It is not surprising that wash trading continues to account for the majority of NFT trading volume on crypto exchanges. Wash trading is a type of scam when the buyer and seller in a transaction are the same person or two people colluding.
According to the analysis compiled by researcher Hildobby on Dune Analytics, wash trading accounts for 58% of all NFT trading volume on Ethereum in 2022. This number peaked in January 2022 with over 80% of the total NFT trading volume that month.
Explaining the reason why wash trading on Ethereum takes up such a large proportion, the researcher believes that it is mainly due to the increasingly fierce competition between NFT exchanges to capture trade volume market share. Hildobby has provided 4 filters to weed out odd trading behavior that most likely pointed to wash trading:
- Filter out NFT transactions between the same wallet address
- Look at back-and-forth trades of the same NFT between two different wallet addresses (considered the most common)
- If a wallet address had purchased the same NFT three or more times, it was flagged as a wash trade because of the unlikeliness of the situation
- Finally, if a buyer and seller in an NFT transaction had wallets that were first funded by the same wallet, it was obvious that there was a connection between them and was therefore flagged as a wash trade.
According to the report, LooksRare and X2Y2 are two NFT marketplaces that account for the highest percentage of wash trading, 98% and 87% of the total volume, respectively. The similarity of these two exchanges is that they both provide forms of token rewards for engagement on the platform, which indirectly motivates traders to conduct wash trade to compensate for high gas fees. Another new NFT marketplace, Blur, has also airdrop based on transaction volume to attract users, resulting in a high wash trading rate.
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