NFT 101: Wash Trading
Tags: web3, nft, nftscan
Published: 2023-09-26 02:04:57

Over the past few years, NFT sales have accumulated to several billion dollars, with a total of over 1 billion NFT assets (approximately 1,184,322,163) and a market cap of approximately $26,384,017,095. NFT transactions have been a source of income for investors and enthusiasts for many years. The NFT market continues to evolve and has become an integral part of the NFT ecosystem.

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**COMPONENT OF A NFT MARKET PLACE**

One of the most important criteria for a successful and well-run NFT marketplace is a well-detailed history of pricing, history of owners, item information, rarity, and transaction history which must not only be available but also presented in an easily accessible, usable, and understandable form.

Another criterion that has been deemed very important for an NFT marketplace is a token search feature where users and prospective investors can get adequate information on a select NFT. An advanced token search feature to streamline search requests to a set criterion, making search requests easy, and accessible.

Personalizing features based on user needs and market demands makes an NFT marketplace stand out. To prioritize users, proper data analysis is needed to optimize user experience and meet up with user experience and standards. Also helps to plan ways to innovate and tweak the system to get the perfect blend.

**WASH TRADING AND NFT MARKETPLACES**

Wash trading is a term whose origin we can trace to the early 1900s in the United States where wash sales were carried out on securities to claim a loss and then the securities were bought back right after.

NFT wash trading is an intentional manipulation of the market by individuals. This is done usually by creating a false volume. It involves a back-and-forth movement of NFT assets to wallets owned by the same individuals, or a group of people actively colluding in back-and-forth transactions to drive the price of an asset higher or create a false sense of high demand. In recent times, wash trading has also been done to harvest marketplace rewards

One of the most notable wash trading events came in October of 2021, where crypto punks #9998 was traded between two wallets for 124,457 ETH (worth around $532 million at that time). This trade was announced on X (previously Twitter) by the Cryptopunks Bot which picked up the transaction. However, when the transaction was put under scrutiny, it was discovered that the buyer used a flash loan to make the purchase. The seller then sent the 124,457ETH back to the buyer to repay the loan.

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Marketplaces have also been suspected of providing an environment to foster wash trading and there have also been indications of wash trading among several marketplaces. According to various analyses carried out, poor measures to detect and clamp down on wash trading, passive encouragement of wash trading by giving out tokens to traders based on trade volume, and active facilitation of wash trading have topped reasons why wash trading is becoming more rampant amongst marketplaces. Wash trading in NFT marketplaces is not put under as much scrutiny as traditional financial institutions as laws such as the Commodity Exchange Act (CEA) of 1936 make the act highly frowned at and illegal as the process of wash trading is considered illicit, and potentially harmful in traditional financial institutions. With NFTs however, there have not been clear-cut legislations that frown at wash trading.

**HOW TO SPOT WASH TRADING AND MAKE INFORMED DECISIONS**

It is pretty difficult to pinpoint wash trading but some tips can be helpful to know for sure when trade is being manipulated by individuals or by a marketplace.

- A good bet to detect wash trading is by viewing the NFT collection history to look out for back-and-forth trades between two wallets. If there were two, three, or four repeated trades between two accounts, then there is a potential wash trading going on.
- If one address has purchased the same NFT multiple times and sold, there is a potential wash trading going on.
- An abnormally high trading volume that cannot be explained clearly.
- A clear contrast in NFT valuation between two different marketplaces.

**WHERE TO GET NFT DATA TO MAKE INFORMED DECISIONS**

Over the years, the NFT world has suffered from fragmented information hence the need for an NFT Infrastructure not just to help put all the data needed in one place, but also to provide comprehensive data analysis to help investors, developers, traders, and enthusiasts query market information to make informed decisions. Currently, the NFT market has seen an influx of data providers all having a niche in which they have chosen to operate.

NFTScan is the world's largest NFT infrastructure, providing multi-chain support andenabling you to access and utilize NFT Information across 18 blockchains at your fingertips.

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NFTScan has four core products which are the NFTScan explorer, NFT Site, NFT API, and NFTScan as a service. Using NFTScan to build a data analytics platform makes you better equipped and leaves no room for grey areas of ignorance that can be exploited and as such you are equipped to build. In addition to the core features, NFTScan also provides other data analysis services such as collection trading ranking, blue chip collection analysis, wallet portfolio analysis, etc.

**KEY TAKEAWAYS**

- A marketplace is a Decentralized Application (DApp) for buying and selling NFTs and has represented an integral part of NFTs over the years.
- Proper data analysis is an important yardstick for rating an NFT marketplace and personalizing these features based on user needs is what makes a marketplace stand out.
- Wash trading is not a new term, and has been a major player in NFT trading. Knowing for sure when wash trading is going on needs a good grasp of NFT analytics.
- NFTScan is the world’s largest Web3 data infrastructure, with extensive data coverage of over 18 blockchains.

**About NFTScan**

NFTScan is the world’s largest NFT data infrastructure, including a professional NFT explorer and NFT developer platform, supporting the complete amount of NFT data for 17 blockchains including Ethereum, Solana, BNBChain, Arbitrum, Optimism, and other major networks, providing NFT API for developers on various blockchains.

Official Links:

NFTScan: https://nftscan.com

Developer: https://developer.nftscan.com

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Discord: https://discord.gg/nftscan

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