Almost 60% of NFT trading volumes in 2022 were wash trading: Report

A recent report published by blockchain analytics firm Dune revealed that nearly 60% of trading volumes for non-fungible tokens (NFTs) this year were wash trades.

Wash trading is a form of market manipulation where a trader buys and sells a security to create the impression of increased trading volume and activity in the market. In crypto, these activities involve the buying and selling of digital assets – fungible or non-fungible tokens – on trading platforms, with the intention of increasing transaction volumes. The end goal is to mislead other traders about the level of demand for the asset.

An example of wash trading in the context of non-fungible tokens (NFTs) might involve a trader who owns a particular NFT and wants to create the impression that it is in demand. The trader can set up multiple accounts on an NFT marketplace and use them to buy and sell NFT back and forth, creating the appearance of high trading volume and increasing the price of that asset.

Most NFT platforms do Wash Trading

Wash acts according to Dune started gained traction in the crypto industry in 2019, but became relevant to the NFT area in 2022.

The research firm noted that NFT wash trading is boosted by luring traders with token rewards due to the high competitiveness of the space and the frequent launch of new platforms.

The most common wash trading methods involve investors trading their NFTs between two or more wallets, which they control, for the highest possible amount of Ether (ETH). They aim to collect token rewards that are more valuable than the gas fees used.

In February, blockchain analytics firm Chainalysis reported that around 110 washing trade addresses had generated 8.9 million dollars in profit. In particular, a significant number of such wallets lost money on transaction fees. However, the profitable addresses exceeded the losses of the unprofitable ones.

$30B of NFT trading volume on Ethereum is wash trades

In particular, the ratio of wash trading varies between NFT marketplaces, but some platforms are more dependent on the activity. According to the report, platforms such as LooksRare and X2Y2 rely on wash trading with 98% and 87% of their respective volumes, depending on the activity. However, only 25% and 22% of their total trades are washes.

Furthermore, Element and Sudoswap are major wash trading platforms, with their respective volumes accounting for 66% and 11% of activity. On the other hand, only 18.5% and 14.5% of their total trades are sinks.

Dune also revealed that approximately 45% of all NFT trading volume on Ethereum is laundry trade, which accounts for 30 billion dollars of the volume. Open sea has only 2.4% of laundry trade volume and less than 1% of trades.

Meanwhile, in June, Vijay PravinCEO and founder of NFT analytics provider bitsCrunch, revealed that over 33% of NFT trading volume was fake.