Is Blur backing themselves into a corner?

The NFT ecosystem is preparing for impact. In just two weeks, wildly successful and controversial NFT marketplace and aggregator Blur will conclude its Season 2 airdrop, with large payouts of its native token, $BLUR, expected to land in the hands of its most loyal and active users.

Rewarding users for participation is a good thing in theory, a concept that certainly aligns with Web3 principles for all boats that rise in the tide. But Blur’s strategy of leaning into the NFT pro-trader demographic by enticing them with staggered token rewards could backfire spectacularly for the platform – and have a deep ripple effect on the rest of the NFT sphere as well. Is Blur backed into a corner?

Success in jeopardy

When Blur arrived on the scene in October 2022, it quickly became the top NFT marketplace by volume, dethroning OpenSea, the reigning marketplace champion for the past six years. This success only became more acute after Blur launched $BLUR, its native ERC-20 governance token, on February 14th, whose value at the time of writing is around $0.80.

The token launch marked the end of Season 1 of Blur’s token reward system for users. The airdrop payouts were substantial; according to some estimates34 wallets received over 500,000 tokens, with another 23 earning over a million $BLUR.

Major receivers:

The $BLUR the airdrop was based on Blur trading volume and therefore large NFT traders benefited greatly from migrating over from Opensea.

34 wallets received over 500K $BLURand 23 received over 1 million!

(t/t @pandajackson42check out @jconorroganhis post too!) https://t.co/kTsXcDAoSR

— Arkham (@ArkhamIntel) 15 February 2023

In the wake of $BLUR’s launch, activity on the market increased even more than it had previously; in terms of weekly trading volume, the platform has surpassed OpenSea by as much as $417 million and as little as $97 million between February 20 and April 10, according to Dune Analytics. February 14 also marked the beginning of Season 2’s token reward period, which was scheduled to end on April 1, but was delayed until the beginning of May.

While announcing the delay, Blur also revealed that it would extend its double points reward system for users bidding on NFTs on the platform until Season 2 ends, giving users further motivation to keep their volume numbers well above that of their biggest competitors . Users who bid more often accumulate more points, leading to a bigger airdrop at the end of the season.

But cracks in Blur’s high-performance armor have begun to reveal themselves. Ever since the marketplace’s rise to dominance, significant parts of the NFT community have pointed to the unpleasant fact that precisely a handful of Blur’s biggest traders can swing the floor prices of entire NFT collections when they stumble upon each other to token farm. Projects ranging from the largest PFP collections available to highly sought after NFTs for art suddenly found their prices increasingly tied to large-scale and lightning-fast trading action from a few hands, as opposed to the Web3 community’s sentiment and organic price action.

Pacman (Tieshun Roquerre), Blur’s co-founder, have argued that this kind of activity is typical of traditional finance and that the movement of the NFT ecosystem’s biggest market makers – like Franklin and Machi Big Brother, two legends in the NFT pro-trader sphere – is just going to look fundamentally different from what Web3 is . used to.

Ultimately, Roquerre argues that Blur’s success is good for the NFT space. But not everyone is convinced of the legitimacy of that claim, including some of the community’s biggest and most well-known and respected namesnor the assumption that Web3 must be a place that recreates all aspects of traditional finance.

Aside from the controversy surrounding Blur’s strategy is the potential for the platform’s token farming-backed volume action to drop on May 1, when Season 2 ends. Although the platform has not revealed what it will do beyond this date to continue to stimulate activity on the platform, some speculate that Blur is unlikely to continue to double the point reward system for bidders or increase it beyond the current rate. This can lead to a sudden drop in activity on the platform, resulting in floor prices that have been affected by the marketplace’s trading actions also taking a hit.

This floor-supporting dynamic is reinforced by Blur’s point reward mechanism: bids placed on the platform that are closer to a collection’s floor price result in a higher amount of rewards for the user. Take away (or lower) the incentive for Blur’s market-making pro traders to continue propping up that floor, and the result could mean a downfall for these collections.

Blur’s big traders bow

One of the most worrying signals for Blur (and for the collections whose floor prices are propped up by this kind of trading) is that the most prominent players have folded after realizing thousands of ETH in losses while token-farming on the platform.

Franklin and Machi big brother recently passed away from the platform and NFT trading generally in a somewhat dramatic manner and at least partly for this reason. Franklin’s losses from his activity on Blur total in the region of over 500 ETH, while Machi Big Brother has reportedly lost approximately 5,000 ETH from his trades. All of Blur’s traders are hoping that the May 1st token airdrop can help offset the losses they’ve incurred trading on the platform, but doing so will require a gigantic payout from the marketplace. In Machi’s unfortunate case, he had to earn over 130 million $BLUR tokens to compensate for his losses.

The couple’s departure has already been felt in the market. The bottom price of Bored Ape Yacht Club dropped from about 58 to 52 ETH after Franklin hastily sold dozens of monkeys to pay off loans from BendDAO, a service that allows users to set up NFTs as collateral for ETH loans, and for to recover from thousands of ETHs worth of losses from a rugpull scam. But that market impact may be a drop in the bucket compared to what could happen if Blur’s traders don’t feel the need to stick around.

Bracing for impact

All in all, both Blur traders and the NFT ecosystem at large are gearing up as they approach the platform’s May 1st deadline. Assuming Blur cannot maintain the current state of the system to earn points with double rewards, there seems to be little positive outcome for either the platform or the users who have incurred significant losses by trading on it.

Although Blur’s reward system allows traders to recoup their losses enough to consider continued use of the platform worthwhile, there are still major questions regarding the sustainability of this system. Much depends on what Blur decides to do regarding incentivization methods for its traders after May 1st. If things don’t change, it looks like Blur’s bold experiment could end up tearing itself apart, razing the entire Web3 community in the process.