Blockchain analysis firm Chainalysis said 110 NFT wash traders have collectively made about$8.9 million in profit in 2021. The company defines "wash trading" as transactions where the seller is on both sides of the trade and attempts to paint a misleading picture of an asset's value and liquidity.

The finding was part of a larger report on wash trading and money laundering in the NFT industry. The research only captures trades made in Ethereum and Wrapped Ethereum, excluding a significant amount of wash trading activity. 

Chainalysis said they tracked a minimum$44.2 billion worth of cryptocurrency sent to NFT-related smart contracts last year, up from just$106 million in 2020. But alongside that large increase in legitimate NFT business, Chainalysis said it did find actors wash trading to artificially increase the value of NFTs and money laundering through the purchase of NFTs. 

"In the case of NFT wash trading, the goal would be to make one's NFT appear more valuable than it really is by 'selling it' to a new wallet the original owner also controls. In theory, this would be relatively easy with NFTs, as many NFT trading platforms allow users to trade by simply connecting their wallet to the platform, with no need to identify themselves," the researchers explained. 

"With blockchain analysis, however, we can track NFT wash trading by analyzing sales of NFTs to addresses that were self-financed, meaning they were funded either by the selling address or by the address that initially funded the selling address. Analysis of NFT sales to self-financed addresses shows that some NFT sellers have conducted hundreds of wash trades."

They found 262 users who have sold an NFT to a self-financed address more than 25 times, with over half losing money due to gas fees. The 110 traders who made a profit brought in a total of about$8.9 million in profit while the rest lost a total of$416,984. 

The report adds that the money made "is most likely derived from sales to unsuspecting buyers who believe the NFT they're purchasing has been growing in value, sold from one distinct collector to another."

When it comes to money laundering, Chainalysis said value sent to NFT marketplaces by illicit addresses jumped significantly in the third quarter of 2021, crossing$1 million worth of cryptocurrency. 

"The figure grew again in the fourth quarter, topping out at just under$1.4 million. In both quarters, the vast majority of this activity came from scam-associated addresses sending funds to NFT marketplaces to make purchases. Both quarters also saw significant amounts of stolen funds sent to marketplaces as well," the company said.

"Perhaps most concerningly, in the fourth quarter, we saw roughly$284,000 worth of cryptocurrency sent to NFT marketplaces from addresses with sanctions risk. All of that was due to transfers from the P2P exchange Chatex, which was added to OFAC's SDN list last year."  

Kim Grauer, head of research at Chainalysis, toldZDNetthat she hoped the report would demonstrate to those involved that wash trading NFTs isn't a great strategy because it usually isn't profitable and is traceable.

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