• The non-fungible token sector is a hotbed for abusive trading, but it’s not illegal since there are no rules.
• A review carried out by Reuters detected several purchases – sales where the price of the assets traded registered an unusual price increase in a short time.
• NFT trading platforms like LooksRare are used to promote dark trade that involves millions in illicit sales.

There are alarming signs that certain movements in non-fungible token (NFT), market have begun raising suspicions. On January 12, a digital image of a pixelated person from “Meebit” was sold at a price in cryptocurrencies equivalent to $50.6 million, Reuters reported.

It was remarkable that the original seller purchased that exact image for $49.6million five minutes later.

Wax trading and money laundering via NFTs are becoming increasingly common. Chainalysis, an industry research firm that provides data and analysis worldwide, recently published a report regarding this kind of illegal trade.

Booming wash trade

Due to the popularity of non-fungible tokens since 2021, and lack of regulation in many other countries, there is a huge market for NFTs. These NFTs could be used as a vehicle for all sorts of frauds and abuses.

Meebit was exchanged between anonymous crypto wallets. This is a common scenario in which the seller and buyer agree to artificially raise the price for the token. Both wallets belong to the same seller – buyer, according to Chainalysis research.

While all transactions can be recorded by the blockchain technology, names of parties are not. Merchants who have more than one wallet can wash trade easily. They are able to make duplicate sales to show that the token is indeed trading.

You could use the digital image as an avatar within the metaverse. The owner can also sell it on the LooksRare Marketplace. Reuters stated that after suspicious transactions, the cost of the image rocketed to unusually high levels.

“Another Meebit NFT (this one with a sporty dress and ponytail) was sent among three wallets in more than 100 sales,” said Reuters in a review of the week that began 12-12. January 19.
Likewise, in January, “a ‘loot’ bag NFT, representing virtual equipment for online adventure games, was exchanged across 75 sales between two other wallets for $ 30,000- $ 800,000 at a time,” the news agency noted.

Flipside

• This huge flow of trade has seen LooksRare’s online marketplace generate close to $10.8 billion in trading volume since it launched in early January of this year, according to data from market tracker DappRadar.

It is no coincidence that two of the wallets listed on LooksRare concentrated “the 27 most expensive recorded sales in the entire NFT industry in January, totaling $1.3 billion,” according to data provided by DappRadar as of 31 January.
The 16 wallets that were traded on this platform generated 2.3 billion USD, which was the total of the top 100 monthly sales.

DappRadar CFO Modesta Masoit commented:

“There’s a lot of activity going on between a couple of wallets – let’s say wallet one sells to wallet two, and then wallet two resells it. It’s quite likely that this is not a real demand, that these trades are not organic.”
CryptoSlam was another data provider who reported suspicious transactions to LookRare. The industry data aggregator, CryptoSlam, believes that both exchanges may be part of the rewards system the platform uses. However, the platform also registers “real” activity, according to Masoit.

LooksRare admits that they are “very risky” practices

Asked if merchants are artificially inflating trading volume, the company spokesman said “such practices were very risky” because merchants had “to pay transaction costs that they were not guaranteed to cover.”

According to Reuters, LooksRare’s structure “is designed to decrease the viability of LOOKS’ ‘dividend farm’ long-term,” a spokesperson said to Reuters.
But for L’Atelier CEO John Egan, it’s clear that the LooksRare transactions reviewed by Reuters are “laundry operations” that could not be admitted in traditional regulated markets.

The technology research and analysis firm explained that the deception consists of giving a “False impression of demand for an asset.” Although the company is not to blame for what the merchants do, he clarified.

Artificially raising the price of NFTs on the marketplace is not an illegal act, as there are no rules. Experts in the blockchain industry point out that it is an expanding and wild market.

What You Need to Care About

• NFT trading had a turnover of $25 Billion in 2021. This is a sign of the high levels of speculation.
• On its website, LooksRare bills itself as “the premier community NFT marketplace with rewards for participating.”
• Market analysts have been following the company’s remarkable growth closely and are looking for clues to its business practices.

The company’s reward system awards tokens (called LOOKS) to merchants who manage to accumulate higher total sales volumes where they act as intermediaries.

LOOKS can be used during “staking,” a process during which “a portion of the platform’s revenue is claimed from the 2% fee charged on all transactions,” Reuters quoted a LooksRare spokesperson as saying.

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