The NFT industry has been flooded as of late with approximately 80% of the market consisting of scams and plagiarism. But even more of the ponzi-esque nature of the industry has been uncovered by looking at NFT sales data.
Reported by Reuters, evidence has been building to suggest that most NFT sales are actually people buying their own assets. But how credible is the evidence surrounding this claim?
Are most NFT sales just wash trading?
In an article by Reuters, it was explained that a large number of the biggest NFT sales are a result of artificial inflation. The article claims that the high demand for NFTs is actually just “wash trading” in effect.
Wash trading is an act of market manipulation that creates a misleading marketplace. This practice sees an investor buying and selling assets to and from themselves; this makes a product appear more valuable than it is.
In the cryptoart industry, this practice is very easily executed. Since crypto wallets are anonymous, users can not tell who is buying or selling assets, only the address of a crypto wallet. However, evidence of wash trading is still left behind.
Is there evidence?
The article looks specifically at just a single NFT trading platform: LooksRare. While not as popular as Opensea, the marketplace still has a substantial amount of wash trading happening on its service. And it’s happening in plain sight.
Reuters reports that the 27 most expensive NFT sales in January 2022 happened exclusively on LooksRare. Those sales were all between just two crypto wallets on the platform and amounted to $1.3 billion. Additionally, the top 100 sales — worth $2.3 billion — happened between just 16 wallets.
DappRadar finance and research director, Modesta Masoit, told the outlet:
"There is a lot of activity happening between a couple of wallets – let's say wallet one selling to wallet two, and then wallet two reselling it. It's quite likely that this is not real demand, that these trades are not organic."
It’s not just easy, it's encouraged
Wash trading in the crypto market isn't just easy practice, it's a silently encouraged one. On the LooksRare platform, trading participants are rewarded “based on the proportion of overall sales volumes they were responsible for.”
This means that anyone involved in the history of NFT sales are given tokens called LOOKS. These tokens give old participants a percentage of future sales. As such, trading volume on LooksRare has exploded compared to its competitors, and so has wash trading.
However, LooksRare’s trading volume is miniscule compared to Opensea, the largest NFT platform. This means that the platform’s massive trading volume is due to an incredibly small number of people.