Little of the non-fungible-token (NFT) industry’s market capitalization can be attributed to new investors, according to Randy Wasinger, co-chief executive officer of Forkast Labs and the founder of NFT and blockchain data analytics service CryptoSlam.

Forkast.News and CryptoSlam merged in January to form Forkast Labs, a media intelligence platform for the digital economy. Forkast Labs launched its flagship Forkast 500 NFT Index this week to provide data and pricing free of the “noise” that afflicts the industry. The Forkast Ethereum NFT Composite and the Forkast Solana NFT Composite were launched at the same time.

In an interview with Forkast’s Pradipta Mukherjee, Wasinger says filtering out wash trading is key to determining the true value of digital assets. Wash trading refers to the buying and selling of financial instruments by the same individuals or groups at the same time to create a distorted picture of prices and investor interest. 

The following Q&A has been edited for clarity and length. 

Pradipta Mukherjee: What is your personal reason to create index measurements for this NFT market?

Randy Wasinger: It’s something I’ve wanted to do for a long time because I want to know if the market is up or down today and over the last seven days, and if so, then by how much. We know these things for the traditional markets. We know if the stock market is up or down. In currency markets, we know if Bitcoin is up or down. If the U.S. dollar versus some other currency, if it’s up or down. We know that and we know that in real time. 

But in the digital economy, outside of currencies, we don’t know. So all of these other digital assets are trading and there’s fragmented data points out there that tell us, well, maybe this [NFT] collection is up, and this collection is down. But getting that macro sense of what the market is doing at any given point in time, we don’t know, until now. You can only do it the right way if you’ve got the wide comprehensive data set that we do. From my perspective, it would have to be a multi-chain approach. We can’t just focus on Ethereum or any other chain to get that widest, most comprehensive view of the entire digital economy.

Mukherjee: We read reports on massive “wash trading” related to the OpenSea and Blur marketplace competition. How can the industry rely on data when it can be manipulated?

Wasinger: That’s where we come in, where you need that trusted, independent, third-party to make sure what you’re looking at is legitimate. We’ve proven over the past months and years that we’re always at the forefront of identifying wash trading. We were the first to wash out the artificial trades happening on LooksRare a little over a year ago and now everybody does that. And similarly, we were the first ones to wash out a lot of the artificial or all of the artificial activity occurring on the Blur marketplace right now. 

Mukherjee: What is Forkast Labs doing to produce noise-free, clean data that can paint a valid picture of what is taking place in the NFT industry? 

Wasinger: With CryptoSlam, since 2018, we’ve been dedicated to ingesting any and all NFT data off the blockchain. And so by that definition, any data off the blockchain is theoretically clean. But is it appropriate to be used in an index? Can we rely on it? 

So what we do is we take all the data off the blockchain for all the blockchains we support, and we ingest it, and then we algorithmically determine whether or not those transactions, those sales were, for lack of a better term, legitimate. So we filter out wash sales. From that perspective, determining index values, we want to know what these assets have traded for in the past. And so we want to make sure that those on-chain data points are as reliable as possible. And to do that, you’ve got to remove wash sales.

And that’s the biggest one – to make sure that sales that we record are arm’s-length transactions between a buyer and a seller and we remove everything else. And it’s literally billions of dollars of NFT transactions that we have washed out or cleaned out of our data set and all of that from a CryptoSlam perspective. All of that empowers the CryptoSlam product, but it all powers and flows into the Forkast 500 as well.

Mukherjee: What is the current state of the NFT market as we understand through market cap or sales volume? And what different story is the Forkast 500 telling us?

Wasinger: I don’t feel like market cap alone is a strong enough indicator. It tells you something but any sort of data point that relies on market cap alone is going to be dominated by a few players. 

Namely, the one I’ll throw out there is Yuga Labs. So any sort of tracker that tracks the movement of market cap [would basically say] how Yuga is doing today. Much like with the cryptocurrency market cap, it’s dominated by Bitcoin and to a lesser extent Ethereum. [You want to] see if the currency market is going up or down, but what you’re seeing is if Bitcoin or Ethereum is going up or down. That’s not that bad from a currency perspective because a wide variety of people participate in those currencies. 

But in the NFT landscape, it’s different. 

For instance, Bored Ape Yacht Club and CryptoPunks. Those are very expensive assets, and certainly, people own them, but it’s whales that own them just because of how expensive they are. 

[Whale refers to an entity or an individual that holds large amounts of crypto-related assets.]

So if those assets move up or down, this is what the whales are experiencing in their own microeconomy. But it’s not necessarily indicative of the macroeconomy.

So what the Forkast 500 does, it certainly includes market cap as part of its algorithm, but it’s not dominated by that. It looks at many other factors, including how many people [and] how many traders are participating in a project. That gives a wider, more representative indicator of what the entire economy is experiencing, and not just a group of whales. 

