The NFT market has had a down year as prices for digital collectibles have generally failed to recapture previous highs and have changed hands less frequently than in the past.
Although NFTs have started to show more signs of life in recent weeks, weekly NFT transactions have been parked between 100,000 and 150,000 since May, after regularly exceeding 500,000 in early 2022, according to data from Dune Analytics.
Amid the recession, a series of platforms have started offering tax-loss harvesting services for NFT holders. These sites charge a small fee to purchase NFTs that have lost their value and are difficult to sell. This can cause collectors to incur financial losses and reduce their overall capital gains taxes. According to on-chain data verified by Blockworks, these services have seen a rapid increase in usage in recent days.
Such a solution is unsellable. Skyler Hallgren, David Sawyer, and Zach Miller launched the company in 2022 after being frustrated that some of their hyped-up NFT investments were essentially illiquid because no one would buy them.
Unsellable charges about $2 in ether plus the price of gas to obtain a collector’s NFTs. Many Unsellable users are selling NFTs of rugs where the founders have left the projects, said co-founder Skyler Hallgren. Nearly all of the NFTs in Unsellable’s collection are valued at fractions of an ether.
As of Wednesday, the platform was buying an average of 1,000 NFTs in recent days and was approaching 10,000 purchases in December, according to Hallgren. He added that Unsellable bought between zero and 10 NFTs on most days in August.
“We recognize that most investors don’t think about tax loss harvesting until December, while most don’t get around to it until December 29-31,” Hallgren told Blockworks in an email. “While almost all traditional investors are implementing tax-loss harvesting strategies, this new generation of web3 investors are just beginning to learn how to be tax savvy with their crypto and NFT investments.”
Blockworks spoke to an The user said that after minting hundreds of NFTs in 2021 and 2022, their portfolio has been generally profitable.
However, not every collection turned out to be a winner. Some NFTs succumbed to carpet pulling, while others simply faded into obscurity. On Tuesday, they sold 44 of the bad collectibles through Harvest.art, another tax-loss harvesting platform.
“It doesn’t really take the sting out of the lost value, but it’s nice to see the calculated taxes owed on your winnings go down,” they said in a direct message.
Unsellable and Harvest.art aren’t the only examples of tax-loss harvesting platforms. NFT Loss Harvestooor is a free option that also runs the service. A platform called The Junkyard is rewarding users for offloading their NFTs with soon-to-be deployed Junkcoin tokens.
Sol Incinerator allows collectors to burn their Solana-based NFTs in exchange for small amounts of Solana. While the platform is not explicitly marketed as such, it also allows for tax loss harvesting and has seen increased use at the end of the year.
According to DappRadar, transactions with Sol Incinerator are up almost 70% compared to last week.
NFT Harvestooor is linked to crypto tax software CoinLedger. The Junkyard was controlled by Hacken and Unsellable was controlled by Paladin in December 2022. Harvest.art’s code is public, but Blockworks couldn’t find an audit. Blockworks also couldn’t find a smart contract audit for Sol Incinerator. Individuals should always conduct their own due diligence before connecting to any blockchain service or platform.