NFT Wash Trading Detection

TL;DR

This paper presents an algorithm to detect wash trading in NFT markets, revealing that a small but significant portion of transactions are manipulated, leading to substantial profit and market distortion.

Contribution

The paper introduces a novel algorithm for identifying wash trades in NFT collections, addressing a gap in market oversight and providing empirical analysis of market manipulation.

Findings

0.14% of transactions are wash trades

Total profit from wash trading is approximately $900K

Wash trading involves about 0.16% of tokens

Abstract

Wash trading is a form of market manipulation where the same entity sells an asset to themselves to drive up market prices, launder money under the cover of a legitimate transaction, or claim a tax loss without losing ownership of an asset. Although the practice is illegal with traditional assets, lack of supervision in the non-fungible token market enables criminals to wash trade and scam unsuspecting buyers while operating under regulators radar. AnChain.AI designed an algorithm that flags transactions within an NFT collection history as wash trades when a wallet repurchases a token within 30 days of previously selling it. The algorithm also identifies intermediate transactions within a wash trade cycle. Testing on 7 popular NFT collections reveals that on average, 0.14% of transactions, 0.11% of wallets, and 0.16% of tokens in each collection are involved in wash trading. These wash trades generate an overall total price manipulation, sales, and repurchase profit of \$900K, \$1.1M, and negative \$1.6M respectively. The results draw attention to the prevalent market manipulation taking place and inform unsuspecting buyers which tokens and sellers may be involved in criminal activity.