Chainalysis flags money laundering among NFT sellers

Blockchain analytics platform Chainalysis has found ‘significant’ evidence of money laundering and wash trading in the NFT market.

Wash trading includes market manipulation via investors concurrently buying and selling one asset multiple times to create false and misleading activity in the marketplace.An NFT can be made to appear more valuable than it is by a holder selling it to another wallet in their control.

Chainalysis said in a report: “As is the case with any new technology, NFTs offer the potential for abuse. It’s important that as our industry considers all the ways this new asset class can change how we link the blockchain to the physical world, we also build products that make an NFT investment as safe and secure as possible.”

The company analyzes sales of NFTs to track wash trading in order to address if the sales are “self-financed”, or in other terms if the sales were funded by those of the seller or another selling address.

Results like this have exposed wash traders in the hundreds. Chainalysis revealed one user who had been found to have made 830 sales to self-financed addresses.

Overall, the number of users found wash trading has equated to 110 collectively making $8.9m in profit from such activity. Chainalysis continued: “We identified 262 users who have sold an NFT to a self-financed address more than 25 times.”

There is the belief that the funds are most likely directed to “unsuspecting buyers” sold a story that the NFT they are about to purchase was of high growing value.

In terms of money laundering, reports from Chainalysis show that the value sent by unlawful addresses has jumped considerably during Q3 2021, growing to almost $14m in Q4 2021.

Amid this illegitimate value, Q4 saw around $284,000 worth of cryptocurrency sent to NFT marketplaces from addresses with sanction risk.

It’s no surprise that wash trading and money laundering reports have come into the hands of Chainalysis, as concerns around certain coins and fake tokens have grown.

NFTs are a fairly new concept so it’s expected that there would be some sort of illicit activity where fraudsters could try their luck.

Authorities seem to be well informed surrounding such organizations, with the London Metropolitan Police’s Arts and Antiques Unit explaining to bitcoin and ethereum news site, Decrypt, they were “very much aware” of the risks surrounding NFTs.

“It is also possible that the exchange of NFTs between users could constitute money laundering in the form of layering or integration”, they said.

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Updated: 02/04/2022 — 14:00