It's no secret that wash trading – a form of market manipulation where the buyer and seller in a transaction are the same or collude together – continues to plague the non-fungible token (NFT) market. But a recent report compiled on blockchain data site Dune Analytics has revealed just how bad the problem has become.

According to the analysis compiled by pseudonymous researcher hildobby on Dec. 16, wash trading accounted for over half (58%) of the total NFT trade volumes on Ethereum in 2022. The tactic peaked in January, with wash trading accounting for over 80% of the total NFT trading volume that month.

The researcher used four filters to weed out odd trading behavior that most likely pointed to wash trading. First, they filtered out obvious trades of NFTs between the same wallet address. Second, they looked at back-and-forth trades of the same NFT between two different wallet addresses – one of the most common wash trading tactics. Third, if a wallet address had purchased the same NFT three or more times, it was flagged as a wash trade because of the unlikeliness of the situation. And finally, if a buyer and seller in an NFT transaction had wallets that were first funded by the same wallet, it was obvious that there was a connection between them and was therefore flagged as a wash trade.

(By Rosie Perper)