Sales volume is certainly important. CryptoSlam has been the pioneer in reporting sales volume from a multi-chain perspective. So it’s certainly important, but it can and will tell a different story because volume just tells you how much interest there is in a project, but it doesn’t necessarily tell you what the value is. That’s why the Forkast 500 is stronger in reporting. You need not ignore sales volume, but you need to look at sales volume in conjunction with the index values, which measures not hype and activity, but actual value.

Mukherjee: The crypto industry still has that black eye from the series of unfortunate events of 2022. So why are you launching such an index now when trust in crypto is damaged?

Wasinger: Well, we’re launching it now because the industry needs it now. It has needed it for a while. We are literally taking billions of on-chain data points to create these indices. So it’s pretty complex how it all rolls up into this number that updates in real time. We’ve been working on this for a while. We envision this index being used not just within the industry but outside the industry so that non-participants in the digital economy can understand what’s going on, and they can, over time, get that trust that this is somewhere they want to participate. 

The timing is great for us because of the combination with Forkast where we’re able to reach a much bigger set of users. And ultimately we feel everybody’s going to benefit from it. But new users who aren’t participating in the digital economy now, but are participating in traditional finance, have got their eyes on NFTs and blockchain and crypto, and these [indexes] are what they’re going to use and what they’re going to look at to determine what’s going on. So we’re in a stronger position for that now than we would have been before the merger with Forkast.

Mukherjee: Tell us about the evolution of NFTs from art and collectibles to other use cases such as verification of documents and data storage, or the broader use case.

Wasinger: I got into NFTs due to the collectibles use case. Since then, we’ve seen collectibles and derivations of that largely dominate. You could argue that art falls into the collectibles category as well. The industry is still trying to figure out how to best use this technology. There’s been lots of experimentation on other use cases, but to date, we really haven’t seen that killer application, outside of something tied to collectibles, that’s bringing in a significant number of new users into the market. 

As gaming assets, Axie Infinity in particular brought a lot of new entrants into the market, but the play-to-earn model proved to be not a model that would stand the test of time. Gaming has got off to a decent start but still has a long way to go as far as delivering better products that are going to bring in more mainstream gamers is concerned. 

There is still a gap and we need that gap to close and to have some really, really killer applications, whether it be from gaming or somewhere else, to bring new entrants into the digital economy. Similarly, with other use cases, there’s been lots of experimentation, but the industry needs additional breakthroughs. 

Mukherjee: Are there plans to expand beyond NFTs?

Wasinger: NFTs as tokenized assets are the future of the digital economy. That is our strength. It’s where we are market leaders. As we expand our suite of indices, there will also be an emphasis on currencies at some point as well. 

Mukherjee: The NFT industry seems to have a lot of the same liquidity flowing into the most trending collections. How much of the same liquidity is being recycled?

Wasinger: Right now, I would say most of it. For it not to be recycled, one of two things has to happen. Number one, existing participants in the digital economy need to be buying more crypto from their Coinbase wallet and using that to buy NFTs, but largely we don’t necessarily see that happening like we used to. So either that has to happen, or new people have to come in. This is not to say they’re not coming in, but they’re not coming in like they were in 2021 and early 2022. So without either one of those happening, it is largely recycled liquidity and that’s why you see the market is going down — because it is just recycled liquidity. 

Mukherjee: How much of the NFT industry’s market capitalization can be attributed to new investors?

Wasinger: I would say very little. For instance, Mocaverse, [the membership NFT collection from Web3 venture capital and game developer Animoca Brands], seems like it’s been a successful mint so far. I don’t know what the market cap would be for that, but it’s a lot. It’s going to be tens or hundreds of millions at this point. Now, where did that market cap come from? It was not people opening up their Coinbase accounts and interjecting new cash into it or it wasn’t people coming in from the sidelines. What was happening was what everybody does, which is they’ll just sell their other NFTs or perhaps their other crypto, and then they’ll go and move it into the next project. 

Mukherjee: Is the market cap of an NFT collection significant? 

Wasinger: It’s an important number to look at, but only in conjunction with other metrics. So it’s not the end all, be all. If something has a US$100 million market cap, is that what it’s worth? No. 

In an extreme example, let’s say you owned all of those tokens, the market cap supposedly says US$100 million, and you start selling them. You’re not going to end up with US$100 million. You’re going to end up with something significantly less than that. And what that is, we don’t necessarily know because the laws of supply and demand will take over. It’s an interesting indicator, but it could be misleading as well because there’s certainly not US$100 million worth of value in an NFT project with a US$100 million market cap. You start selling; the price is going to tank.