There is a lot of wash trading and money laundering in the NFT market

Blockchain analytics platform Chainalysis has found "significant" evidence of laundering and money laundering in emerging NFT markets.

“Like any new technology, NFTs have the potential to be abused. Importantly, as our industry considers all the ways this new asset class can change all the ways we connect blockchains to the real world, we also build structures that make NFT investments as much as possible. A potentially safe product," Chainalysis said in a report.

Fundamentally, wash trading is a form of market manipulation whereby an investor buys and sells the same asset at the same time, creating false and misleading activity in the market.

Likewise, an NFT holder can "sell" their NFT to another wallet they control, causing the NFT to "appreciate".

NFTs and wash trading

Chainalysis tracks wash transactions by analyzing NFT sales to addresses that are “self-financed,” in other words, transactions that are funded by the selling address or the address that originally funded the selling address.

According to this method, the report eventually revealed hundreds of wash trades. One of those users — the most prolific wash trader identified by Chainalysis — was found to have completed 830 transactions sent to self-funding addresses.

“We found 262 users selling NFTs to a self-funded address more than 25 times,” Chainalysis said.

In total, 110 users made nearly $8.9 million in profits from the campaign.

Chainalysis argues that the funds “probably came from sales to unsuspecting buyers who simply assumed that the NFTs they were buying had been increasing in value and going through the hands of different collectors.”

While the blockchain analysis firm admits that it cannot be "100% certain" that all NFT sales to self-funded wallets are for wash trading, "the 25-transaction threshold gives us high confidence that these users are habitual wash trading. By."

What's more, Chainalysis' data only records transactions in Ethereum and wrapped Ethereum (ERC-20 tokens that reflect the price of Ethereum). "There may be wash trading activity that we haven't considered," Chainalysis added.