Global NFT sales in October reached more than $850 million from approximately 3 million total transactions. I looked at NFT wash operations last month and that research led me to take a closer look at the numbers.
The trigger points for me to say that transactions are getting more and more bogus are:
- Despite poor market conditions, we continue to see a high number of unique buyers and sellers. In October, we had over a million unique buyers and sellers. Both buyers and sellers increased from September.
- The number of unique buyers and sellers seems inconsistent with the growth in the value of sales and transactions. About 1 million users contributed more than 4 million in sales value in May compared to less than 250,000 in October. To me, it seems unlikely to have growing demand in the market with less traded sale value.
To dig deeper into this question, I spoke with two centralized exchanges that operate NFT markets. Exchanges reported that around 80% of new buyers keep NFTs in their wallet, rather than selling them. With the market so unfavorable, holding these assets seems like the most sensible decision.
So where are all these unique buyers and sellers coming from? I had a word with Footprint Analytics and raised my points. I realized that the stats I’m looking at are way too big. It involved multiple channels and it’s hard to keep track of everything. We agreed to only work on Ethereum-based marketplaces as an example to dig deeper into as it is the most popular.
Here are the results :
According to Footprint Analytics filters, wash trading accounts for nearly half of total NFT trading volume.
Footprint analysis – ETH NFT Market Snapshot (With Wash Trading Filter)
Traders seeking to artificially inflate the price of collections or earn market trading rewards generated $389 million in fictitious trades out of a total of $758 million in NFT trading volume in October, bringing the amount of fictitious trades in the NFT market at almost half that of organic trade. The number of wash trading users accounts for almost 46% of the total number of users.
Sham trading is a form of market manipulation in which an investor simultaneously sells and buys the same financial instruments to create deceptive and artificial activity in the market.. This creates a huge dissonance in the NFT industry between what most people imagine NFT trading to be, i.e. someone buying an NFT for speculation, and the behavior that actually underlies it. the market – hundreds of insiders transferring NFTs between their own wallets.
There are several indicators to identify suspicious business activity.
Signals and indicators include:
- Overpriced NFT Trades with 0% creator fees
- Specific NFT IDs that are purchased more than a normal number of times in a day
- NFTs purchased by the same buyer address within a short period of time
The incentives for shadow trading are to earn rewards on the platform and to create the appearance of value or liquidity for the assets. Because there is no way to prevent or discourage bogus trading in the NFT market today, people have a hugely misrepresented picture of the amount of organic, genuine trading activity in the industry.
For example, 81% percent of all trades on X2Y2, one of the top 3 NFT marketplaces, were fictitious trades according to the filters applied. The main reason for X2Y2 wash trading is volume-based daily trading rewards. The higher the percentage of volume a user contributes to X2Y2, the greater the share of daily trading rewards the user will earn. A similar distribution can be seen when looking at individual collections. For example, of Dreadfulz’s $1.1 billion in total volume, $1.131 billion was reported as a washing trade.
An analyst or writer who does not understand this washout trading dynamic is likely to grossly misunderstand the current market. For example, here is what Business2Community wrote on October 12 about Terraforms by Mathcastles:
“Non-fungible token collections continue to show strong resilience in the face of the current general crypto market downturn so far this year. Here are some of the top-selling NFT collections this week: 1. Terraforms Reclaim The Top Spot.Terraforms, a collection of non-fungible tokens (NFTs) from Mathcastles, regained the top spot after dropping below our top ten best-selling lists last week.Terraforms has a 24-hour sales volume of 1,814 ETH .
The next collections listed in the article were BAYC and CryptoPunks, which have almost no wash trade. This would give the reader the impression that Terraforms is a more popular collection than these top notch collections when in reality there was almost no organic commerce.
By filtering trades for wash trading, traders, analysts and investors can more accurately assess NFT assets and the sector. Having accurate datasets and using them are two separate things. My role here is not to expose or bust NFT myths, I’m here to share my knowledge and tell my side of the story to everyone.
Using this article, I want to apply for CEX NFT Marketplace Data Analysis. Binance or Bybit NFT Marketplace would be ideal.