More than a half of All NFT Trading on Ethereum in 2022 Was Fake

Over $30 billion of NFT trading volume from all time could be linked to 'wash trading'.

A recent report by Dune Analytics has revealed that wash trading accounted for over half (58%) of total NFT trade volumes on Ethereum in 2022. NFT marketplaces LooksRare and X2Y2 had the highest percentages of wash trading, at 98% and 87% of their total volume respectively.

Wash trading is a form of market manipulation in which the buyer and seller in a transaction are the same or collude together. Researchers used four filters to identify wash trading behavior, including identifying trades between the same wallet address, back-and-forth trades of the same NFT between two different wallet addresses, purchases of the same NFT three or more times, and transactions between buyers and sellers with wallets funded by the same wallet.

According to the report, when all of the filters were applied, over $30 billion of NFT trading volume from all time could be linked to wash trading – representing about 1.5% of all trades that have taken place on Ethereum. The practice of wash trading peaked in January, accounting for over 80% of total NFT trading volume that month.

Wash trading legal status

However, this staggering number only highlights the prevalence of wash trading, as it represents almost half of the "total trade volume" figures often quoted in the market. The report suggests that wash trading has become more prevalent due to increased competition among NFT marketplaces to capture trade volume market share.

Wash trading is illegal under US law and is difficult to track in the cryptocurrency space. In February, blockchain research firm Chainalysis reported that while most NFT wash traders were previously not profitable due to high gas fees, a group of 110 profitable wash traders were still able to make $8.4 million in profit.

The report serves as a reminder of the importance of conducting thorough due diligence when considering NFT purchases and the potential for market manipulation in the NFT space.