5 Ways to Detect NFT Wash Trading Activity on a Project

Theme: How can NFT buyers detect wash trading on a project

Detecting wash trading on an NFT project can be a challenging task, but here are a few things NFT buyers can do to help identify potential wash trading:

1. Check the Trading Volume: High trading volume on an NFT project is generally a positive sign. However, if you see a massive amount of trading volume that doesn't align with the number of active traders, that could be a red flag.
2. Analyze the Transactions: Analyzing the transactions on a blockchain can provide insights into the activity of an NFT project. Look for large numbers of transactions between the same accounts or transactions occurring at irregular intervals.
3. Check the Token Holders: Reviewing the list of token holders can reveal suspicious activity. If you notice a high concentration of tokens held by a small number of addresses, that could be a sign of wash trading.
4. Research the Team: Do some research on the team behind the NFT project. Check their track record and reputation in the community. If they have a history of creating similar projects that were involved in wash trading, that should raise some red flags.
5. Check for Social Media Activity: Watch out for excessive social media activity around the NFT project. If the team is constantly hyping up the project and there's little substance to back it up, that could be a sign of wash trading.

News:

• At Least $37M Worth of y00ts NFTs Migrate to Polygon From Solana in One Day

• Ticketmaster Tests NFT-Enabled Pre-Sales With Avenged Sevenfold Tour

• • Real Estate Investors Buy Solana NFT Home for $246,800

• Amazon's NFT Plans Teased in a Receipt Mailed Friday Afternoon

• Amazon NFT Marketplace Could Feature Beeple, Pudgy Penguins - Blockworks

• NFT collector accidentally destroyed a $129k CryptoPunk

  

 

 

 

 

ROugh Transcript

[00:00:00] Day. You sound good. I'm leaving that in. I know. I sound good. Thanks. Oh, this we are, we live. We're rolling in, like I think this is what popular podcasts do. All right. Yeah. This week you sneaking how, how NFT buyers can detect wash trading on a given project. We know it's happening, but is it happening to us?

[00:01:07] I'm excited to get there, but first, I don't know. What are we seeing in the news right now? Andrew? Oh man, George, thank you. You, you put the, the news headlines together for us this week, so man, so I'm trying to earn my keep. Yeah, this is, this is big, but, ah, man, I, I've definitely been, been keeping pace with some of these.

[00:01:27] You got a couple that I, uh, didn't, didn't notice earlier, but man, we'll start off with Utes. Utes have migrated to Polygon 37 million worth. So this is, we talked about this a little bit, like what does it take to actually migrate and it does take active holder, you need to do something and. We've seen a, a large percentage, uh, of holders actually do that.

[00:01:55] Uh, I don't know. I'm trying to, I'm trying to formulate like what this means. It seems like you should just do this out of value. Of course. Is there something that we should be looking at in terms of a platform usage or, or network usage that you're seeing? What, what's your take on this? One is that I kind of see this almost like an N b A draft or whatever, N f NFL draft, right?

[00:02:20] Where, where projects actually can and are being lobbied by these L two L one s, what have you to, to move over and you better believe there's like somebody paying somebody for, for this. But you know, I. Think also, this is on the second hand, a vote of confidence or lack thereof when you are moving off of your main, uh, platform like Solana is Oh, yeah, yeah.

[00:02:46] Honestly, not the home of the largest projects. And if you want to become one of the largest projects is there. And then the other thing I'll say is it gives me a lot of faith actually in some of those, uh, tezos bets that we made with regard to artists there. Because one risk frankly is like, I'm betting both on this artist, this piece of.

[00:03:06] And Tezos in the future of that, something that, look, I haven't dug into enough, but if they're using these wormhole bridges to move from one to the other. That's interesting. Yeah. It, it is interesting here and I'm, I'm curious to see how this plays out. I, you know, as I mentioned, did not, uh, put the, the news headlines together here.

