Market Microstructure of Non Fungible Tokens
Mayukh Mukhopadhyay, Kaushik Ghosh
TL;DR
This paper analyzes the NFT market microstructure, focusing on price formation, market structure, transparency, manipulation, and investor due-diligence to understand and mitigate trading risks in the rapidly evolving NFT industry.
Contribution
It provides a comprehensive overview of NFT market microstructure, including manipulation patterns and practical investor guidance, which is a novel synthesis in this emerging field.
Findings
NFT market exhibits unique price formation mechanisms
Market manipulation via wash-sale patterns is prevalent
Investor due-diligence can reduce trading risks
Abstract
Non Fungible Token (NFT) Industry has been witnessing multi-million dollar trade in recent times. With rapid innovation of the NFT market environment by technology, innovation, and decentralization, it is becoming hard to distinguish between genuine NFT from fads and scams. This article discuss the NFT market microstructure, with a focus on price formation, market structure, transparency, and applications to other financial areas. Market manipulation in NFT market with the context of wash-sale patterns has also been surveyed. The article concludes by providing pointers on due-diligence activity that can be adopted by investors to mitigate NFT trading risk.
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