Performing Wash Trading on NFTs: Is the Game Worth the Candle?

Abstract

Wash trading is considered a highly inopportune and illegal behavior in regulated markets. Instead, it is practiced in unregulated markets, such as cryptocurrency or NFT (Non-Fungible Tokens) markets. Regarding the latter, in the past many researchers have been interested in this phenomenon from an “ex-ante” perspective, aiming to identify and classify wash trading activities before or at the exact time they happen. In this paper, we want to investigate the phenomenon of wash trading in the NFT market from a completely different perspective, namely “ex-post”. Our ultimate goal is to analyze wash trading activities in the past to understand whether the game is worth the candle, i.e., whether these illicit activities actually lead to a significant profit for their perpetrators. To the best of our knowledge, this is the first paper in the literature that attempts to answer this question in a “structured” way. The efforts to answer this question have enabled us to make some additional contributions to the literature in this research area. They are: (i) a framework to support future “ex-post” analyses of the NFT wash trading phenomenon; (ii) a new dataset on wash trading transactions involving NFTs that can support further future investigations of this phenomenon; (iii) a set of insights of the NFT wash trading phenomenon extracted at the end of an experimental campaign.

Dataset of Linkability Networks of Ethereum Accounts Involved in NFT Trading of Top 15 NFT Collections

“…On the other hand, some authors delve into non-direct scamming in the form of wash trading or pump-and-dump schemes [4]. A more recent study analyzes whether or not wash trading is worth it by analyzing the trading data [5]. However, only NFT trades are considered, with no linkage to the underlying Ethereum transaction graph.…”

Not So New Kid on the Block: Accounting and Valuation Aspects of Non-Fungible Tokens (NFTs)

“…The International Accounting Standards Board's Conceptual Framework for Financial Reporting, updated in March 2018 (International Accounting Standards Board 2018a, 2018b, should serve as a guidepost for NFT financial reporting. Nevertheless, uncertainties surrounding future cash inflows, resource management efficiency, and transaction volumes render NFT financial reporting a complex endeavour (Bonifazi et al 2023).…”

Leveraging State-of-the-Art Topic Modeling for News Impact Analysis on Financial Markets: A Comparative Study

“…To bridge the gap between these two classes of studies, in our preliminary work [12] we have advocated a systematic service-oriented framework to facilitate reproducible news sentiment impact analysis processes in the context of financial markets, enabling finance domain experts to evaluate the impact of any news dataset on the related financial market instruments. The news impact analysis process, as shown in Figure 1, includes setting financial context parameters, importing news data, selecting news based on the topics and sentiments, pairing news events and financial instruments (e.g., stocks and cryptocurrencies [13]), importing financial market data, and performing impact analysis and visualization. One gap in the old framework version is in the news selection stage.…”