[00:03:25] Did notice one project that's actually migrated from, uh, ETH to Polygon and now to Arro. And I'm curious to see how much of this is sort of chasing the, the, the hot, uh, the hot L two. And you know, I hope that it is not that you know, I, I think that Polyon has a lot of features that that will sustain and.

[00:03:50] I can see that there's going to be a lot of attention on, on zk Rollups, on, on Arro just other L two s in, you know, in the nearby future. Yeah. Well, I wonder if also there's in the future where Ordinals are like, oh no, we've broken and been dis disinvited from the party at over, at, uh, at Bitcoin Central.

[00:04:10] So, overall, I'm bullish on these wormholes, though in the back of my mind. I do know that whenever you build a bridge, you. A hole for attack. And we've seen a lot of bridge based attacks. So I'm a little absolutely concerned of signing any contract like that. I'm not the first penguin in that pudge water.

[00:04:30] I'm skeptical and of, of the, uh, security of bridges in general. All right. Getting onto the next one. This one, man, this one's interesting. So we got Ticketmaster testing, NFT enabled presale. So this is this. Ticketmaster actually selling NFTs. This is a Ticketmaster allowing artists to use NFTs to grant access to.

[00:04:55] Pre-sales to early access to, to tickets. This has been, Ticketmaster has been in the headlines a lot recently with, uh, some of the problems with specifically Taylor Swift's concerts and how fast they sold out. I think most of them sold out before, uh, the, the actual public sale. They were all sold in the public, uh, in the, uh, pre-sale.

[00:05:16] And there were a lot of questions about how. The people that were deemed, uh, somewhat led longtime fans. I can't remember what the, the term was, but they used the term, there was a lot of questions about how they were determined. So I think there's, you know, ticketmaster's least responding here. It definitely not a company that.

[00:05:36] Would be, you know, that's, that's web three first. And it is interesting to see that they are, uh, dipping into nft Enable sales. So this is a Avenge seven full tour. Uh, was a little surprised to see that this band was touring. But then again, uh, you know, don't, don't pay that much debt to it. I dunno, what's your take on this, George?

[00:05:55] What do you, what do you see in here? I'm so excited by this, and it was like kind of floated under the radar a little bit. But think about it with regard to functionality for just a second. The question of why an artist actually can produce an N F T that has value is through the roof. Now, that one use case, the fact that frankly, ticket Master is a wash with freaking front running, little arbitrage monster.

[00:06:24] And guess what? If you wanna front run my favorite band, cuz I've been a fan for a decade and then upsell me cuz they charge too little at the right, wrong price and then make a vig all the way. Guess what? You have to be a holder like I was cuz I found my band. I bought the N F T and I can be rewarded like.

[00:06:43] What a ruthlessly pragmatic use case, and it's exciting. I'm shocked. I am shocked. Do that band early. Show it. Come on. Yeah. But then the band can offer value directly to those, those users. Absolutely. This is freaking perfect. Look, I, I don't expect this rollout to. To be perfect. No, and it's going to and it's better.

[00:07:07] We're moving in a good direction. Well, no offense to Avenge Sevenfold, but I think they're the lower bar of maybe not Taylor Swift in terms of testing, so Right. Hey Steve, it works. It's a great way to test. Yeah. Again, no, no, no offense to the band. I don't know much about them. I think it's great that they are, you know, they're definitely willing to test this out.

[00:07:29] I imagine that they had to, to agree to this. I hope they did. But very cool idea and I'm, yeah, definitely keeping tabs on this one. All right. This is, man, this is another one that has, this sparked a lot of headlines. This week. We've got a new real estate N F T platform. Uh, this is. Uh, home base. So they sold a home this week or this past week in Macallen, Texas for about 245,247,000 via N F T.

[00:08:04] So it's not the first N F t, it's not the first home sold via N F T, but this is, I believe, the first on. So, Well first on Solana, I believe also the first, that was actually the first platform was solely dedicated to that. I could be wrong, I thought the other platforms were more dedicated to non NFT sales and this, and those were sort of, uh, I don't know, like, you know, side project, uh, sort of acquisitions.

