Understand a key investment practice in non-fungible tokens
When it comes to speculative assets, NFTs are on the riskier end of the spectrum. And they fetched incredible sums in the market. From Yuga Labs’ Bored Ape Yacht Club to Chiru Labs’ Azuki, a dozen NFT collections have recorded total sales of $400 million. Even after the May 2022 stock market crash, the floor price for top collections remained at around 70 ETH.
New traders are looking for the next bestselling collection. This is where the “sweep the floor” NFT trading strategy comes into play.
What is a floor price?
The price floor is the fundamental measure in the NFT market. The NFT market behaves much like the commodity market, with one big difference: the former is decentralized. Price discovery in the NFT market is organic. As the project gains momentum, more and more people rush to buy items from an NFT collection, usually consisting of 10,000 NFTs. And the more they buy, the more the minimum price increases.
This is the NFT floor price; the minimum available price at which one is willing to sell an NFT. Since NFT marketplaces operate 24/7, this means that a price floor for a particular project can quickly rise.
What affects the NFT floor price?
While these floor spikes don’t happen often, they’re easily triggered by a celebrity adoption or partnership announcement. If we take a look at the floor price of Meebits on March 12, the floor price jumped 45%, to 6.1 ETH.
Why did the peak occur that day? Because Yuga Labs, creator of the hugely popular Bored Ape Yacht Club, announcement that it acquired both CryptoPunks and Meebits, both of which were owned by Larva Labs. This would be equivalent to Nike announcing the acquisition of Adidas. The valuations of all the collections were to skyrocket.
The trading volume shows the level of interest in the NFT collection. Like the price floor, trading volume is driven by various social media/collaboration events. For example, when SnoopDogg and Eminem teamed up to create a BAYC-themed music video, they spurred market interest and speculation, which affects trading volume.
If the volume is high, it indicates high liquidity. In turn, this indicates that there are more potential traders willing to buy or sell NFTs at certain price levels.
Floor sweeping = FOMOing
The NFT market is all about picking the next best-in-class NFT when there isn’t one. Recall that the BAYC floor price was 15 ETH on August 18, 2021. On August 7, it was 81.8 ETH.
This means that savvy BAYC buyers could have sold their NFTs a year later for a profit of 445%. Not bad for a speculative asset. Such performances generate a lot of FOMO in the market – the fear of missing out. Collectors are therefore constantly on the lookout for the next hit. This is where the floor sweep trading strategy comes in.
NFT Floor Scanning Explained
Buyers do not need to buy NFTs one by one – they can buy all listed NFTs at their floor price. They can sweep the floor. For this to happen, the buyer would have to follow the project closely before it is minted and put up for public sale.
It is the purpose of NFT Calendars that follow the mints to come. Additionally, NFT editors tease their plans on social media, typically Twitter and Discord, to rally the FOMO troops.
One of the recent upstarts in this FOMO arena was Goblintown. Without a doubt, Goblintown was one of the few generative collections of 10,000 NFTs that make each NFT look like it was individually handcrafted.
Likewise, the goblintown.wtf site itself was created with both technical and artistic skill. This combo has caused quite a stir, it could be another BAYC in the works. And that’s exactly what happened, for a while. Between May 25 and June 2, Goblintown’s floor price skyrocketed by 1,189%.
In such cases, when the top-notch FOMO is clearer than usual, floor sweepers deploy crawlers that buy all available NFTs.
With a successful sweep strategy, NFT traders can turn them into juicy profits, but there is a huge risk: if a trader sweeps the floor and then cannot sell the NFTs, they end up with potentially worthless digital assets. . .
More benefits of sweeping the floor
In addition to gaining huge rollover potential, NFT floor sweepers are able to save on gas costs. When transactions are grouped together, they are counted as single transactions. Likewise, buying NFT in bulk by sweeping the floor can save up to 40% on gas costs.
However, this only applies if one uses specialized aggregation services such as gem.xyz. For regular floor sweepers who trade manually, the reverse happens. Because multiple transactions need to be executed, they increase gas costs.
Likewise, the manual approach slows down transactions, so a trader would be in a race with others who have the same idea. For this reason, NFT floor sweepers tend to use automated sniper robots to search for NFT collections in pre-mint states. Each bot should be adopted for a specific blockchain network, such as this one floor price bot for Solana.
NFT floor sweepers are nothing more than classic concert ticket scalpers. Applied to the field of digital assets, they use more sophisticated tools instead of just standing around the corner. Nevertheless, given the fierce competition and the potential gains from finding the next top NFT, all means are allowed in NFT trade wars.
This article in the series is intended for general guidance and informational purposes only for beginners participating in cryptocurrencies and DeFi. The content of this article should not be construed as legal, business, investment or tax advice. You should consult your advisers for all legal, business, investment and tax implications and advice. The Defiant is not responsible for lost funds. Please use your best judgment and exercise due diligence before interacting with smart contracts.