Wednesday, May 29, 2024

An NFT investor accidentally burns $135k on CryptoPunk trying to borrow money

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A non-fungible token (NFT) from the CryptoPunks pool worth 77 Ether (ETH) has been sent to a clone address to be permanently destroyed. However, the collector intended to borrow some money against it to buy another NFT.

NFT collector Brandon Riley added CryptoPunk #685 to his collection on March 13 with a payment of 77 ETH, hoping to hold onto it for the long term.

As a seasoned investor, Riley knew the importance of buying new NFTs before the cryptocurrency markets took off in a new bull market. As a result, he decided to borrow some money against CryptoPunk #685 using a popular technique known as encapsulation.

While going through an unfamiliar process of encapsulating NFTs, Riley mistakenly sent the original to a copy address – which permanently deleted the NFT from circulation, as seen below.

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CryptoPunk trading history of $685. Source: dappradar.com

“I was told to follow the instructions exactly, so I did,” Riley explained, but in the process, he ended up losing 77 ETH, which was worth $135,372.16. It is to explain:

“I wasn’t wrapping this punk to sell on Blur. It was to be my Punk Forever. The number is the exact opposite of my monkey. I was only wrapping it because I needed to borrow some cash from it.”

While members of Crypto Twitter believe the NFT collector must have “deep pockets,” Riley contradicted the rumors by revealing that he bought CryptoPunk #685 with borrowed money.

“I shouldn’t have tried this on my own, I guess,” was Riley’s takeaway from the experience. On the other hand, Crypto Twitter also blamed confusing user interfaces and complicated instructions for losing the investor. As a result, the community has unanimously agreed on the need to revamp the front-end operations of cryptocurrency ecosystems.

Related: Improving the infrastructure of the Bitcoin NFT market paves the way for the growth of the ecosystem

NFT laundering trading rose 126% in February, according to a CoinGecko report. The top six marketplaces for NFT are Magic Eden, OpenSea, Blur, X2Y2, CryptoPunks, and LooksRare. X2Y2, Blur, and LooksRare saw wash trading rise for the fourth consecutive month, with a combined volume of $580 million.

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NFT Trading Volume, January 2022 – February 2023. Source: CoinGecko, Footprint Analytics

As previously reported by Cointelegraph, the issue of laundering trading stems from the lack of clear regulations.

magazine: 4 out of 10 Fake NFT Sales: Learn to spot signs of laundering trading