[00:08:35] But definitely interesting here. It's, it's, I've had a few people bring this up to me, uh, in the past week. You know, you mentioned the, I mean, even the feature of being able to be, uh, purchased in a a digital currency is a big, is a big thing. What they're doing here, I believe is actually owning the house with an LLC and then selling the N F T cause we still have the problem of.

[00:09:05] Legal ownership of a, of a home. Mm-hmm. Yeah. You know that that can't be done. You can't change that on the blockchain yet. I, I, you know, I don't expect that to change anytime soon. And there are still ways to sort of incorporate existing laws with, you know, again, this is with trusted intermediary, so you know, there are problems.

[00:09:26] It's not perfect and it's interesting. Yeah, I mean, we see fractionalized ownership as a other possibility here when you have that N F T to be able to, to chop that up and, you know, in the good old traditional real estate fiat world we had. Mm-hmm. You know, I think it's like what Picasso trying to do that among others who are like, all right, you 10 people own this thing.

[00:09:48] This may be a bit different if you have like 10,000 owners. I don't know if you all. 20 seconds of home ownership, but probably works differently. Stop by, take a picture. Use the bathroom. You have, you have bathroom rights on Tuesdays and Wednesdays.

[00:10:06] All right, so we've got some news about Amazon's NF t plans. We discussed this recently that Amazon has n F T plans. There's been a bit more that has come out recently. Uh, there is basically a leaked email saying that there will be the potential to resale, uh, to resell the tokens or these, these digital assets that you have.

[00:10:31] There's not a ton of information here as it. I mean, it, it legitimately looks like a, a leaked email here. Did you have a read of this one, George? Yeah. They're just saying like, the opportunity to like resell is being like limited, something's being locked. So there's kind of be some sort of, it seems like initial drop, so maybe there's like an access token.

[00:10:53] I am complet. Way, way, way overreading into this. But what we are seeing is like snapshots into like Amazon Pay with transactions built into it seems like the interface and integration with Amazon Digital, uh, pieces. So, Look, I am not throwing the party for mass adoption, even though this article is like really hoping for it.

[00:11:15] Fine. Yeah, I don't see that. But look, it, it's not getting stopped. It's certainly not taking the path of like Facebook's metaverse that is no longer doing metaverse, but still is meta. Right? So one thing I note, uh, you know, I've noticed about Amazon is if you try to get a, if you, if you were to return, you get the option to either get the refund in.

[00:11:39] Amazon balance or back to your credit card and you know it's equal value and they will give it to you a lot faster. If it's Amazon balance. There's similar things with if you get the delivery At a later date, you know, they'll give you a dollar credit or, or, or something, you know, digital media of credit.

[00:11:58] But they are definitely trying to do these things where you have credit within their ecosystem. I can absolutely see a play here towards making that more of a unified ecosystem where those credits can be valued across, uh, multiple platforms where they are. Right now. Right now it's, it's, it's a single pla, like it's a single usage.

[00:12:23] Most those incentives take. Gotcha. Yeah. Well, the last one I found, I mean, I saw it. I saw it on Twitter. It made my heart hurt. I felt so bad. But here, here's why I'm pulling this out. An N F T collector accidentally destroyed $129,000 crypto punk. Oh yeah. And. This is particularly sad because frankly this is like being run on like cnbc.com and so right now, like this is the kind of thing that brings N F T into the mainstream.

[00:12:55] Like the, the, the articles we're talking about are like coming outta like. Coin desk or out of, you know, like, uh, you know, decrypt in our ecosystem, this C N B C, not our ecosystem. This is what the public's view of NFTs really is. It is a hot mess where even people that know their stuff lose their stuff.

[00:13:16] So this is just the sort of like cold water on frankly, anybody who thinks like, Hey, the user. Experience is fine the way it is. Like it's just not, it's not the one it,

[00:13:29] yeah, that's a good point. W w I just don't even know what to say. There's so much to be done for user experience in web three. It's, oh, man. It's, it's frustrating. There's a lot of potential. I guess I should look at it that way, right? Yeah. Lot of upside. And you know what? Frankly, if you are, you know, a holder of crypto punks, you just got that much more rare.

