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Did a CryptoPunk NFT Just Sell for $500 Million? Sort of, in a Transaction That Illuminates How the NFT Market Differs From the Art Market – artnet News

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The transaction took place using a “flash loan.”
Amy Castor, November 1, 2021
On Thursday night, a CryptoPunk with wild hair and black lipstick, traits that aren’t particularly rare as far as the pixelated NFT characters go, sold for an eye-popping half a billion dollars—in crypto, of course.
A Twitter bot that tracks CryptoPunk sales announced the news shortly before 8 p.m. E.S.T., sending crypto Twitter abuzz and making people wonder what the heck just happened. Was this massive money laundering, or what?
If this were a real art sale, it would have made CryptoPunk 9998 the most expensive NFT ever, far surpassing Punk 7523, which sold for $11.8 million in June, and leaving the Beeple NFT that sold for $69 million in March in the dust.   
But this wasn’t a real art sale. It wasn’t money laundering or an exploit either. It was simply crypto traders trading as they do. The owner of Punk 9998 was having a little fun with crypto derivatives. In other words, the transaction was a prank.  
Even Larva Labs, the creator of the pixelated alien creatures, crossed out the sale, meaning it doesn’t actually count. 
So what exactly happened? For starters, the seller and the buyer in this translation are one and the same. In traditional finance, this is known as a wash trade—a type of illegal market manipulation meant to make an item appear more valuable than it actually is. 
Second, the funds for the wash trade came via a “flash loan.” If you’re not familiar what a flash loan is—and why would you be?—it is a type of unsecured lending that has become hugely popular in the world of decentralized finance, or DeFi for short. 
Larva Labs, CryptoPunks 2, 532, 58, 30, 635, 602, 768, 603 and 757. Photo courtesy Christie’s.
Ethereum-based DeFi exchanges, such as Compound and Uniswap, make available a ton of their liquidity which anyone can “loan” for the duration of a single transaction. Flash loans use smart contracts (bits of computer code uploaded onto a blockchain) to set out the conditions and terms of the loan. 
The idea is this: You borrow the funds, construct a complex transaction doing whatever you want using the funds, and pay it back at the end of the transaction. The contract checks whether the “loan” has been paid back. If it hasn’t, the transaction is reversed, as if it never happened, and the funds are returned to the lender.
It all sounds like a low-risk proposition for lenders and borrowers, but the truth is flash loans are commonly used by hackers to exploit loopholes in poorly written contracts and steal millions of dollars. Just last week, hackers made off with $130 million from DeFi protocol Cream Finance using a large flash loan transaction.
“Flash loans only exist for manipulative purposes,” Nicholas Weaver, a researcher at the International Computer Science Institute in Berkeley who has followed crypto since 2011, told Artnet News. “The primary usage is to provide enough money to launch an exploit, but doing wash-trading seems like a perfectly cromulent use as well.”
Here is how the wash trade went down with Punk 9998: On Thursday, the person in charge of the Ethereum address beginning with “0xef76” sent the CryptoPunk NFT to another Ethereum address starting with “0x8e39.” You can see that transaction here.
A short time later, “0x8e39” sold the NFT to an address starting with “0x9b5a” for 124,457 Ether, worth $532 million.  
Where did the buying address get the money from? It flash borrowed a massive amount of crypto from three sources, but most of it (87,000 Ether) came from Compound. (You can see its flash loan contract here.)
The selling address then immediately sent the 124,457 Ether back to the buyer, who paid off the loans. Once that was done, the buyer returned the NFT back to where it all started, and the NFT was put back up for sale again—for double the amount of the wash trade!
If it sounds a tad dishonest, well, yes. You could call it performance art if you’re feeling indulgent. Without knowing who controls those addresses, we’ll never know the real motivation behind the stunt. The owner didn’t make any money off the trade, although it did cost them about $800 in transaction fees. 
“PSA: This transaction (and a number of others) are not a bug or an exploit, they are being done with ‘Flash Loans,’ Larva Labs said in a Tweet Thursday night. “In a nutshell, someone bought this punk from themself with borrowed money and repaid the loan in the same transaction.” 
Apparently, this wasn’t the first time people have used flash loans to try and purchase CryptoPunks. “Some recent large bids were done the same way,” Larva Labs said. “So, while technically briefly valid, the bid can never be accepted. We’ll add filtering to avoid generating notifications for these kinds of transactions in the future.”
In the meantime, if you want to buy Punk 9998, it could be yours for $1 billion (250,000 Ether), the current price the owner is now offering it for. Sadly, you likely won’t be able to purchase it with a flash loan though. 

