Half of NFT trades on Ethereum are fraudulent — This team aims to fix that
The non-fungible token (NFT) market has seen an unprecedented number of new NFT collections introduced in 2022 despite the year-long crypto winter, showing that the turbulent state of the crypto market was not enough to deter NFT creators and collectors. With more than half a million new contracts across Ethereum, Polygon and Avalanche, the NFT market inevitably faced its own set of problems, with the primary issue being NFT wash trading.
A recent study by AI-powered NFT analytics provider bitsCrunch and Cointelegraph Research titled “BitsCrunch NFT Wash Trade Report for 2022” revealed that over 610,000 new NFT contracts were entered into during 2022, representing an 860% jump from the year for. This translated to over 85 million new NFTs, largely thanks to the recent surge in NFT games and sports-related collectibles. Total NFT sales volume for 2022 reached $54 billion, with Yuga Labs, the team behind the hugely popular Bored Ape Yacht Club (BAYC) collection, having just over $4.4 billion in trading volume.
However, the hype among collectors and creators attracted unwanted attention from malicious actors, namely laundry dealers. The BitsCrunch report points to the alarming increase in NFT wash trading activity, which skyrocketed by 25 times to nearly $33 billion by 2022. Wash trading refers to using fake transactions, copying other creators’ original works and other means to artificially inflate the prices for a specific NFT or collection.
Half of Ethereum’s NFT activity is fraudulent
The forensic analysis by bitsCrunch indicates that wash trading accounted for a significant portion of total NFT trading volumes over the past year. More than half (59%) of the $54 billion volume traded on Ethereum in 2022 is suspected of being laundered, according to the report. Laundry traders even change the top-10 NFT collection lists when they are removed from the equation.
Top 10 NFT collections in 2022 by sales volume, excluding wash volume. Source: bitsCrunch
After carefully weeding out wash volume, collections such as BAYC, Mutant Ape Yacht Club, Otherdeed and Azuki in 2022 became the top collections by volume. Total activity across the NFT market was $21.7 billion, the bitsCrunch team found.
However, not excluding wash trade volumes paints a very different landscape for the 2022 NFT market. Total sales, including wash trading, increase to over $54 billion while bringing NFT collections such as Terraforms, Meebits and Dotdotdot into the spotlight as frontrunners by a wide margin – suggesting a clear interest from wash traders in certain collections.
Top 10 NFT collections in 2022 by sales volume, including wash volume. Source: bitsCrunch
In the top five NFT marketplaces, LooksRare tops as the most popular hangout for laundromats, with over $26.2 billion or 96% of the total NFT sales of $27.3 billion suspected of laundromats. The loyalty token offered by LooksRare based on NFT trading volume emerges as the culprit, resulting in LooksRare’s monthly volume exceeding OpenSeas by nearly $10 billion. By comparison, the report estimates that of the total sales volume of $18.7 billion to OpenSea, the laundry trade accounts for about $1 billion.
Total (yellow) and traded (grey) volumes of the top five NFT marketplaces.
Two “sharks” laundered over 5 billion dollars
LooksRare also became a habitat for “sharks,” or NFT traders who made wash trades totaling more than $1 million, as described in the report. Two sharks in particular achieved 18% of the total sink trade activity on the LooksRare NFT marketplace, coordinating nearly $5 billion of sink trade volume.
Over 613,000 new NFT collections launched in 2022. Those that succeeded in making $10,000 or more in sales were no more than 10,000, marking a 1.6% success rate. The highly competitive space makes it important to conduct extensive research and analysis before investing in NFT collections. While annual reports provide insight into the ins and outs of the NFT market, users still need reliable tools to detect and flag fraudulent activity. BitsCrunch works with industry stakeholders to provide a sustainable ecosystem for users and to restore confidence in the thriving NFT market.
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