DeGods DAO made a splash in the headlines when it purchased the professional basketball team, Killer 3s, a 3-on-3 basketball team in the BIG 3 league founded by rapper and actor Ice Cube. DeGods purchased 25 Fire Tier editions of NFTs in exchange for the team’s ownership, worth approximately $625K.
The DeGods are a collection of 10,000 virtual gods with creative outfits and eye-catching colors. DeGods DAO is a decentralized autonomous organization that meets on Discord, Twitter, and other social media channels.
How Do Some NFTs Skyrocket?
Purchasing a professional basketball team is a first in the NFT world. Yet, a more profound question comes to mind: How did the DeGods DAO earn the cash to purchase the Killer 3s? DeGods minted their NFTs on October 8, 2021, for 3SOL, estimated at $270 each.
As of May 2022, DeGods NFTs sell for 200 SOL, around $18,000, with the highest sale of 420SOL, about $37,000.
The NFT market is booming, with some projects shooting up abruptly in price. Utility and community growth are two significant factors contributing to this trend – celebrity tweets also play their part!
However, a sudden increase in the price is also a result of manipulating the price by using paid (but not disclosed) influencers, wash-trading, and illicit transactions of NFTs – to and from multiple wallets.
Wash trading is illegal in the stock market, but it is not unlawful with cryptocurrencies and NFTs because the markets are mostly unregulated. Wash trading NFTs is when a trader buys and sells the same NFT multiple times in a short window to mislead consumers about the price. DeGods success, while undoubtedly impressive and unprecedented in many ways, inadvertently highlights the shady side of many NFT projects.
NFT DAO Groups: The Good and The Ugly
There are two kinds of NFT group projects. The first is reputable. It gives people the opportunity to form their own organizations and even corporations. Artists and musicians create art and keep most of the profits. Investors in DAO groups can form alliances and create cryptocurrencies that can be staked to create passive income. IRL merchandise can be made from NFT art, such as labels for merchandise and sneakers.
On the flip side, the other kind is rotten. The same people pumping and dumping bogus crypto projects a few years ago are now creating NFTs and manipulating the market. The same person can sell and buy the same NFTs or sell them within a group to pump up the price because there is almost no way to get caught. They use different private and public keys, with wallets that do not require Know Your Customer (KYC) processes.
We must take off our rose-colored glasses with respect to NFTs. While there are good community-based NFT projects, many projects manipulate the market, taking advantage of the hype and FOMO built up around NFTs, and as a result, many of these projects are overvalued.
Chainalysis analyzed traders on the Ethereum and Wrapped Ethereum blockchains stating, “we identified 262 users who have sold an NFT to a self-financed address more than 25 times. While we can’t be 100% sure that all instances of NFT sales to self-financed wallets are intended for wash trading, the 25-transaction threshold gives us a higher degree of confidence that these users are habitual wash traders.”
The study found that of the 262 traders, 152 were unprofitable because of gas fees, but the remaining 110 traders made over 8.8 million dollars.
Questioning The Value of NFTs
NFT projects have made millions, creating streams of new wealth and opportunity. However, while there are genuine community based NFT projects out there, it is essential to be aware that there are often underhand tactics being used to generate huge profits.