On the 4th of October, Pinehearst, an on-chain analyst via Twitter, reported that approximately 40% of NFT traded last year were marked as wash trades. The handler added that this practice is becoming rampant and has begun to spread to several NFT marketplaces.
🧵1/ wash trading on ETH NFTs 🔍
~40%+ of NFT sales volume from 2021 were marked as wash trades
Wash trading vol has also shifted from @LooksRare to @the_x2y2 recently
👑@opensea still remains the dominant platform in terms of sales vol/txhttps://t.co/FnDcq1Ds20 pic.twitter.com/1uGrIuH5sm
— pinehearst (@pinehearst_) October 4, 2022
The severity of the issue is demonstrated by the fact that 4 out of 10 NFTs rely on wash trading. Further research revealed that since 2021, scammers had used either point-of-sale washing or self-funding washing to wash 45.43% of NFT ETH volume. The Looksrare and X2Y2 platforms were the main markets where such actions occurred, and the same analysis showed a lot of washer addresses with the quantity of ETH washed.
The NFT platform experienced tremendous growth in 2021, thanks to the daily increase in NFT projects. Although there are more users or people overall, transaction activity has since slowed down as of 2022. Recently, people have attempted to influence the prices of some NFTs through wash trading to give the impression that they are more valuable.
Even though many platforms have outlawed this type of trading, it still occurs in some unfiltered markets. These “scammers” create numerous wallet addresses so they can purchase and sell NFT to one another. The general public can observe these transactions, but they are unaware of who is using which wallet. Therefore, the transactions appear legit, and the NFTs look valuable to the general public.
Overall, the goal of those who participate is to raise floor valuation and farm platform incentives. It is especially harmful to beginners because they risk developing an incorrect knowledge of the market. This action hurts ecosystem development and platform performance.
However, several solutions have started to emerge. Wash trading filters are available on platforms like Nansen, allowing customers to exclude wash trading. Hanson from Footprint has also identified wash trading using distribution analysis.
People should also watch out for signs to prevent wash deals. If a specific wallet buys an NFT repeatedly, this can indicate wash trading. Additionally, wash trading may have occurred if a Non-Fungible Token’s valuation is significantly greater than the floor valuation.