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Tyler Hobbs' Fidenza NFT Project Gets $1M Pump Over 48 hours – CoinDesk

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DOJ Asks Congress for Tools to Limit NFT Money-Laundering Risk – PYMNTS.com

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Down at the very bottom of the crypto crime report the Justice Department issued last week was a request that could make it a lot harder to buy and sell NFTs.
Citing examples of criminals using the sale of the popular nonfungible tokens that hold art, video, music and collectibles to launder funds, the Justice Department asked Congress to define some of all NFTs as “value that substitutes for currency” under the Bank Secrecy Act (BSA).
Doing so, it said in “The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets,” would “make clear that its key [anti-money-laundering (AML) and countering the financing of terror (CFT)] provisions — including the obligations to have customer identification programs and report suspicious transactions to regulators — apply to NFT platforms, including online auction houses and digital art galleries.”
See also: DOJ Seeks to Double Jail Time for Money Transmission Crimes
The impetus, the department said, is the “explosive growth in the demand and corresponding markets for NFTs, perhaps most notably in the area of digital art.”
Substantial Risk
This “presents substantial money-laundering risks,” it said, citing a February Treasury Department study on money laundering in the broader art market.
“NFTs can be used to conduct self-laundering, a sequence in which criminals purchase an NFT with illicit funds and then resell to a purchaser who pays for it with clean funds unconnected to a prior crime,” that report noted.
It also found that in most cases, “digital assets that are unique, rather than interchangeable, and that are used in practice as collectibles rather than as payment or investment instruments … are generally not considered to be virtual assets under [international regulations].”
The “nonfungible” part of NFT means that each is unique and cannot substitute for any other, as opposed to cryptocurrencies like bitcoin which all have the same uses and value.
NFT marketplaces “may take the view that this definition [of a ‘value that substitutes for currency’] does not apply to their activities — and that they are thus not subject to the BSA’s anti money-laundering and anti-terrorism laws, the department said.
Justice is asking Congress to amend the BSA “to make clear that its key AML/CFT provisions — including the obligations to have customer identification programs and report suspicious transactions to regulators — apply to NFT platforms, including online auction houses and digital art galleries.”
Already There
Redefining NFTs as “value that substitutes for currency” would allow the Treasury Department’s Financial Crimes Enforcement Unit (FinCEN) to “potentially seek to regulate such activity under its money transmission regime,” a trio of lawyers at Skadden, Arps, Slate, Meagher & Flom wrote in an April blog post.
That, according to Jamie Boucher, Eytan Fisch and Javier Urbina, would require NFT marketplaces to register as money services businesses (MSB) with FinCEN.
Some types of NFTs — notably those used to fractionalize tangible assets like physical artworks and real estate, but also other valuable art or collectible tokens — are likely securities, the Securities and Exchange Commission (SEC) has said.
See more: How Did NFTs Become SEC’s Newest Crypto Target?
In FinCEN’s view, the trio noted, those can be repurposed to fit the definition of “value that substitutes for currency” and thus may already require MSB licenses.
 
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FTX Talking With Investors for $1B Fundraising at $32 Billion Valuation – NFTgators

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Quick take:
Although Binance maintains its number one spot in terms of crypto transaction volume, FTX is catching up quick after rising to third, behind Coinbase. This could change soon given the steps FTX is taking in web3.
According to reports, Sam Bankman-Fried’s company is seeking $1 billion in a new round of funding at a valuation of about $32 billion. That values FTX twice the value of Coinbase— whose market cap stands at just over $14 billion, and at least 7-fold Binance’s most recent valuation of $4.5 billion.
And there is a good reason for the disparity in market share (volume-wise) and overall valuation. FTX is more than just a crypto exchange platform. 
The company has expanded its ecosystem to include stock trading, NFTs, crypto lending services and more, all forming significant operational synergies for the rapidly growing web3 company.
It explains why investors are placing such value on FTX. According to sources close to the $1 billion fundraising talks, the figure could change by the time the round is closed, CNBC reported, citing people who did not want to be named.
FTX has been one of the most active investors in the web3 space during the crypto winter. The company is in the process of acquiring the crypto lending platform Blockfi for a reported amount of $240 million.
Last year, it acquired crypto derivatives platform LedgerX allowing it to offer derivatives trading alongside traditional crypto exchange services.
Earlier this year, the company purchased Good Luck Games, the developer of the card battle game Storybook Brawl for an undisclosed amount. The acquisition added another perspective to FTX’s business pouncing on the rapidly growing web3 gaming sector.
The company also recently announced a partnership with online game retailer Gamestop to onboard the gaming community to web3.
In July, Bankman-Fried refuted claims that FTX was planning to buy retail stock brokerage platform Robinhood after Bloomberg published a report suggesting discussions were underway.
News about the new fundraising come hot on the heels of the company’s $900 million raise announced in July. FTX also raised $420 million in October 2021.
Stay up to date:
The Embassy of Israel in Korea Opens Pavilion in the Metaverse
Bored Ape Yacht Club #2883 Was Today Sold For 105 ETH
Leading NFT Collections Are Seeing a Rise In Median Price
Uniswap Labs Acquires Genie, Announces Uniswap NFT
New NFT Marketplaces Bid to Dethrone OpenSea From Top Spot
Space Runners Ramps Up the Development of Its Metaverse-Only Fashion House with $10M Round

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