NFT Wash Trading in the Ethereum Blockchain

Non-Fungible Token (NFT) marketplaces on the Ethereum blockchain saw an astonishing growth in 2021. The trend does not seem to stop, with a monthly trading volume of \$6 billion in January 2022. However, questions have arisen about such a high trading volume. The primary concern is wash trading, a market manipulation in which a single entity trades an NFT multiple times to increase the volume artificially. This paper describes several methodologies for identifying wash trading in Ethereum, from its inception to January 2022, and explores the tangible impact on NFTs. We found that the collections affected by wash trading are 5.66% of all the collections, with a total artificial volume of \$3,406,110,774. We study two different ways of profiting from wash trading: Increasing the price of NFTs by showing artificial interest on the asset, and exploiting the reward token system of some marketplaces. We show that the latter is safer for wash traders since it guarantees a higher expected profit. Our findings indicate that wash trading is a frequent event in the blockchain eco-system, that reward token systems can stimulate market manipulations, and that marketplaces can introduce countermeasures by using the methodologies described in this paper.