Is Blur Backing Itself into a Corner?

The NFT ecosystem is bracing for impact. In just two weeks, the wildly successful and controversial NFT marketplace and aggregator Blur will end its Season 2 airdrop, with big payouts of its native token, $BLUR, expected to land in the hands of its most loyal and active users. 

Rewarding users for participation is a good thing in theory, a concept that certainly aligns with Web3 principles of all boats rising in the tide. But Blur’s strategy of leaning into the NFT pro-trader demographic by alluring them with staggered token rewards could backfire spectacularly for the platform — and have a profound ripple effect on the rest of the NFT sphere as well. Is Blur backing itself into a corner? 

Success in jeopardy 

When Blur came onto the scene in October 2022, it rapidly became the top NFT marketplace by volume, dethroning OpenSea, the reigning marketplace champion of the past six years. That success only became more acute after Blur launched $BLUR, its native ERC-20 governance token, on February 14, whose value at the time of writing is hovering around $0.80. 

The token launch marked the end of Season 1 of Blur’s token reward system for its users. The airdrop payouts were substantial; according to some estimates, 34 wallets received over 500,000 tokens, with another 23 earning over a million $BLUR. 

Large Recipients:

The $BLUR airdrop was based upon Blur trading volume, and therefore large NFT traders benefitted greatly from migrating over from Opensea.

34 wallets received over 500K $BLUR, and 23 received over 1M!

(h/t @pandajackson42, check out @jconorgrogan‘s post too!) https://t.co/kTsXcDAoSR

— Arkham (@ArkhamIntel) February 15, 2023

The aftermath of $BLUR’s launch saw activity on the marketplace surge even more than it had done previously; in terms of weekly trading volume, the platform has outperformed OpenSea by as much as $417 million and as little as $97 million between February 20 and April 10, according to Dune Analytics. February 14 also marked the beginning of Season 2’s token reward era, which was scheduled to end on April 1 but was delayed until the beginning of May. 

While announcing the delay, Blur also revealed that it would extend its double-points rewarding system for users who bid on NFTs on the platform until Season 2 concluded, further incentivizing users to keep its volume numbers well above that of its biggest competitors. Users who bid more often accumulate greater points, leading to a bigger airdrop at the end of the season.

But cracks in Blur’s high-performing armor have begun to reveal themselves. Ever since the marketplace’s rise to dominance, significant swaths of the NFT community have pointed to the uncomfortable fact that just a handful of Blur’s biggest traders can sway the floor prices of entire NFT collections as they stumble over each other to token farm. Projects ranging from the biggest PFP collections in existence to highly sought-after fine art NFTs suddenly found their pricing increasingly tied to large-scale and lightning-fast trading action at the hands of a few as opposed to Web3 community sentiment and organic price action. 

Pacman (Tieshun Roquerre), Blur’s co-founder, has argued that this kind of activity is typical of traditional finance and that the movement of the NFT ecosystem’s biggest market makers — like Franklin and Machi Big Brother, two legends in the NFT pro-trader sphere — is just fundamentally going to look different than what Web3 is used to.

Ultimately, Roquerre claims Blur’s success is good for the NFT space. But not everyone is convinced of that claim’s legitimacy, including some of the community’s biggest and most well-known and respected names, nor of the premise that Web3 needs to be a place that replicates every aspect of traditional finance. 

Apart from the controversy surrounding Blur’s strategy is the potential for the platform’s token farming-supported volume action to drop on May 1, when Season 2 ends. While the platform has not revealed what it will do beyond this date to continue incentivizing activity on its platform, some are speculating that Blur is unlikely to continue doubling its point reward system for bidders or increase it beyond the current rate. This could lead to a sudden drop in activity on the platform, resulting in floor prices that have been influenced by the marketplace’s trading action to likewise take a hit. 

This floor-supporting dynamic is reinforced by Blur’s points reward mechanism: bids placed on the platform that are closer to a collection’s floor price result in a higher amount of rewards for the user. Take away (or lower) the incentive for Blur’s market-influencing pro traders to continue to prop up that floor, and the result could spell a fall for those collections. 

Blur’s big traders bow out

One of the most worrying signals for Blur (and for the collections whose floor prices are being propped up by this kind of trading) is that its most prominent players have bowed out after realizing thousands of ETH in losses while token farming on the platform. 

Franklin and Machi Big Brother recently stepped away from the platform and NFT trading in general in a somewhat dramatic fashion and at least partly for this very reason. Franklin’s losses from his activity on Blur total in the above 500 ETH range, while Machi Big Brother has reportedly lost roughly 5,000 ETH from his trades. All of Blur’s traders hope that the May 1 token airdrop can help offset the losses they’ve incurred by trading on the platform, but doing so would require a massive payout from the marketplace. In Machi’s unfortunate case, he’d need to earn over 130 million $BLUR tokens to offset his losses.

The pair’s departure has already been felt in the market. Bored Ape Yacht Club’s floor price fell from roughly 58 to 52 ETH after Franklin hurriedly sold dozens of Apes to pay off loans from BendDAO, a service that lets users put up NFTs as collateral for ETH loans, and to recover from thousands of ETHs worth of losses from a rug pull scam. But that market effect could be a tiny drop in the bucket compared to what might happen if Blur’s traders don’t feel the need to stick around. 

Bracing for impact

All told, both Blur traders and the NFT ecosystem at large are tensing up as they approach the platform’s May 1 deadline. Assuming that Blur cannot maintain the current state of its double-rewards points earning system, there appear to be few positive outcomes for either the platform or its users who have incurred any significant losses by trading on it. 

Even if Blur’s reward system leads to its traders being able to cover their losses enough to deem continued use of the platform worth their while, serious questions regarding this system’s sustainability still loom large. Much depends on what Blur decides to do regarding incentivization methods for its traders after May 1. If things don’t change, it looks like Blur’s bold experiment could end up shaking itself apart, ratting the entire Web3 community in the process. 

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