Wash trading in NFT?
As the NFT marketplace is growing at an exponential rate, it is common to see new vulnerabilities emerging every day. The NFT marketplace is an online platform where people sell their digital assets. One of the common scam practices that are popular in the NFT marketplace is Wash Trading. Wash Trading is the repeated buying & selling of an asset by the same person in order to artificially stimulate the price and demand. This is considered illegal and market manipulation in most jurisdictions.
How is wash trading performed?
The NFT trading platform allows the user to link multiple wallets without providing any identity proof. Using links to multiple wallets, it becomes easy for the user to control both sides of the deal. The user can perform the task of buying and selling the NFT using the self-controlled wallet simultaneously. When the user performs such a transaction multiple times, the value of the asset increases. This has been a common practice since 2013. Chainalysis detected two main types of scams in the NFT marketplace, Wash Trading, and Money Laundering. According to Chainalysis, 262 users performed transactions with self-controlled wallets twenty-five times. However, it was also reported that not all users made a profit from this; only 110 users gained a profit of 8 million USD.
How does wash trading affect the NFT marketplace?
The wash trading tends to manipulate the entire sales volume of the NFT marketplace. Statistics showed that the complete industry has been pictured in a whole different light. This makes it difficult for investors and traders to make a decision as they have to rely on these statistics. However, the NFT platforms are also working on these vulnerabilities. Robust tools are being developed to catch these kinds of fraudulent activities. This can be detected by checking whether the selling and buying were done from the same address. It is recommended to do self-research before investing.
At last, you should know that wash trading is an illegal activity. It is also fairly easy for investors to get stuck in the crime of wash trading and hence, one should be aware of all security regulations. Always try to investigate the investment or asset before buying it, so that you should know if its value has been inflated by the wrong means. Knowing about the scams and vulnerabilities helps you take precautions to be secure from them. Hence, responsibility for users’ protection comes down to their experience and research in the field.
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Last modified on August 3rd, 2023 at 3:42 pm