According to a recent report by Dune Analytics, the Non-Fungible Token market has had a big hit to its credibility. Over the course of their report, the analytics firm found that a huge proportion of trades were fraudulent.
More specifically, the firm found that over half – or 58% – of trades were described as ‘Wash trading’. This form of trading refers to market manipulation, where the buyer and seller collaborate, inflating / deflating the prices as a result.
Of course, expanding on this figure more finds that 58% is the average percentage of trades. At its worst (January 2022), more than 80% of transactions were wash trades.
To put this into perspective, this 58% total of wash trading translates to well over $30 billion – a relative drop in the ocean of crypto transactions – but it’s nothing to simply dismiss.
These figures beg the question of how this level of wash trading was possible. Dune’s researchers found that there are four elements that can be looked into to indicate strange trading behaviours that point to Wash trades.
Firstly, the most likely suspects would be trades between the same wallet addresses. Secondly, back and forth trades of the same NFTs – which was the most commonly occurring activity.
Thirdly, multiple transactions of the same NFT were flagged as a wash trade due to the rarity of such an action. Last but not least, along with similar looking wallets, if these wallets received funding by the same wallet – there would be a clear correlation.
While the activity is roundly illegal, it remains difficult to police within the crypto / NFT space.