To become a sustainable and stable environment, the NFT market needs to weed outwash traders.
Despite the year-long crypto winter, the nonfungible token (NFT) market saw an unprecedented amount of new NFT collections established in 2022, demonstrating that the volatile status of the crypto market did not deter NFT developers and collectors. With over 500,000 new contracts launched across Ethereum, Polygon, and Avalanche, the NFT market inevitably encountered its own set of issues, the biggest one being NFT wash trading.
A recent study named “BitsCrunch NFT Wash Trade Report for 2022” by AI-powered NFT analytics company bitsCrunch and Cointelegraph Research shows that over 610,000 new NFT contracts were made during 2022, representing an 860% increase from the previous year. This equated to approximately 85 million new NFTs, owing partly to recent increases in NFT games and sports-related memorabilia. The entire NFT selling volume for 2022 reached $54 billion, with Yuga Labs, the firm behind the enormously popular Bored Ape Yacht Club (BAYC) collection, alone raking in over $4.4 billion in trade volume.
However, the excitement among collectors and makers drew undesired attention from criminal actors, namely wash merchants. The bitsCrunch analysis highlights the worrying increase of NFT wash trading activity, which is expected to more than double to about $33 billion by 2022. Wash trading is the practice of employing fraudulent transactions, copying other producers’ original work, and other methods to artificially inflate the price of a given NFT or collection.
Half of Ethereum NFT activity is illegitimate.
According to bitsCrunch’s forensic study, wash trading accounted for a sizable fraction of total NFT trade volumes over the last year. According to the analysis, more than half (59%) of the $54 billion volume transacted on Ethereum in 2022 is suspected to be wash traded. When wash traders are removed from the equation, the top-10 NFT collection lists are altered.
After removing the wash trade volume, the top collections by volume in 2022 were BAYC, Mutant Ape Yacht Club, Otherdeed, and Azuki. The total activity in the NFT market was $21.7 billion, according to the bitsCrunch team.
However, eliminating wash trade volumes creates a totally different picture for the 2022 NFT market. Overall sales, including wash trading, total more than $54 billion, putting NFT collections like Terraforms, Meebits, and Dotdotdot in the lead by a considerable margin – showing a clear interest by wash traders in particular collections.
LooksRare is the most popular hangout for wash traders among the top-five NFT marketplaces, accounting for roughly $26.2 billion, or 96% of the $27.3 billion in total NFT sales suspected of being wash trade. LooksRare’s loyalty token based on NFT transaction volume is the problem, resulting in LooksRare’s monthly volume topping OpenSea’s by nearly $10 billion. In comparison, the research estimates that wash trade contributes for around $1 billion of OpenSea’s overall sales volume of $18.7 billion.
Two “sharks” washed over $5 billion
According to the investigation, LooksRare also became a haven for “sharks,” or NFT traders who engaged in wash deals totaling more than $1 million. On the LooksRare NFT marketplace, two sharks in particular accounted for 18% of total wash trading activity, coordinating nearly $5 billion in wash trading volume.
In 2022, around 613,000 new NFT collections will be released. Those that made $10,000 or more in sales were less than 10,000, representing a 1.6% success rate. Because the market is so competitive, it is critical to undertake considerable study and analysis before investing in NFT collections. While annual reports provide insight into the intricacies of the NFT business, consumers still want trustworthy methods for detecting and flagging fraudulent actions. BitsCrunch is collaborating with industry stakeholders to create a sustainable ecosystem for users and to restore trust in the thriving NFT sector.