Most of the NFT industry works with recycled liquidity, says Forkast Labs’ co-founder
Little of the NFT industry’s market value can be attributed to new investors, according to Randy Wasinger, CEO of Forkast Labs and the founder of NFT and blockchain data analysis service CryptoSlam.
Forkast.News and CryptoSlam merged in January to form Forkast Labs, a media intelligence platform for the digital economy. Forkast Labs launched the flagship Forkast 500 NFT Index this week to provide data and prices without the “noise” that plagues the industry. Forkast Ethereum NFT Composite and Forkast Solana NFT Composite were launched at the same time.
In an interview with DiscardPradipta Mukherjee, Wasinger says filtering out laundering is key to determining the true value of digital assets. Wash trading refers to the buying and selling of financial instruments by the same individuals or groups at the same time to create a distorted picture of prices and investor interest.
The following questions and answers have been edited for clarity and length.
Pradipta Mukherjee: What is your personal reason for creating index measurements for this NFT market?
Randy Wasinger: It’s something I’ve wanted to do for a long time because I want to know if the market is up or down today and the last seven days, and if so by how much. We know these things for the traditional markets. We know whether the stock market is up or down. In currency markets, we know whether Bitcoin is up or down. If the US dollar versus another currency, if it is up or down. We know it, and we know it in real time.
But in the digital economy, outside of currencies, we don’t know. So all these other digital assets are traded and there are fragmented data points out there that tell us, well, maybe this [NFT] collection is up, and this collection is down. But to get that macro view of what the market is doing at a given time, we don’t know until now. You can only do it properly if you have the broad and comprehensive data set that we do. From my perspective, it has to be a multi-chain approach. We can’t just focus on Ethereum or any other chain to get the broadest and most comprehensive picture of the entire digital economy.
Mukherjee: We read reports of massive “wash trading” related to the OpenSea and Blur marketplace competition. How can industry trust data when it can be manipulated?
Washinger: That’s where we come in, where you need that trusted, independent third party to make sure what you’re looking at is legit. We have proven over the past months and years that we are always ahead of the curve when it comes to identifying laundry trades. We were the first to wash out the artificial trades that happened on LooksRare a little over a year ago, and now everyone is doing it. And in the same way, we were the first to wash out a lot of the artificial or all of the artificial activity that’s going on in the Blur market right now.
Mukherjee: What does Forkast Labs do to produce noise-free, clean data that can paint a valid picture of what is going on in the NFT industry?
Washinger: With CryptoSlam, since 2018, we have been dedicated to ingesting all NFT data from the blockchain. And so by that definition, all data from the blockchain is theoretically clean. But is it appropriate to use in an index? Can we trust it?
So what we do is we take all the data from the blockchain for all the blockchains that we support and we ingest that and then we algorithmically determine whether or not these transactions, these sales, for lack of a better term, were legitimate or not. So we filter out the wash sales. From that perspective, in determining index values, we want to know what these assets have traded for in the past. And so we want to make sure that these data points in the chain are as reliable as possible. And to do that, you need to remove the laundry sale.
And that’s the biggest one – to make sure that the sales we record are arm’s length transactions between a buyer and a seller, and we remove everything else. And there’s literally billions of dollars of NFT transactions that we’ve washed out or cleaned out of our data set and all that from a CryptoSlam perspective. All of this strengthens the CryptoSlam product, but it all drives and flows into Forkast 500 as well.
Mukherjee: What is the current state of the NFT market as we understand it through market capitalization or sales volume? And what different story does Forkast 500 tell us?
Washinger: I don’t feel that market value alone is a strong enough indicator. That tells you something, but any data point that relies on market cap alone is going to be dominated by a few players.
Namely, the one I’m going to throw out there is Yuga Labs. So any kind of tracking that tracks the movement of market capitalization [would basically say] how is Yuga doing today. As with the cryptocurrency market cap, it is dominated by Bitcoin and, to a lesser extent, Ethereum. [You want to] see if the currency market goes up or down, but what you see is whether Bitcoin or Ethereum goes up or down. It’s not that bad from a currency perspective because a wide variety of people participate in these currencies.
But in the NFT landscape it is different.
For example Bored Ape Yacht Club and CryptoPunks. They are very expensive possessions, and certainly people own them, but there are whales who own them simply because of how expensive they are.
[Whale refers to an entity or an individual that holds large amounts of crypto-related assets.]
So if these assets move up or down, this is what the whales experience in their own micro-economy. But it is not necessarily an indication of the macro economy.
