Scathing report finds people profited immensely by selling themselves their NFT collections to artificially increase the value
The NFT marketplace has long been rumored to be full of scam artists, artificially inflated assets, and money laundering. Now a report by Chainalysis has given weight to these concerns. According to the report, Chanalysis looked at 262 NFT sellers who are potentially selling themselves their own NFTs to artificially inflate the value of the assets. Termed “Wash Trading”, the scam is characterized by a trade in which the seller and the buyer are the same people.
In the 262 cases that Chainalysis analyzed, the sellers collectively profited more than US$8.4 million. The report suspects that most of this profit was made by selling the NFT collections to unsuspecting buyers. However, not all NFT wash traders made a profit. Out of the 262 sellers, only 101 managed to profit. The other 152 lost US$416,984 because of high Ethereum gas fees that each seller has to pay before they can create and list their collections on the market.
As an example of extreme wash trading, Chainalysis identified a seller who sold their NFT collection to self-financed addresses 830 times. After selling the artificially inflated NFTs, the seller pocketed US$27,258, but not before paying US$35,642 in ETH gas fees. As a whole, this particular seller ended up losing US$8,383.
According to Chainalysis, these 262 wash traders represent a subset of all NFT traders who are engaging in the practice. So, the number of wash traders is likely to be considerably more than a few hundred.
Finally, the report also uncovered funds of US$1.4 million that were sent to NFT marketplaces from illicit addresses in the last quarter of 2021 for potential money laundering.
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