- NFT wash trading volume increased by 126% in February 2023 on the top 6 marketplaces, reaching $0.58 billion, following the recovery of NFT marketplace trading volume.
- X2Y2, Blur, and LooksRare contributed the largest amounts to wash trading volume, with incentive programs playing a significant role in driving this activity.
- Incentive programs offered by certain marketplaces, such as X2Y2 and Blur, motivate users to increase trading volumes to earn rewards, leading to a surge in wash trading.
Non-fungible tokens (NFTs) have taken the digital world by storm, but with their rise comes the issue of wash trading. This market manipulation tactic has sharply increased recently, with NFT wash trading volume on the top 6 marketplaces soaring by 126% in February 2023.
According to a recent study by CoinGecko, NFT washes trading volume on the top 6 marketplaces, including Magic Eden, OpenSea, Blur, X2Y2, CryptoPunks, and LooksRare, reached $0.58 billion in February 2023, marking four consecutive months of growth. This increase followed the recovery of NFT marketplace trading volume, which grew to $1.89 billion in the same month. Despite this uptrend, NFT wash trading remains significantly lower than the peak of $11.56 billion in January 2022.
Marketplaces with the Highest Wash Trading Volume
Wash trading has become particularly prevalent on specific NFT marketplaces. X2Y2, Blur, and LooksRare contributed the most significant amounts to NFT wash trading volume in February 2023, with $0.28 billion (49.7%), $0.15 billion (27.7%), and $0.08 billion (15.1%) respectively. The study found that most transactions on X2Y2 and LooksRare are still washing trades, representing 85.0% and 80.8% of unadjusted trading volumes on the respective marketplaces.
The surge in wash trading on these platforms can be attributed to users being incentivized to increase their trading volumes through rewards offered by these marketplaces. For instance, X2Y2 started offering $X2Y2 trading rewards in May 2022, and since then, it has consistently had one of the highest NFT wash trading volumes. Similarly, newcomer Blur saw wash trading triple once it introduced the $BLUR airdrop, which rewards users based on transaction activity.
On the other hand, OpenSea and Magic Eden contributed relatively lower amounts to wash trading volume, while no wash trades were found on CryptoPunks.
The Role of Incentive Programs in Driving Wash Trading
NFT wash trading refers to the repeated buying and selling of the same NFT(s) to manipulate trading volume and prices, which is illegal in traditional capital markets. However, it is rampant in the NFT and broader crypto markets due to the lack of strict regulations.
Incentive programs offered by specific marketplaces contribute to the increase in wash trading. Users are motivated to increase their trading volumes to earn rewards from these programs. For example, Blur’s introduction of its native token, $BLUR, and subsequent airdrop campaigns incentivized users to engage in wash trading, as the rewards for increased trading activity often exceed the transaction fees paid for executing a trade.
While NFT wash trading remains lower than its peak in January 2022, the lack of strict regulations in the NFT and broader crypto markets enables this practice to persist. The industry must address the issue of wash trading to ensure the long-term credibility and sustainability of the NFT market.