[00:13:55] I'm like, at this point, how many get accidentally burned? You know, if you're moving stuff. Well, I mean, with crypto, if you doing stuff, test something with a different wallet, a different, like, I mean, I don't play at that level, but I mean, I have a couple NFTs that I would be, I wrapped in, I had a punk, I wrapped a.

[00:14:12] It scared. I mean, it scares me thinking about that. And I also don't quite understand how you, uh, you don't understand how you burn into it. Address book. It's, it's, it's really too bad. I, I, you know, peop you know, mistakes happen. That sucks. Yeah. There it is. Right? Like, and at certain point, like, you're like, oh, it's on you.

[00:14:29] You made a mistake. It's on you. Like, how many times are you gonna say that? You're like, no, it's really on the ux. It's, it's just not where it needs to be for people to be moving around this level of asset. So heart goes out to you fella. Yeah. Start with, look, if you're listening to us and considering purchasing your first N f t that is a punk, I'm gonna say reach out to us.

[00:14:53] We'll help you. Don't do that. We'll buy something else. I'll sell you something for a lot, a lot less. Okay. Hit me up. Buy a moon cat. How about that? Discord And wrap the moon. Cat. Go wrap that moon cat. I got a deal for. Yikes. This is not financial advice brought to you by, we don't have an affordable project this week.

[00:15:15] We're, uh, they're all affordable. They're actually some, I'm, I'm looking at that recent art blocks thing. I think there's like some shopping to be done coming up. I think, oh man, this is actually one other piece of news art blocks coming out with their own marketplace. This is, this is big. I. For the, the generative art marketplace.

[00:15:33] So we've seen all the problems with not even problems. We've seen the, I should shouldn't say, just problems. We've seen the wars with royalties, with, with platform fees. Art block is coming out their own, their own platform for secondary sales. I think this is going to take a good percentage of the, uh, art block sales.

[00:15:56] We'll see what happens. Archipelago. Another attempt at being a marketplace for, uh, generative art, sales, never fully caught on. I think this has more potential because it is from PL and there's a really dedicated community there. It's sort of where I. Was able to get a lot of traction with my dashboards early on, and I know how feverish that community can be.

[00:16:21] So I am, I'm, man, I'm definitely watching this one and, and curious to see how this goes, to see what, uh, what sort of fees develop there. Open sea. Is not focusing on those fees right now. I mean, even talking with people there, they are focusing on minting fees. So, you know, there's a platform that's trying to, to, to do something a little bit different.

[00:16:47] I, I, I'm, I'm curiously where these platform wars end, I think we're far from, from settled. I'm still skeptical of blur being the, the, the king as everybody seems to be, to, to be crowning it right now. And man this. Uh, I think it'll be more, uh, more of a shake up than, than maybe people are letting or, or people are, uh, predicting right now.

[00:17:11] Yeah. I, I think you have a much better pulse on the art blocks marketplace opportunity. Uh, I just, I just dunno how you compete with zero fees, but maybe there's, Additional experience elements. Maybe there's like a custodial holding where you protect somebody's assets. I, I, you know, I don't know. Yeah, I don't, I don't, I don't look, I don't know entirely how it's gonna go, but I think there will be incentives and look, a lot of people do things with the, the promise of maybe something happening in the future.

[00:17:46] All right. Yes, the scene, oh, that in mind there was a rumor of a mask token going around this week. A a meta mask token that has been dispelled, unfortunately. Didn't see a few dashboards pop up. I don't know if, if anybody's still hoping. It seems like those have been dispelled, so I think we can move on now to our, to our project.

[00:18:08] Would you have for us this week, George? The pro. I mean, I don't have any projects. Here's what I was gonna say. I'm watching these recent, uh, I'll say like one ETH projects that Kevin Rose was highlighting on his podcast. Mm-hmm. And he was like, his affordable is one eth mine is like Hmm. Point two, 0.1.

