Last month, one anonymous user spent more than $5M on CryptoPunks in a buy that kicked off a frenzy of NFT sales.
In an exclusive interview, The Defiant’s Camila Russo sat down to chat with the buyer 0x650d, who purchased 88 CryptoPunks for $5.5M in a single block.
0x650d gives us the scoop on how he actually planned to purchase 124 CryptoPunks, aiming to buy every single Punk listed for under 30 ETH. He also outlines the process of working with MiningDAO to bundle 88 transactions into a single block and reveals how he managed to make such a huge purchase without spending any gas fees.
Now as one of the CryptoPunk community’s largest holders, 0x650d reflects on potential obligations he now has and where he foresees the overall NFT space moving in the future.
CR: So, for context, before we get into last weekend’s purchase, I would love to know just more about your CryptoPunk collection. How many punks do you own in total?
0x650d: I currently own 106 punks.
CR: Do you have a target number you want to get to?
0x650d: As of now, I think I have the most exposure that I’m able to get. But as I see punks that I like, I’m hoping to purchase them in the future.
CR: So what’s the long term strategy here? Why own so many punks?
0x650d: I fully believe asset class NFTs are especially unique. This was the best way for beginner’s exposure to that ecosystem by buying the most blue chip NFT and getting the best exposure and the most liquid exposure that I could possibly get.
CR: Okay, so buying CryptoPunks was your way of buying exposure to the NFT sector as a whole, and you wanted this exposure in case NFTs end up outperforming ETH and DeFi in the long term?
0x650d: Yeah. Another way that I have been looking at it was that I would have liked to get exposure to one of these NFT’s DAOs or organizations. If they had an LP token, it would have been very easy for me to do so. However, I didn’t feel like there was a very straightforward path to getting involved in any of the circles considering I am an anonymous investor. So that is why I made the move that I did, and that’s why I went full punks.
CR: Because owning a share in an investment DAO would have required you to identify yourself?
0x650d: Yeah, for sure. Most DAOs, unfortunately, seem to like KYC in their membership position.
CR: When did you start planning this purchase?
0x650d: I started planning a purchase for about two weeks. Obviously, there were multiple factors including Ethereum Dark Forest, but I also think actors in the space are generally highly attuned to the average price of Punks and would be willing to move their bids very quickly once they saw a buyer or a single buyer trying to accumulate Punks as well. So I found this was the best way for me to execute in order to prevent something like that from happening.
CR: For additional context, 0x650 contacted an Ethereum mining organization called MiningDAO and got his transaction where he bought these 88 CryptoPunks to be included in a block in a way that didn’t alert other buyers or other players in the market. Can you walk me through that process?
0x650d: I chose MiningDAO because MiningDAO allowed me to maintain full block privacy, meaning that my bundle or collection of transactions can be kept private all the way until the point where a block is mined. The tradeoff was that MiningDAO has a relatively smaller amount of hash rate, so I had to wait a significantly longer period of time to block mine.
And I think it was worth it considering the tradeoffs of privacy that I was getting as a result of using that service. I don’t know if you guys know this, but I actually tried to buy over 124 punks originally in my bundles. I had a lot of failed transactions because it took me about 15 minutes to actually get my block into the mempool. And because this was a high activity or high volume trading day, a lot of these punks had been sold in the meantime.
The only interesting thing to know about the transactions was that I didn’t pay the gas.
CR: Oh my God, wow. You wanted to buy 124 CryptoPunks? Was there a certain amount of money that you wanted to spend on punks?
0x650d: I decided to buy all of the punks under the 30 ETH.
CR: All of them?
0x650d: Every one.
CR: Do you still have room to buy more?
CR: Why didn’t you pay any gas fees?
0x650d: When you submit a bundle on-chain, the only compensation you’re required to pay is the actual price to the miner for the inclusion of the transaction in the block. So in this case, I was going to take up an entire block, and as a result, I wanted to make sure that the miner was able to earn a fee from my bundle itself. Because otherwise, you’d rather just mine a normal block to receive the block reward transaction fees. So I wanted to make sure that the amount I was going to pay was greater than the node. But as long as it was greater, then I would not have to pay any gas fees in the transaction.
CR: How much do you think you contributed to raising the floor for NFT prices?
0x650d: I think I contributed significantly. That wasn’t actually my main intention. I mean, obviously a goal of this purchase was to create additional hype in the sector.
