What is the Volume of Wash Trading on NFT Marketplaces?

Total NFT wash trading volume on the top 6 marketplaces rose for the fourth consecutive month in February 2023, to reach $0.58 billion. This represented a 126.0% increase from the previous month’s $0.25 billion in NFT wash trading.

The uptrend in NFT wash trading follows the recovery in NFT marketplace trading volume, which also marked four straight months of growth to reach $1.89 billion last month.

That said, NFT wash trading remains significantly below the $11.56 billion in January 2022, at just 5.0% of the monthly volume recorded during the previous NFT bull market.

Which NFT Marketplace has the Most Wash Trading Volume?

Wash trading has become prevalent on certain NFT marketplaces. X2Y2, Blur and LooksRare contributed the largest amounts to NFT wash trading volume in February 2023, at $0.28 billion (49.7%), $0.15 billion (27.7%) and $0.08 billion (15.1%) respectively.

This can be attributed to the activity of users incentivized to increase their trading volumes, as these marketplaces offered rewards for transactions.

X2Y2 first started offering $X2Y2 trading rewards in May 2022. Since then, X2Y2 has had one of the highest NFT wash trading volumes, accounting for over 40% total wash trading each month. In absolute terms, X2Y2 wash trading peaked at $0.64 billion in July 2022.

Prior to that, LooksRare had accounted for over 90%, or almost all NFT wash trading from January to April 2022. Despite launching its $LOOKS trading rewards near the month’s end, LooksRare generated $11.33 billion in NFT wash trading in January, amid the NFT rally and ample liquidity. Since the arrival of X2Y2’s rewards program, wash trading on LooksRare has fluctuated, contributing between 15-50% of total volumes across marketplaces.

Similarly, newcomer Blur saw wash trading triple last month once it introduced the $BLUR airdrop, which rewards users on transaction activity.

OpenSea contributed $42.57 million and Magic Eden just $0.59 million in wash trading, while no wash trades were found on CryptoPunks.

How Common is NFT Wash Trading?

As of February 2023, NFT wash trading made up 23.4% of unadjusted trading volume across the 6 biggest marketplaces combined. The percentage share of NFT wash trading volume has stabilized around these levels since November 2022, and is a big improvement from the 67.1% share recorded at the beginning of last year.

However, most transactions on X2Y2 and LooksRare are still wash trades, which represented 85.0% and 80.8% of unadjusted trading volumes on the respective marketplaces in February 2023. Since their trading rewards started, the percentage share of wash trading has only fallen as low as 67.6% for X2Y2 and 68.3% for LooksRare, as their NFT marketplace token prices fell.

NFT wash trading is less common on the other leading marketplaces, accounting for only 12.9% of unadjusted trading volume on Blur, 5.8% on OpenSea and 1.4% on Magic Eden last month.

As new marketplace leader Blur doubles down on token airdrops to encourage activity, its impact on NFT wash trading remains to be seen.

What is NFT Wash Trading?

NFT wash trading refers to the repeated buying and selling of the same NFT(s), to manipulate trading volume and/or prices. This can be done by both individuals or groups. The intentions include but are not limited to: Misleading other buyers and sellers, tax loss harvesting, and farming for tokens from incentive programs.

Wash trading is illegal in traditional capital markets, but can be rampant in NFT and even the broader crypto markets, due to the lack of strict regulations.

NFT wash trades can be identified by some common indicators, such as an address repeatedly buying the same NFT in a few hours, or an NFT bought too frequently within a day.

Methodology

The study examined total wash trading volume on the top 6 NFT marketplaces based on Footprint Analytics data, from January 1, 2022 to February 28, 2023. The top 6 NFT marketplaces are: Blur, OpenSea, Magic Eden, x2y2, CryptoPunks and LooksRare.

Read more: https://www.coingecko.com/research/publications/nft-wash-trading-marketplaces