Study Shows Small Group of Insiders Benefits more on NFTs

Study Shows Small Group of Insiders Benefits more on NFTs
Photo by Brian Wangenheim / Unsplash

Non-fungible tokens, popularly called NFTs, are among the hottest things in cryptocurrencies right now, with the prospect of significant gains should the latest collection rise in value. But a new study from Chainalysis shows that a small portion of participants reaps most of the profits available in the NFT space.

Chainalysis, in its report, said that frequent investments in a wide array of collections yield the most profits. However, it added that whitelisting helps significantly. It entails the practice of allowing a specific set of followers or others to purchase new NFTs at a much lower price than other users during minting events where a digital file is turned into a digital asset on a blockchain.

Users who make the whitelist and later sell their newly-minted NFT profit 75.7% of the time, versus just 20.8% for users who do so without being whitelisted, Chainalysis said, citing Opensea data.

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The study claims that "a very small group of highly sophisticated investors rake in most of the profits from NFT collecting. This is especially true in minting, where the whitelisting process gives early supporters of collection access to lower prices that result in greater profits. However, we also see possible evidence of the use of bots by investors looking to purchase during minting events, which could shut out less sophisticated users, and even result in failed transactions that cost them in fees."

Whitelisting in NFT is a lot similar to the much-criticized preferential treatment given to investors and insiders in the world of cryptocurrency. Before the practice was outlawed, this used to happen a lot with the concept of initial coin offering. Despite NFTs having burst into popular consciousness this year, there have also been questions about what exactly one gets in terms of property rights when buying one.

"NFTs represent one of the most exciting, fast-growing areas of the cryptocurrency world and have become especially popular with retail investors," the Chainalysis report said, maintaining that those looking to trade NFTs must understand the competitive market.

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