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Get ready for the feds to start indicting NFT wash traders

Published 08/31/2022, 01:27 PM
Updated 08/31/2022, 03:00 PM
Get ready for the feds to start indicting NFT wash traders

Studies show that most people who attempt to wash trade nonfungible tokens (NFTs) are unprofitable. But that doesn’t stop them from trying, which makes it a glaring regulatory and enforcement issue for the industry.

In wash trading, manipulators buy and sell an asset between themselves to create the appearance that the asset is in higher demand and, therefore, worth more than it would be otherwise. With NFTs, wash trading is fairly straightforward: Imagine an investor holds $1 million in Ether (ETH). The investor mints an NFT and proceeds to sell it to themself for all the ETH they own. The transaction is then on the blockchain for $1 million in ETH. The price of the NFT has been set through a wash trade to the benefit of the individual who minted the NFT.

NFT sales to self-financed addresses in 2021. Source: Chainalysis

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