'Wash sales' make up over 90% of activity on LooksRare NFT platform
The LuxRay marketplace rose to prominence this year in terms of transaction volume but has come under fire as data from NFT tracker CrytoSlam revealed About $18 billion of the trading volume can be traced to 'wash sales' or 'wash trading'.
Last year, anonymous co-founders Zodd and Guts created the platform at the height of the NFT boom and attracted NFT fans with its new features surrounding the LOOKS token.
What is Wash Trading?
Wash Trading refers to a transaction in which a trader assumes both sides of the trade, buying and selling digital assets to themselves to earn rewards in the form of more cryptocurrencies. And driving up the asset’s value to mislead the market.
Impact of wash trading practices
LooksRare rewards users with tokens and attracts unsuspecting buyers while the marketplace profits from the fees generated in the transaction process. The users sell NFTs using their ETH wallets with artificially inflating prices. They are able to earn more LOOKS tokens compared to LooksRare’s 2% marketplace fee and the Ethereum network’s gas fees.
Allegedly, LooksRare has also helped obscure the decrease in demand in the NFT marketplace. OpenSea’s total sales have been declining every month since January according to Dune Analytics. Moreover, DappRadar data shows a 67% decrease in the past 30 days and a 23% decrease in the number of sellers on the platform.
A growing number of fraudulent activities abound in the NFT marketplace. OpenSeas revealed that 80% of NFTs created with its free minting tool were plagiarized. Compounded by blockchain analysis firm Chainalysis’s '2022 Crypto Crime Report' shows that the NFT industry is prone to wash trading and money laundering.
Painting a more Optimistic Picture of the NFT Marketplace
While wash trading is common in the NFT marketplace, new solutions to detect malicious and fraudulent activities are in the offing. Chainalysis explained that the firm’s Chainalysis software can detect when a user buys 'a token using funds from the same person who sold them the same token.' This is achieved by analyzing NFT sales to self-financed addresses.
According to DappRadar data, the floor market cap of the top 100 NFT collections decreased by only 15% from November. BAYC, World of Women, MAYC and more top NFT collections are increasing their value in ETH, showing that NFTs are resisting the crash.
The number of unique active wallets (UAW) interacting with NFTs and Dapps grew 2%, with an average of 2.47 million UAW per day in February.
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