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The nonfungible token (NFT) market has seen an unprecedented number of new NFT collections introduced in 2022 despite the year-long crypto winter, showing that the turbulent state of the crypto market was not enough to deter NFT creators and collectors. With more than half a million new contracts across Ethereum, Polygon and Avalanche, the NFT market inevitably met with its own set of troubles, with the primary issue being NFT wash trading.

A recent study by AI-powered NFT analytics provider bitsCrunch and Cointelegraph Research titled BitsCrunch NFT Wash Trade Report for 2022 revealed that over 610,000 new NFT contracts were made during 2022, showing an 860% jump from the previous year. This translated into over 85 million new NFTs, largely thanks to the recent surges in NFT gaming and sports-related collectibles. The total NFT sale volume for 2022 hit $54 billion, with Yuga Labs, the team behind the massively popular Bored Ape Yacht Club (BAYC) collection, enjoying over $4.4 billion in trade volume alone.

However, the hype among collectors and creators attracted unwanted attention from malicious actors, namely wash traders. The bitsCrunch report points out the alarming rise in NFT wash trading activity, which skyrocketed by 25x to almost $33 billion in 2022. Wash trading refers to using fake transactions, copy-minting other creators original work and other means in order to artificially pump up the prices for a specific NFT or collection.

The bitsCrunch forensic analysis indicates that wash trading accounted for a significant portion of the total NFT trade volumes over the last year. More than half (59%) of the $54 billion volume traded on Ethereum in 2022 is suspected of being wash traded, according to the report. Wash traders even alter the top-10 NFT collection lists when removed from the equation.

Top 10 NFT collections of 2022 by sale volume, excluding wash trade volume. Source: bitsCrunch

After carefully weeding out the wash trading volume, 2022 saw collections like BAYC, Mutant Ape Yacht Club, Otherdeed and Azuki as the top collections by volume. The overall activity across the NFT market clocked at $21.7 billion, the bitsCrunch team found out.

Not excluding wash trade volumes, however, draws a very different landscape for the 2022 NFT market. The overall sales, including wash trading, adds up to over $54 billion while bringing NFT collections such as the Terraforms, Meebits and Dotdotdot into the spotlight as the frontrunners by a wide margin implying a clear interest by wash traders for certain collections.

Top-10 NFT collections of 2022 by sale volume, including wash trade volume. Source: bitsCrunch

Across the top-five NFT marketplaces, LooksRare tops as the most popular hangout for wash traders, with over $26.2 billion or 96% of the $27.3 billion in total NFT sales total suspected as wash trade. The loyalty token offered by LooksRare based on the NFT trade volume comes forth as the culprit, resulting in LooksRares monthly volume exceeding OpenSeas by almost $10 billion. By comparison, the report estimates that out of the $18.7 billion total sales volume of OpenSea, wash trade accounts for about $1 billion.

Total (yellow) and wash traded (gray) volumes of the top-five NFT marketplaces.

LooksRare also became a habitat for sharks, or NFT traders who engaged in wash trades of over $1 million in total, as described by the report. Two sharks in particular scored 18% of total wash trading activity on the LooksRare NFT marketplace, coordinating almost $5 billion of wash trading volume.

Over 613,000 new NFT collections launched in 2022. Those that succeeded in making $10,000 or more in sales were no more than 10,000, marking a 1.6% success rate. The highly competitive space makes it essential to conduct extensive research and analysis before investing in NFT collections. While annual reports give a glimpse into the ins and outs of the NFT market, users still need reliable tools for detecting and flagging fraudulent activities. BitsCrunch is working with industry stakeholders to provide a sustainable ecosystem for users and to restore trust in the booming NFT market.

Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim at providing you with all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor can this article be considered as investment advice.

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Half of the NFT trades on Ethereum are fraudulent This team aims ... - Cointelegraph