[00:18:26] Yeah. But I'm curious, anything that he sees sort of value in at this point and then sort of watching the, the normal hype cycle go up and come back down. So far, every time we have talked about. Wait, watch and see it drop. Like it, it happens. So. Oh. Huh. We haven't been wrong. No, we haven't been wrong. We haven't been wrong in our estimates that you should wait and watch the number, number go down and then go shopping.

[00:18:54] So, uh, I'm kind of like waiting on a couple of those. I'm like doing this sort of like picking up the trash of like two weeks later off of Kevin Rose's recommendations to see like price and luon. Because there's quality somewhere in there, certainly with artists, and if he's hyping that artist once, they may have it again.

[00:19:09] But, uh, yeah, that, that's like my, my current thought. Anyway, we are talking about wash trading, how to identify it. And just to be clear, yeah. We've talked about recently, right? It's what we discussed this recently, like what is actual wash trading? I think it's, man, this is, Good, good topic here cuz we, it has come up in recent episodes and it's hard to define.

[00:19:40] Yeah, well you know, it depends on who you talk to cuz I don't even know, like technically they say like, you know, in February we had that huge bump and it was up 126% versus the previous in terms of activity happening on X two. Why do blur looks rare And we, we saw and have speculated. Potentially, you know, according to certain researchers, like what one in five transactions I've seen anywhere from 20 to 40% quoted as being wash traded.

[00:20:09] I think it can be difficult. Technically what we're talking about, it's market manipulation and it's when, uh, you know, someone basically trades with themselves to like one wallet to another, to artificially inflate the price, give this illusion of liquidity. Of a little bit of that FOMO drive up. And then once at a certain point, everyone, you know, gets the signal, then they begin to, to dump on the public once they think it is a, a project on the run, and it's.

[00:20:39] It seems very hard to stop and we see a lot more of it. So here's the question, like, yeah, yeah, yeah. I'm looking at a project, someone listening is looking at a project. Mm-hmm. What are some of the elements that we're looking for to identify wash trading, to set off a little pattern recognition for us.

[00:20:59] You mentioned earlier volatility. Volatility in general, spikes in activity are a pretty good, uh, indicator. I, if you see something that shoots up abnormally from where it was, that's a pretty good indicator that there's something inor abnormal going on now. I can't say that that's, you know, a hundred percent true if there is something, you know, if something shoots up, you know, we also know that there's a lot of cases in NFTs where there's a news of, if you own this, you'll get X airdrop whatever, you know, some something of that sort.

[00:21:37] So there are cases where it just happens, you know, but definitely it's worth looking at when there's volume spikes. There's a, one of the issues that I see. That the reliance on volume as a metric of, of, of, of leaders, of dashboards, uh, is very easy to to game, especially when you have, when you can do these wash trades that really don't cost much, especially if you put the, when we've got 0%, uh, platform fees.

[00:22:11] If you can put in 0% royal. Uh, you know, you're not really. You know, really it doesn't really cost anything to do this wash trading, and it can get you to the top of many different leaderboards across different, different platforms. Crypto Slam recently did a, uh, did analysis of the wash trading that is happening on blur and found, found much more than what was being at attributed to wash trading than some of the.

[00:22:42] Some of the other researchers out there, and it's not saying those researchers are wrong, I think it's just that their methodology was maybe outdated compared to what was being done on blur. There's things change over time and incentives definitely drive, uh, behavior and I think that we have to keep that in mind as you know, as these incentives are put out.

[00:23:07] The behavior will change and adapt to, to maximize their, those rewards. Yeah. So you're mentioning here like what, what we can do here is like check the trading volume, and so here are the triggers. You have high trading volume, fine. However, if you see a lot of volume that doesn't match with the number of active trader.

[00:23:30] That's a flag. So you're looking for not just high volume, but high volume of unique wallets as far as you can tell, and you're absolutely right. This is on the rise too right now because frankly, back when we started this podcast a couple years back, you know, the gas fees would chew you up. And so if you're out there thinking you're, oh, I'm totally scamming got, you're paying a per a hundred dollars triple digits all the time.

