Blockchain analytics firm Chainalysis has detected significant wash trading and money laundering throughout the NFT market.
Chainalysis—a blockchain analytics platform—has found “significant” evidence of wash trading and money laundering in the emerging NFT market.
“As is the case with any new technology, NFTs offer potential for abuse. It’s important that as our industry considers all the ways this new asset class can change how we link the blockchain to the physical world, we also build products that make NFT investment as safe and secure as possible,” Chainalysis said in a report.
NFT and wash trading
Chainalysis tracked wash trading by analyzing sales of NFTs to addresses that were “self-financed”—in other words, sales that were funded either by the selling address, or the address that initially funded the selling address.
This method yielded results that revealed hundreds of wash trades. One user—the most prolific wash trader Chainalysis identified—was found to have made 830 sales to addresses they have self-financed.
“We identified 262 users who have sold an NFT to a self-financed address more than 25 times,” Chainalysis said.
A total of 110 of these users have collectively made nearly $8.9 million in profit from this activity.
Chainalysis believes these funds are “most likely derived from sales to unsuspecting buyers who believe the NFT they’re purchasing has been growing in value, sold from one distinct collector to another.”
While the blockchain analytics company admits it cannot be “100% sure” that all instances of NFT sales to self-financed wallets are intended for wash trading, the “25-transaction threshold gives us a high degree of confidence that these users are habitual wash traders.”
What’s more, Chainalysis’ data only captures trades made in Ethereum and Wrapped Ethereum (an ERC-20 token that mirrors the price of Ethereum). “There’s likely wash trading activity we’re not considering,” Chainalysis added.
Money laundering concerns
Chainalysis reports that value sent to marketplaces by illicit addresses “jumped significantly” in Q3 2021, and grew again to almost $1.4 million in Q4 2021.
Among this illicit value, Q4 2021 saw approximately $284,000 worth of cryptocurrency sent to NFT marketplaces from addresses with sanctions risk.
This, Chainalysis found, was due to transfers from crypto exchange Chatex, which is listed on the U.S. Office of Foreign Assets Control’s Specially Designated Nationals list.
These findings come amid the $8.6 billion worth of cryptocurrency-based money laundering Chainalysis tracked in 2021.
“Money laundering, and in particular transfers from sanctioned cryptocurrency businesses, represents a large risk to building trust in NFTs, and should be monitored more closely by marketplaces, regulators, and law enforcement,” Chainalysis said.
Other NFT concerns
This is not the first time the burgeoning market has been associated with illicit activity.
LooksRare, an Ethereum-based NFT platform, has reportedly also become a prominent location for wash trading.
Earlier this month, LooksRare was posting higher trading numbers than OpenSea—the industry’s most-popular NFT marketplace—but the platform has seen numerous NFT trades going back and forth between the same two wallets.
At the time, the NFT marketplace didn’t seem to care, retweeting a thread in which one collector said wash trading is happening “by design…probably,” calling it “genius.”
It retweeted the same thread a second time, adding the word “discuss.”
Art and illicit activity
Illicit activity-and money laundering in particular—have long plagued the traditional art world, and some experts have long been warning that NFTs could exacerbate this issue.
The London Metropolitan Police’s Arts and Antiques Unit also previously told Decrypt they were “very much aware” of the risks surrounding NFTs.
“We know that the anonymity of blockchains allows ultimate beneficial owners to conceal their identity,” said one member of the Art and Antiques Unit.
Please Read Essential Disclaimer Information Here.
© 2022-2023 Crypto Caster provides information. CryptoCaster.world does not provide investment advice. Do your research before taking a market position on the purchase of cryptocurrency and other asset classes. Past performance of any asset is not indicative of future results. All rights reserved.
Contribute to CryptoCaster℠ Via Metamask or favorite wallet. Send Coin/Token to Addresses Provided Below.
BTC – bc1qgdnd752esyl4jv6nhz3ypuzwa6wav9wuzaeg9g
ETH – 0x7D8D76E60bFF59c5295Aa1b39D651f6735D6413D
MATIC – 0x7D8D76E60bFF59c5295Aa1b39D651f6735D6413D
LITECOIN – ltc1qxsgp5fykl0007hnwgl93zr9vngwd2jxwlddvqt
Support CryptoCaster with any amount of Bitcoin by copying and pasting our Unstoppable Domain; villagewest.crypto in your sending wallet or crypto coin exchange.
Your contribution support will help in our growth, coverage, and global presence. CryptoCaster is a decentralized publisher “Covering a Global Evolution Re-defining Mediums Of Exchange”. We will continue to upgrade and create impactful sections to our lineup.
Any amount, as often as you can contribute will be greatly appreciated.
Every contribution, however big or small, is so valuable for our future. Thank you for your consideration and support!
Member of Global Meta Media Consortium℠ – www.g2mc.world