Detecting and Estimating NFT Wash Trading on Ethereum

Summary

This study examines possible wash trading in Ethereum-based NFT markets, where traders can operate multiple addresses without identity checks. It analyzes sales from the 52 largest NFT collections by volume, covering January 2018 through mid-November 2021. The researchers identify suspicious activity using transaction patterns, most often trades alternating between a small number of addresses, which they interpret as consistent with manual trading.

Within the sample, the study flags 3.93% of addresses and 2.04% of sale transactions, estimating that suspicious activity may have inflated reported volume by as much as 149.5 million. The authors treat their estimate as a possible lower bound, while also arguing wash trading may be less widespread than some observers had suggested. The results are limited to the selected collections, period, and detection approach; suspicious patterns indicate potential abuse but do not by themselves establish intent or identify every instance of wash trading.

Key ideas

• The study examines NFT sale activity across Ethereum's 52 largest collections by volume.
• Its sample spans January 2018 to mid-November 2021.
• Suspicious transaction patterns often alternate sales among a small number of addresses.
• The analysis flags a minority of addresses and transactions and estimates possible volume inflation.
• The authors describe the estimate as a potential lower bound, while noting wash trading may be less common than previously suggested.

Tags

# NFT Wash Trading: Quantifying suspicious behaviour in NFT markets


# NFT Wash Trading: Quantifying suspicious behaviour in NFT markets









The smart contract-based markets for non-fungible tokens (NFTs) on the Ethereum blockchain have seen tremendous growth in 2021, with trading volumes peaking at 3.5b in September 2021. This dramatic surge has led to industry observers questioning the authenticity of on-chain volumes, given the absence of identity requirements and the ease with which agents can control multiple addresses. We examine potentially illicit trading patterns in the NFT markets from January 2018 to mid-November 2021, gathering data from the 52 largest collections by volume. Our findings indicate that within our sample 3.93% of addresses, processing a total of 2.04% of sale transactions, trigger suspicions of market abuse. Flagged transactions contaminate nearly all collections and may have inflated the authentic trading volumes by as much as 149,5m for the period. Most flagged transaction patterns alternate between a few addresses, indicating a predisposition for manual trading. We submit that the results presented here may serve as a viable lower bound estimate for NFT wash trading on Ethereum. Even so, we argue that wash trading may be less common than what industry observers have previously estimated. We contribute to the emerging discourse on the identification and deterrence of market abuse in the cryptocurrency markets.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.