The NFT market has struggled with wash trading for some time

NFT wash trading reached an all-time high in 2022 as a result of declining pricing and efforts to draw traders to marketplaces. Researchers at Dune Analytics claim this. They discovered that more than 50% of the NFT trade volume on Ethereum was artificial.

The NFT market has struggled with wash trading for some time. But it wasn't until recently that it became evident just how serious the issue has grown. When the buyer and seller in a transaction are the same or conspire, the method is used to manipulate the market.

Over 58% of all NFT trade on Ethereum in 2022, according to analysis provided on December 16 by a researcher using the alias Hildobby, was fraudulent. The worst month was January, when trading volume for NFTs accounted for more than 80% of the total.

Filter NFT Wash Trading

The study proposed four filters to describe what a wash trade is. The first one concentrated on NFT transactions between wallet addresses. The second concentrated on trading identical NFTs back and forth between two different wallet addresses. The third sought to determine whether a wallet address had purchased the same NFT three times or more. The final filter checked to see if the wallets of the buyer and seller were funded by the same wallet.

The results were astonishing when the filter was applied to the total amount of NFT trading. Wash trading may have been involved in over $30 billion of NFT transactions. But despite how absurd the number seems, it only accounts for 1.5% of all trades that have ever been made.

Even though they occur at lower costs than wash transactions, the researcher notes that the majority of the trades are legitimate. This makes sense given that NFT wash trading's main objective is to raise the cost of a particular collection.

Looking at specific markets, some were more negatively impacted than others in an effort to attract people. For instance, wash trading accounted for 98% of LookRare's trading volume whereas it accounted for 87% of X2Y2's. Hildobby explains,

“Well-intentioned schemes to incentivize usage quickly emerged as a way to pull ahead in the race to attract this volume and become the most successful marketplace. Many widely quoted statistics have therefore been misleading at best, painting a picture of organic usage which hasn’t perfectly matched reality.”