New Chainalysis Report Suggests NFT Crime Doesn’t (Always) Pay

More NFT wash traders lost money than made money in 2021, according to the blockchain research firm’s data.

AccessTimeIconFeb 2, 2022 at 2:35 p.m. UTC
Updated May 11, 2023 at 5:55 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

The booming non-fungible token (NFT) market might look like an attractive place for crypto criminals looking to make a quick buck, but new research from Chainalysis suggests NFT crime is less lucrative – and more difficult – than other types of crypto crime.

In a report published Wednesday, the blockchain research firm examined two types of NFT-related crime – wash trading and money laundering – that occur in the Ethereum NFT ecosystem.

The NFT market exploded in popularity last year. In 2021, Chainalysis traced $44.2 billion worth of crypto sent to NFT-related smart contracts, up from just $106 million the year before.

And as the crypto market grows, so, too, does crypto-enabled crime such as ransomware attacks and scams. In 2021, crypto crime hit an all-time high of $14 billion, and criminals increasingly turned to new areas like decentralized finance (DeFi) platforms to make money. But criminals looking to NFTs to strike it rich might find it a tougher nut to crack than expected.

“It's not a very good idea to get into crime in NFTs because it's expensive,” said Kim Grauer, Chainalysis’ head of research. “It's hard to guarantee you'll be profitable if you wash trade, and if you want to use [NFTs] to launder money, we can trace it, and you will be able to see who's in possession of the NFT. There's things that make the NFT space unattractive for crime.”

Wash trading – the practice of buying and selling the same asset to create artificially high trading volume and manipulate the asset’s price – has become common on NFT marketplaces like LooksRare.

Chainalysis found 262 NFT traders who had sold an NFT to a self-financed address over 25 times, which is Chainalysis’ threshold for when NFT sales are more likely to be wash trading than not. The research firm found that more than half actually lost money, as gas fees racked up and their wash trading failed to generate interest from real buyers.

However, for successful wash traders, the NFT marketplace can be profitable: The 110 successful wash traders Chainalysis tracked made a collective $8.9 million last year.

Money laundering through NFT marketplaces also picked up steam in 2021, with a collective $2.4 million sent from wallet addresses connected to illicit activity by Chainalysis. However, this was only a tiny fraction of the total $8.6 billion in crypto-based money laundering Chainalysis tracked last year.

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Cheyenne Ligon

Cheyenne Ligon is a CoinDesk news reporter with a focus on crypto regulation and policy. She has no significant crypto holdings.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.


Read more about