So what Forkast 500 does is it includes absolute market value as part of the algorithm, but it’s not dominated by it. It looks at many other factors, including how many people [and] how many traders participate in a project. It provides a broader and more representative indicator of what the whole economy is experiencing, and not just a group of whales.
Sales volume is absolutely important. CryptoSlam has been the pioneer in reporting sales volume from a multi-chain perspective. So it’s certainly important, but it can and will tell a different story because the volume only tells you how much interest there is in a project, but it doesn’t necessarily tell you what the value is. Therefore, Forkast 500 is stronger in its reporting. You don’t have to ignore sales volume, but you have to look at sales volume in the context of the index values, which don’t measure hype and activity, but actual value.
Mukherjee: The crypto industry still has a black eye from the series of unfortunate events in 2022. So why launch such an index now when confidence in crypto is damaged?
Washinger: Well, we are launching it now because the industry needs it now. It has needed it for a while. We use literally billions of on-chain data points to create these indexes. So it’s quite complicated how it all rolls up to this number that updates in real time. We have been working on this for a while. We envision this index not only being used within the industry, but also outside the industry, so that non-participants in the digital economy can understand what is happening, and over time they can gain the confidence that this is a place they want to be. participate.
The timing is great for us because of the combination with Discard where we can reach a much larger set of users. And at the end of the day, we feel everyone is going to benefit. But new users who do not participate in the digital economy now, but who participate in traditional finance, have opened their eyes to NFT and blockchain and crypto, and these [indexes] is what they should use and what they should look at to find out what is going on. So we are in a stronger position for that now than we would have been before the merger with Discard.
Mukherjee: Tell us about the evolution of NFTs from art and collectibles to other use cases such as document verification and data storage, or the broader use case.
Washinger: I got into NFTs because of collectibles. Since then, we’ve seen collectibles and derivatives of it largely dominate. You could argue that art also falls into the category of collectibles. The industry is still trying to figure out how to best use this technology. There has been a lot of experimentation in other uses, but to date we really haven’t seen the killer application, outside of something related to collectibles, that brings a significant number of new users into the market.
As a gaming asset, Axie Infinity in particular brought many new players into the market, but the play-to-earn model proved not to be a model that would stand the test of time. Gaming is off to a decent start, but still has a long way to go when it comes to delivering better products that are going to bring in more mainstream gamers.
There’s still a gap, and we need that gap to close and have some really, really killer applications, whether it’s from gaming or elsewhere, to bring new players into the digital economy. Similarly, with other use cases, there has been a lot of experimentation, but the industry needs further breakthroughs.
Mukherjee: Are there plans to expand beyond NFTs?
Washinger: NFTs as tokenized assets are the future of the digital economy. That is our strength. That is where we are market leaders. As we expand our suite of indices, currencies will also be emphasized at some point.
Mukherjee: The NFT industry appears to have much of the same liquidity flowing into the most trending collections. How much of that same liquidity is recycled?
Washinger: Right now I want to say most of it. In order for it not to be recycled, one of two things must happen. Number one, existing participants in the digital economy need to buy more crypto from the Coinbase wallet and use it to buy NFTs, but by and large we don’t necessarily see that happening like before. So either it has to happen, or new people have to come in. This is not to say that they won’t come in, but they won’t come in like they were in 2021 and early 2022. So without any of these happening, it’s mostly recycled liquidity, and that’s why you’re seeing the market go down — because it is only recycled liquidity.
Mukherjee: How much of the NFT industry’s market value can be attributed to new investors?
Washinger: I would say very little. For example Mocaverse, [the membership NFT collection from Web3 venture capital and game developer Animoca Brands], seems like it has been a successful coin so far. I don’t know what the market value would be for it, but it’s a lot. It’s going to be tens or hundreds of millions at this point. Now, where did the market value come from? It wasn’t people opening their Coinbase accounts and putting new money into them, or it wasn’t people coming in from the sidelines. What happened was what everybody does, which is they just want to sell their other NFTs or maybe their other crypto, and then they go and move it into the next project.
Mukherjee: Is the market value of an NFT collection significant?
Washinger: It is an important figure to look at, but only in conjunction with other calculations. So it’s not the end all, be all. If something has a market value of US$100 million, is it worth it? No.
In an extreme example, let’s say you owned all these tokens, the market cap is supposed to say $100 million, and you start selling them. You’re not going to end up with $100 million. You’re going to end up with something significantly less than that. And what it is, we don’t necessarily know because the laws of supply and demand will take over. It is an interesting indicator, but it can also be misleading because there is absolutely no value of USD 100 million in an NFT project with a market cap of USD 100 million. You start selling; the price goes to the tank.
