Users are gaming the most popular NFT marketplace, and some artists feel left out in the cold

Rarible, the most popular marketplace for non-fungible token-based digital collectibles and art, has a problem: influential users are gaming the platform. 

It all started in July, when Rarible — which accounts for 70% of the $100 million on-chain NFT marketplace — launched its own “governance token,” called RARI. RARI allows holders to vote for platform upgrades and participate in curation and moderation. 

Rarible users can earn RARI by being active on the platform — making both sales and purchases. So, perhaps naturally, some have resorted to artificially inflating their buying and selling activity for profit.

Rarible has introduced measures to combat the practice, for instance by introducing buyer and seller fees. Several artists have told The Block that the wash trading continues, however, and that the platform appears to be giving "verified" users with large followings an unfair advantage.

All washed up

In traditional finance, the term “wash trading” refers to when a trader buys or sells a security with the purpose of manipulating a market's reported volume. What is happening on Rarible is the NFT version of this. Users are creating NFTs and then selling those tokens to friends and followers, or purchasing them using separate accounts they control.

By doing so, they are taking advantage of Rarible’s RARI token distribution system, which dictates that the number of RARI tokens users get every week is tied to how active they are on the platform and how many sales and purchases they are making. And since in many cases the RARI they reap can be more valuable than the fees they have to pay to execute the scheme, this is bound to continue.

Some artists say these conditions have given those with large followings and whose Rarible profiles have been “verified” an unfair advantage. To begin with, verified artists get 15% more token rewards than users who have not been verified. They can also convince their followers to help them inflate volume.

“I can barely sell a few ETH worth of stuff a week, if that,” a Rarible artist who goes by "Bishop" told The Block in a Twitter direct message. “Influencers with 10-100K followers jack in and buy from themselves, and try to convince us all that the sales are legit just because they have large followings."

Users have also criticized the verification process. An artist known as Synpat told The Block via Discord that he was verified on the same day he signed up for an account, but knows other users who have been waiting for weeks to get verified. 

According to Synpat, users initially had to link their Rarible accounts to the platform’s Discord under a specific tab and link other social accounts. Last month, the platform rolled out a formal application form. “The verification process will take less time if you already have 3-4 minted items and filled-in description in your Rarible account. NB: badges are granted in limited quantity at the team’s discretion,” the form reads. 

Bishop, who last month made waves in crypto circles by announcing that he would be tokenizing “lots” on his body for which people could choose tattoos, said he joined the platform recently and had to contact the Rarible team several times before finally getting verified. 

“As much as they claim to be decentralized, they’re really not,” he said. “There are people who have the final say, and although I’m not the arbiter of truth, it is my belief that those people are complicit in allowing influencers to abuse the platform, and in turn the artists, for publicity.” 

Synpat argued that because Rarible is a new platform, its governance token distribution model will take time to be properly implemented. But he agreed that in the meantime it appears that less-established artists are losing out. 

“(Less established) artists are minting pieces with 24+ hours of work that are on sale for .05 ETH and still can't sell them, but then they see an 8 bit pixel collectible selling for 5, 10, 70 ETH,” he told The Block via Discord.  

'A major challenge'

According to Rarible co-founder Alexander Salnikov, the team began issuing RARI tokens because it was inspired by how liquidity mining had helped other DeFi marketplaces thrive. “DeFi projects are money marketplaces and users ‘participate’ in them by supplying money.”

The RARI distribution model is meant to provide creators more incentive to join the marketplace, he said. “When a marketplace grows, it faces the classic chicken and egg problem: the more sellers there are, the more buyers, and the more buyers, the more sellers,” Salnikov said. “Governance tokens allow them to construct the marketplace and bootstrap liquidity.”

Salnikov acknowledged that the resulting self-trading is "a major challenge,” but said there are ways to mitigate it. In September, the team introduced buyer and seller fees explicitly meant to discourage wash trading.

The platform also provides several avenues by which users can report "pointless transactions," he said. “Every week we analyze these reports, withhold tokens for questionable transactions and give a grace period for proofs."

Ultimately, Rarible's aim is to reward users who are "attracting the most value" to the system, said Salnikov, adding that the team determines this by analyzing on-chain activity, community signaling, and the various social techniques of artists on the platform.