NFT Wash Trading

NFT wash trading is a subset of price manipulation that occurs for two main reasons.
The primary reason is to earn trading rewards from incentivized platforms such as LooksRare and X2Y2.

The second reason is to manipulate the historical price and volume of an NFT collection.
Deceiving potential buyers is generally uncommon and unsuccessful, but it exists.

Wash trading results in distorted demand, volume, and prices. These factors can trick naive entrants to NFTs. When these users use LooksRare and X2Y2, it is worrisome that extensively wash-traded NFTs exist.

Terraforms was the most wash-traded collection of all time, at $12B worth. Wash trading amounted to 99.8% of its volume.

Meebits was the runner-up, with $9B in wash trading volume. Although 96% of Meebits’ volume is wash trading, this is notably lower than the less popular Terraforms, Dotdotdots, and Dreadfulz.

Meebits is an airdrop of the blue chip PFP NFTs CryptoPunks, generating $1B in organic volume. Loot, a community-owned NFT gaming platform by the co-founder of Vine, Dom Hoffman, also receives significant organic volume.

These NFTs appeal to market manipulators for two main reasons. Firstly, the collections are recognizable by the wider community. Secondly, the collections charge no royalty fees for creators.

No royalty fees means a higher cost-benefit ratio for wash trading to earn trading rewards. NFT brand recognition can also result in mispriced assets selling at higher multiples and less risk in selling the assets after acquisition.

Source: Delphi Digital