How Bots Take Advantage of NFT Sales On Opensea

Scalpers control the pricing of NFTs through bots, ensuring a sale at a favorable price and a higher resale value.

10:52 21 February 2022

Adidas launched 30,000 non-fungible tokens (NFTs) into the market in December 2021. NFTs are cryptographic assets on the blockchain that point to a file that renders an artwork, such as a movie, photograph, or sound, for those who aren't sure what they are. Adidas created the NFTs on the Ethereum blockchain platform, which is one of many with NFT minting capabilities, including Solana, Tezos, and Cardano. The sale brought in $23.5 million for the corporation, but it had far-reaching repercussions for the metaverse that went beyond income. The sports clothes retailer informed ecstatic customers that the NFT drop would be limited to two per customer. When the sale day arrived, however, their platforms were unable to keep up with the sophisticated bots that had visited their site. One visitor utilized bots to buy 330 tokens using a smart contract that circumvented the rule.

 

How can NFT prices become manipulated by scalping bots?

Scalping bots aren't exactly new. Bots are known for snatching up limited-edition sneakers, concert tickets, and other hot commodities, which scalpers then resell on third-party sites for a profit. Scalpers have shifted their focus from fashion and entertainment to NFT auctions as NFTs have increased in popularity.

 

Scalpers control the pricing of NFTs through bots, ensuring a sale at a favorable price and a higher resale value. Bots have three primary effects on NFT prices:

 

• Lowering the price of NFTs

Bots submit bids on a significant number of NFTs below the asking price in this circumstance. The bot cancels a bid if it is accepted. When the NFT is relisted, the value of the NFT drops, allowing the bot operator to bid lower than the original asking price, resulting in a higher return when the NFT is resold on a secondary market.

 

Because both the NFTs and the related crypto assets to pay for them are locked up in escrow for up to 24 hours on platforms that do not use smart contracts — programs that assign ownership and govern the transferability of NFTs — this is especially problematic.

 

• Increasing the price of NFTs

Scalpers may use bots to "sweep the floor," or buy all NFTs that are currently for sale at the lowest price, in order to purposefully boost NFT pricing. This artificially inflates the NFT's popularity and resale value.

 

Customers can no longer purchase the NFT at the previous low price. They must pay extra, frequently on a secondary market where they have no way of knowing how low the original price was. This induces buyers to believe an NFT's value is more than it actually is, and they bid at the inflated price, allowing bot operators to profit.

 

• Bidding that is not genuine

Fake bids are used to inflate and deflate prices. Sellers frequently set fictitious bids on their own NFTs to create phony market movements. High bids might make prices appear to be much higher than they are. The sellers can then reject the bid, preventing the transaction from proceeding.

 

In another scenario, sellers may bid below market price on their own NFTs. Other investors who purchased at or above market price are alarmed by the possible losses and sell at a lower price than they paid. As a result, the price falls, allowing scammers to "sweep the floor" and resale the NFTs for a profit.

 

What other ruses can NFT bots perpetrate?

Bots can be used to sell bogus projects that fraudsters establish in order to sell non-authentic NFTs for a profit, in addition to manipulating NFT prices. These are made by putting together a list of NFTs that don't match policy IDs. When a customer goes to purchase a project, they may unintentionally purchase a phony. Because NFTs aren't copyrighted, it's possible that selling bogus projects isn't even illegal.

 

Once someone has purchased a false project, there is no likelihood of getting a refund, and there is no resale value. As a result, verifying the legitimacy of an NFT before purchasing it is crucial. Matching the policy ID to the blockchain is one way to do this, although most users are utterly ignorant of this.

 

NFT bots aren't against the law. So, what exactly is the issue?

It is not illegal to use bots to purchase NFTs because the bots and their operators pay for their transactions. However, utilizing bots to control NFT sales has a negative impact on user retention and growth.

 

NFT marketplaces like Opensea, like any other e-commerce firm, must attract and maintain customers. Combating competitors, enhancing brand reputation, and improving the customer experience are all part of this process. Potential customers are left disappointed and compelled to purchase elsewhere when bots employ price manipulation and bidding to snag desired NFTs, and they may not return to your site if a competitor can better suit their demands.

 

If your NFT marketplace is recognized for bot sales, it may harm your brand's reputation and deter users from visiting. This is especially true for NFTs, as many of them are new businesses with limited brand recognition and consumer loyalty. Consumers will be left with a lasting image of how brands enter the NFT market. Take, for example, Opensea.io, the largest NFT marketplace to date. Customers have complained about bots' pervasiveness, which opens the door for newcomers to get a foothold in the industry.

 

Artist retention is the polar opposite of user retention. NFT marketplaces serve both buyers and sellers, and if the buyers go, the vendors will follow. As a result, scalper bots have the ability to drive away not only customers, but also the market's lifeblood: the NFT artists themselves.

 

What are the prospects for NFT bots in the future?

Despite the setbacks, it is apparent that Adidas' inaugural NFT sale was a big success — and that there will be many more NFT sales from Adidas and other major e-commerce firms in the future. The NFT bots we've seen so far are the result of the same type of cybercrime that has long existed in more crowded markets for hot things like limited-edition footwear, concert tickets, and collectibles. There will be bots and abuse no matter what the item is if there is a profit to be made. As a result, expect more advanced NFT bots to develop in the coming months. It's vital to develop a positive brand reputation as soon as your company joins the NFT industry. This entails presenting your NFT collection as a fair auction for human customers rather than an NFT bot hub.