NFT 'wash sales' look dirty

NFT marketplace LooksRare has, by trading volume, become the leading platform for buying and selling nonfungible tokens. But a closer look shows that most of the activity is actually users selling tokens to themselves to earn rewards in the form of more coins.

The platform was launched in January by two anonymous co-founders as an alternative to market leader OpenSea during a peak in the NFT boom. The site planned to add new features to lure NFT enthusiasts, but almost all those initiatives have focused on the incentive program built around the Looks token awarded to active users of the platform.

About $18 billion of the trading volume on LooksRare, or about 95% of the total activity, can be attributed to “wash sales” where users put an NFT they own up for sale and then buy it themselves. In this case, the sales are done to win new tokens. The marketplace benefits from the fees generated by each transaction.

At the same time, LooksRare has effectively helped to mask the cooling of demand in the NFT market. Total sales on OpenSea have declined every month since January, according to Dune Analytics. OpenSea sales volume is down 67% in the last 30 days, according to DappRadar. The number of traders has decreased 23%.

“I don’t care if it is stocks, bonds, Bitcoin, NFTs or baseball cards,” said David Silver, a Coral Springs, Fla.-based attorney who works on crypto cases. “Wash trading is a form of market manipulation in which an investor simultaneously sells and buys the same instrument to create misleading, artificial activity in the marketplace.”