Wash trading has long been a problem in the non-fungible token (NFT) sphere. However, it is getting worse, as recent data shows that half of the NFT sales on Ethereum and a significant portion on Blur have been attributed to this deceitful trading practice.
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Monday is wash day
Wash trading occurs when an entity buys and sells the same assets to inflate trading volumes artificially, misleading market participants about the asset’s demand. While such unethical practices are not new to the crypto world, their frequency and impact are growing, undermining the credibility of the NFT sector.
Startling data from CryptoSlam indicated that NFT wash sales on Ethereum skyrocketed by 30% to $4.7 million on Monday, making up about 50% of all NFT sales on the blockchain. The bloated trading volumes in popular collections such as CryptoPunks and Bored Ape Yacht Club are now under scrutiny, as discerning genuine trades from fraudulent ones becomes a daunting task.
Blur vs. OpenSea
On Blur, one of the leading NFT marketplaces, the situation is slightly better but still worrisome. Over the past three months, a fifth of the trading volume, which sums up to around $220 million, has been attributed to wash trading.
Data from DeFiLlama indicates that wash trading accounted for over 40% of trades on Blur in the last week alone. This starkly contrasts its rival OpenSea, which recorded a mere 0.5% of such disreputable transactions.
The analysis also found that only 3.5% of individual trades on Blur were linked to the deceiving trading practice, indicating that while the total volume is affected significantly, individual trade figures remain relatively untainted.
Blur’s problematic incetive model
The incentive program on Blur, which promised a token airdrop to its top users, most probably caused the surge in wash trading. The platform’s initiative to reward its active users with free tokens, later tradable on secondary markets, led to a phenomenon known as “point farming”.
Users ramped up their trading activities, especially in high-value collections like Bored Ape Yacht Club, to receive these rewards, thereby exacerbating the wash trading issue.
Can regulatory bodies help?
A concerted effort from platform operators, regulatory bodies, and the crypto community is necessary to solve these issues. While regulation is ramping up, with projects like Impact Theory and Stoner Cats being prosecuted by the SEC (Security Exchanges Commission), it’s unclear if financial watchdogs will one day manage to enforce progressive legislation that will address the issue of wash trading.