Blockchain analytics firm Dune was responsible for the report.
A recent report published by Blockchain analytics firm Dune revealed that nearly 60% of non-fungible token (NFT) trading volumes this year were laundered.
Wash trading is a form of market manipulation in which a trader buys and sells a security to create the appearance of increased trading volume and market activity. In crypto, these activities involve the buying and selling of digital assets (fungible or non-fungible tokens) on trading platforms, with the intention of inflating transaction volumes. The ultimate 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 high demand. The trader could set up multiple accounts on an NFT marketplace, and use them to buy and sell the NFT back and forth, creating the appearance of high trading volume and increasing the price of that asset.
Most NFT Platforms Participate in Laundering Operations
According to Dune, laundering trades started gaining ground in the crypto industry in 2019 but became relevant to the NFT space in 2022.
The analytics firm noted that NFT wash trading is driven by luring traders with token rewards, due to the high competitiveness of the space. as well as the frequent launch of new platforms.
The most common wash trading methods involve investors exchanging their NFTs between two or more wallets, which they control, for as much Ether (ETH) as possible. The goal is to accumulate more valuable token rewards than the gas fees spent.
In February, Blockchain analytics firm Chainalysis reported that around 110 laundering trading addresses had generated $8.9 million in profit. In particular, a significant number of such wallets lost money due to transaction fees. However, the profitable addresses outweighed the losses of the unprofitable ones.
$30 Billion of NFT Trading Volume on Ethereum Consists of Laundering
The laundering trading relationship varies across NFT markets, but some platforms are more dependent on the activity. According to the report, platforms like LooksRare and X2Y2 rely on wash trading for 98% and 87% of their respective volumes, depending on activity. However, only 25-22% of their total operations are laundered.
Additionally, Element and Sudoswap are the top laundering 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 transactions are laundered.
Dune also revealed that roughly 45% of all NFT trading volume on Ethereum is laundering, accounting for $30 billion of the volume. OpenSea has only 2.4% of the volume of wash trading volume and less than 1% of the operations.
Meanwhile, in June, Vijay Pravin, CEO, and founder of NFT analytics provider bitsCrunch, revealed that more than 33% of NFT trading volume was fake.
By Audy Castaneda