The CryptoPunks are a collection of 24x24, 8-bit-style pixel art images of misfits and eccentrics. There are exactly 10,000 of them, each with their own ostensible personality and unique combination of distinctive, randomly generated features.
On Friday, CryptoPunk 9998 was purchased for half-billion dollars, which would have made the sale one of the largest in art history.
What’s the Trick? According to on-chain analysts, the CryptoPunk owner purchased the Punk themselves. This may not be new to NFTs as there’s always been suspicion that accounts have purchased their own NFTs at higher prices to make collections look more valuable.
So, in this case, the owner of the CryptoPunk took out a flash loan for more than $532 million, used the funds to purchase the CryptoPunk and then sent the money back to the lender — all within the same transaction. This meant they made a sale without needing to pay up!
What are Flash Loans? Flash loan is a type of uncollateralized lending. Generally, if we want a loan from the bank, we need to show them assets, but it’s the opposite here. What if they don’t pay back? Yes, if the borrower doesn’t repay the capital, the conditions set out in the flash loan smart contract aren’t met, and the transaction is reversed, just like it never happened, with the funds returned to the lender.
The whole trick is explained well in this tweet.
In February 2021, a HashMask NFT was bought for 139,000 ETH using a similar flash loan. This HashMask NFT is currently the largest NFT sale on record.