Analysts have found evidence of illegal NFT-token activity. Which schemes are we talking about?
Experts at analytics platform Chainalysis have found “meaningful” evidence of huge amounts of fake trading volumes and money laundering in the NFT token sphere. It turns out that the holder of a unique token can “resell” NFT itself to artificially raise its price in the eyes of other market players. This is just one example of such activity. We describe the situation in more detail.
It should be noted that the popularity of NFT-tokens is now really close to its peak. Specifically, trading volumes on NFT token platforms based on Etherium set a record in January 2022. The figure reached the $7 billion mark, beating the previous month’s result by 210 percent.
Trading volumes on NFT token platforms based on Etherium
That said, the popularity of asking for unique NFT tokens is now just below its peak. Which means people are still actively searching for information about this topic.
Popularity of the query about NFT-tokens on Google
Most importantly, this query beats searches about cryptocurrencies in terms of frequency. And this has been going on for several weeks now.
Comparing the popularity of queries about NFT and cryptocurrencies
And here’s a chart of total trading volumes with NFT tokens over the past year. The figure is now a long way from the highs, but it is still holding up well.
NFT token trading volumes over the past year
The main problems with NFT tokens
Here’s a quote from a recent analyst study published in the news publication Decrypt.
As with any new technology, NFTs can be abused. Importantly, as our industry looks at all the ways in which this new asset class can change the way blockchain connects to the physical world, we are also creating products that make investing in NFT as safe and secure as possible.
Accordingly, experts recognise that there is illegal activity associated with unique tokens.
BAYC’s NFT collection
Chainalysis tracked fake NFT trades by analysing token sales at wallet addresses that were “self-funded” – in other words, transactions where the party buying and selling was the same person with different addresses, yet linked to each other. Using this method, hundreds of cases of artificially inflated NFT prices have been identified. The experts continue.
We identified 262 users who sold NFTs to a self-funded address more than 25 times.
A total of 110 of these users earned almost $8.9 million in profit. The gist of the scheme is simple: they raised the value of their NFTs until the tokens had their real buyers.
Buying tokens on OpenSea
However, Chainalysis admits that they cannot be “100% sure” that all the cases of reselling NFTs to self-funded wallets were done precisely to make money on unsuspecting buyers. That’s why the experts took a threshold of 25 transactions – that way you can be sure that the owner of the NFT is going to take advantage of the token’s too high price.
The findings of the Chainalysis study in one image are shown below. In this case, the experts identified the sources of illegally obtained funds that were sent to trading platforms to buy NFT. As a result, the most popular category here was fraud (in green) – it was cryptoscam authors who were most active in purchasing unique tokens. In addition, stolen funds were a popular category. Here, they are marked in orange.
Categories of illicit funds in the NFT token space
We believe that such problems are a result of the newness of the unique NFT token industry. This industry has been truly popular for less than a year, so the most nimble investors are finding ways to make money from it - including in less-than-honest ways. And the use of illicit money in the industry is due to its decentralisation. So there are likely to be fewer such problems as the industry matures.
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