier this week
William M. Peaster is a professional writer and creator of Metaversal—a Bankless newsletter focused on the emergence of NFTs in the cryptoeconomy. He’s also recently been contributing content to Bankless, JPG, and beyond!
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Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.
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