Viewpoint: Blur’s bidding incentive mechanism has put the market in a “boiling frog” dilemma.

Blur's bidding mechanism creates a dilemma for the market.

Ninjalerts CEO trevor.btc believes that most users are not aware that the market is slowly being boiled alive by the Blur bid incentive mechanism, which is causing the entire market floor to fall by 1% or more every day. His analysis explains why he thinks this is the case, what kind of death spiral the Blur mechanism is causing, and what measures the project can take to save itself.

With just an 80 million USD token reward to lower NFT floor price, the entire Ethereum NFT market cap (4 billion USD) can be destroyed. According to current spot prices, Blur’s token reward is worth 100 million USD. Machi has lost 14 million USD in the past four months and is expected to recover from the $BLUR airdrop. You think your NFT value is plummeting because of Azuki and Memeland’s mess-ups and we’re in a bear market. While that’s part of the reason, you’re not aware that the market is slowly being boiled alive by a mechanism that’s causing the entire market’s floor to drop 1% or more every day.

In the current bear market environment, Blur’s bidding incentive allows profit-driven capital to destroy project floor prices without any real holders selling, even as holder numbers increase. Projects with double lending points, close to or below 3 ETH floor prices, are in the most precarious position, but no one is safe. Because farmers can only earn points by bidding, they have no incentive to actually “buy” the NFTs they bid on. They need to immediately dump them after any bid is accepted so they can get ETH and replace bids to get the highest points.

Interestingly, there are two types of farmers: whales and idiots. For whales, the best strategy once a bid is accepted is to get a loan on the NFT to supplement funds and propose a lower bid. For idiots, they don’t have enough liquidity to get a loan for sufficient funds, so the best approach is to place orders above or near the price they paid, lowering the floor price. Bots and other players adapt in real-time to these actions, lowering the floor price and other bids. Lower floor price -> Lower bid -> Lower floor price -> Lower bid -> Death spiral.

Everyone wants to earn more money from airdrop rewards, but the NFT market is fragile, with a $1 incentive to lower floor prices resulting in a $10-50 decrease in market value. Blur knows that the market with the lowest floor price will win, so they invested over $100 million in token incentives to grab the largest market share. This doesn’t even account for the impact on regular holders who don’t know what’s happening. Ordinary people watch their asset values slowly disappear, go to Blur, see all the sales in “red,” mistake mining for more holders selling, lose confidence, and exit the market. So, what can the project do to save itself? Take your assets from the farmers, buy them out, and the less of your assets in the Blur washing machine, the better. This is the only way to stop the bleeding in the absence of Blur changing its incentive mechanism or using contracts allowed by the market to prevent Blur.