Confusion cleared after suspicious $500M CryptoPunk sale- here are the details

  • The CryptoPunks NFT was “sold” for $532 million worth of Ether and would have been the single highest NFT sale. 
  • It was later revealed to have been a flash loans sale and as such, illegitimate

The Twitter CryptoPunks Bot account announced the sale of NFT CryptoPunk #9998 for over half a billion dollars on Thursday. The Tweet contained a link to the CryptoPunks creator Larva Labs’ page for the female, wild white-haired CryptoPunk. The transaction history on the site showed that the NFT had been bought for 124,457.07 ETH (the equivalent of $532,414,877.01 at that time).

NFTs, usually in the form of digital art or virtual representations of real-life items have sold astronomical amounts before. In fact, some have been bought for millions of dollars. The highest-grossing CryptoPunk sale, for example, was the $11.8 million purchase of the ‘alien’ CryptoPunk #7523 by DraftKings board member Shalom Meckenzie.

The current record for the highest single NFT sale is $69 million after the sale of digital artist Beeple’s ‘5000 days’ collage. So when such a sale was announced, many were suspicious. Some speculated that someone was trying to cover the tracks of their ill-gotten crypto.

sale of CryptoPunk or flash loan experiment?

It later became evident that the sale was not legitimate. It was as a result of someone using DeFi recently introduced flash loans. These non-collateral cryptocurrency loans were introduced to the Ethereum blockchain in January last year largely due to the efforts of lending platform Aave. Larva Labs explained in a follow-up tweet;

PSA: This transaction (and a number of others) are not a bug or an exploit, they are being done with “Flash Loans”. In a nutshell, someone bought this punk from themself with borrowed money and repaid the loan in the same transaction. Some recent large bids were done the same way. The ether is offered and removed in a single transaction. So, while technically briefly valid, the bid can never be acceptedSome recent large bids were done the same way. The ether is offered and removed in a single transaction. So, while technically briefly valid, the bid can never be accepted,

Research organisation Flashbots’ Robert Miller also threw in his thoughts and explained how flash loans worked and made the transaction seem legitimate. According to the detailed tweet, one contract punk up the NFT for sale. A second contract took out a flash loan and bought the NFT from the first. When the first contract received the Ether, it instantly sent it all back and the second contract used it to repay the loan. So, for just a brief time, the transaction seemed valid.

Larva Labs revealed that it will add filtering that will prevent notifications for such transactions from being generated. NFT analytics platform CryptoSlam announced that the transaction would be erased from their system.

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Tukiya is an IT Student with a newly found interest in blockchain technology and its potential applications in everyday life.

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