Chainalysis Detected Surge In Wash Trading Using NFTs

Chainalysis detected surge in wash trading using NFTs in its latest report that we read more about in today’s latest blockchain news.

Chainalysis is one of the leading blockchain auditing companies. It recently issued a report showing huge signs of wash trading activity involving NFTs and in these operations, some actors sell their assets to themselves with an intent to increase the floor price of the NFTs to sell them at a higher price later. However, the wash activity was not so profitable in the past because of gas costs.

In the new report, Chainalysis detected surge in wash trading using NFTs and these activities have the objective of making an NFT more valuable by giving an appearance of previous sales. Using blockchain analysis the company detected 262 users that sold NFTs to self-funded addresses mroe than 25 times. The most active addresses have done this procedure more than 800 times but it hasn’t yielded good results for the owners. Because of the gas fees, the price of transactions made to allow the movements was higher than the benefits obtained for the sales and according to the report, the address lost more than $8,000.

However, the wash trading activity involving NFTs was quite profitable if seen as a whole with a few addresses earning millions. The company found that 110 addresses involved in the activities made more than $8,800,000 in profits from wash trading. The legal status of wash trading in the NFT markets is not really clear but Chainalysis stated:

“NFT wash trading exists in a murky legal area. While wash trading is prohibited in conventional securities and futures, wash trading involving NFTs has yet to be the subject of an enforcement action.”

This could change as NFTs become more popular. With the explosion of NFTs in 2021 and a few companies integrating them into their businesses, occurrences of wash trading could start to catch the attention of regulators around the world.
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The company also detected limited instances of money laundering using NFTs that come from scam-related addresses and it described the activity as a drop in the bucket compared to the laundered amount using crypto in 2021.

As recently reported, The Department of the Treasury suggested that the increased use of art in NFTs and other financial assets could make the high-value art traders quite vulnerable to money laundering. The US treasury sees NFTs as a potential risk gateway for art money laundering according to the recently released study highlighting the potential of NFTs to conduct illicit money laundering or terror financing operations.