CR: So what do you think the floor price for punks should be? Do you have a framework for valuing them?
0x650d: I think it is difficult to value at that granular level. My view is that, similar to Bitcoin, there is fixed supply. I view them as a way for people to get exposure and get status in a world that I think is going to continue to grow, which is the metaverse.
I feel like punks very much represent the blue chip role of the art world in the NFT sector. And for that reason, it was most obvious to me that while I can’t bring the exact number on how people would value this, just into the reflexivity of how people think about valuing digital assets continually, because the value proposition will be based on the value that other people see in this. I thought that the room for growth and the room for potential to grow into a multibillion dollar market only for punks was extremely high.
I thought it’s only a matter of time before this asset class becomes far bigger than it is today at the $45 million total market cap for NFTs. I saw that growth to at least attempting 20-50x over the next 23 years.
CR: I’m interested in your thoughts about how NFTs can start to interact with DeFi. I saw you tweeting something about using NFTs as collateral on Aave, for example, so how do you foresee these two worlds interacting?
0x650d: I think that they’re going to merge almost internally. It’s also very difficult to actually make the assets fungible, because they’re supposed to be by definition non-fungible.
A big question in my mind has been how do we actually make these assets a bit more liquid so that investors will not necessarily be priced out from participating in the asset itself. Small retail investors can’t buy a single punk. How do they actually get exposure to an asset? They could use a protocol in Fractional now to actually get exposure to the assets, which I think is a great first step forward.
I think beyond that, I would love to see the assets become more productive.
CR: You said something that you’re planning to do is create a fund of your CryptoPunks and tokenize it and allow anyone to buy ERC20 tokens that represent ownership in your group of punks?
0x650d: I’m currently exploring that. Like I mentioned in one of my tweets, I fully intend on holding my punks for a long period of time on the magnitude of years. So if I do decide to enter into a position where I’ve rationalized any of those punks or shares of these punks, I want to ensure that I do not sell those punks for the opportunity, or give people the opportunity to buy them at any point in time. But I’m very open to that idea, because I’m aware that I do hold one of the largest collections of CryptoPunks, perhaps of anyone.
CR: Have you seen this service, where people can rent out Punks?
0x650d: Yes, I have.
CR: Is that something that you want to do as well?
0x650d: I think it’s an interesting service. I’m not sure I would be interested in renting the Punks out because ownership rights and copyright rights and pretty much everything is not given up by the owner. So I’m not really sure that there’s going to be a lot of demand for a service like that. If we see demand increase, I’m happy to consider it. But I was a little bit skeptical when I initially saw the model.
CR: Skeptical because if you rent your Punk, you would have to give away some of your rights to it?
0x650d: Well, from my understanding, you don’t give away any rights. What exactly are the advantages of renting punks versus just copying them?
CR: Oh, I see. Okay. Yeah, that doesn’t sound very exciting then. But the concept is pretty cool, and then maybe punk owners can start earning passive income without having to give them up. So I thought that was interesting.
CR: Do you feel a sense of responsibility to the CryptoPunks community now that you’re maybe one of the biggest single holders of CryptoPunks?
0x650d: I had some interactions with the CryptoPunk community on Discord, and I think they’re an awesome group of people. I wouldn’t say that I necessarily feel any sense of responsibility, any more than my other investments. I spent time in Discord and with the CryptoPunk community, and I think they’re a great group of people. And like I said before, I have no intention of selling.
CR: So what are the next steps for you? Will you continue investing in punks?
0x650d: I plan to continue investing in Punks. I’m really excited about a few other projects in the space. As I learn about the space, I definitely plan on deploying capital more accurately. But as I said before I invested in the beginning of this interview, the space is still quite new to me.
CR: Interesting. And you continue to be very involved in DeFi?
0x650d: Yes, I’m very involved in DeFi.
CR: Is crypto and DeFi your primary focus, or do you have a day job outside of the space?
0x650d: Yeah, completely on DeFi, all focus, full-time.
CR: So what percentage of your portfolio is in NFTs?
0x650d: It’s a very small percentage, something on the order of 3%-5%.
CR: Does that mean that you still think that it’s most likely that ETH and DeFi will outperform NFTs?
0x650d: I think it’s definitely still probable. And I think it’s more of a comfort thing for myself. Because as I am much more comfortable in my skills at DeFi protocols, and Layer 1, Layer 2 scaling solutions more broadly, I am entering the digital art space. It’s going to take learning and education on my part.