[00:23:57] That was what the norm was, right? And now we're seeing, oh, I got excited when I saw something under like, oh, $90. I'm pulling the trigger 20 right now. I'm like, when I see 80, I'm like, man, there's something crazy going on. And that. My, my gas fees used to be on current affordable projects. Ency crashed regularly anyway, that way.

[00:24:21] So there you go. Here's your trading volume. So it's volume versus unique traders. Here's another one. You can analyze the transactions. A bit and just like look at the activity of the project and you are looking for those large number of transactions between the same accounts. And you can kind of eyeball this almost, right?

[00:24:39] Like, is there a clever way to do this, Andrew?

[00:24:41] I mean, I know you've created dune dashboards, right? Where you could put in a project and you can kind of look at the, the top traders. Is there a way to see like, oh, it's between these two? No, honestly, folks more clever. Openly has really good, uh, mm-hmm. Charts on this at this point. Open C'S Incorporated Great charts right in there.

[00:24:59] Gem has some different ones and, you know, gem being owned by openly, it's actually different, but I found that those are so much more, uh, accessible and useful. There's so much more accessible than, than many that are platforms Now, I don't go to a lot of the dashboards that even I set up and, and created, uh, because most of the information I, I need is right there at this point, and.

[00:25:24] That's, I mean, it's, it's great. You can look at things like, so when we're looking at those, when I look at those, I'm looking at things like how many, you know, at, at the top holders, at the, uh, how many are owned by the top holders? What those, like who are those top holders? Looking at the recent activity there's.

[00:25:43] Yeah, if you haven't played around with that, that, that, uh, tab definitely check into that one a bit more. It gives a pretty good overview of, of the, uh, collection at this point. Yeah. And another one here is look for, and we talk about this, the, the weighted distribution of ownership. So if one wallet owns more than.

[00:26:07] A number of percent. Like as soon as you start talking about owning like 5% or more of a project, like massive alarm bells should be going off. Especially if there's a cause that person can move that market very quickly. The team being paid, I think that's, again, they're holding like, like that's lockup.

[00:26:24] Like, you know, I think there's a different thing there that can actually be good. I'd say if they aren't selling, but the second they start selling, that's, that's a bad sign. Right. Yeah, it's a very bad sign. Uh, alrighty. Uh, you can research the team. You mentioned the team. You wanna understand who they are, their track record.

[00:26:47] We have talked about this ad nauseum when you're analyzing a project, but again, if they are that anonymous team, which we do not love, and you can't tell whose wallet is, who's in there, uh, they probably have a, his, you know, a history of creating these project. Have a strategy behind wash trading that hypes and then drops on the public market, right?

[00:27:08] Because their job is to design something that looks good off the bat, has confidence, but is anonymous and they have enough wallets to move things around. And you know, it's a i, I think it's a rinse and repeat. I think there are digital teams running this play again and again and again. Right now. I think there are, and I think there are plenty.

[00:27:30] Named agencies, teams, backers doing this as well. I've, I'm, unless I'm, unless against the, the AAN teams, if they have a track record, if you can prove that you've done something I've seen plenty of cases of, of non and on teams being yeah, like here's my, my reputation in a, an adjacent area like trash removal, and now I can do crypto NFTs.

[00:28:00] Yeah. Yeah. I mean, I, I wanna see a track recording crypto. I mean, I think there's a lot of ways, I know there are a lot of ways to prove yourself without actually, you know, operating, you know, operating a contract that. You know, millions of funds or even hundreds of thousands. There are ways to prove without doing that as the first step.

[00:28:22] Alright, a final one here. I don't know if you have others beyond it, but I really like this one because it is the anti signal. Basically, check social media for the project, and if you see it pumping on like Twitter, not even pumping, but just a lot of chatter on Twitter. About the project that's like just excessive or spammy and like, you can tell now, which sort of like profiles are, are junk.

[00:28:50] Like if you see that type of hype on social, like give a search for, I'd say run, don't walk, follow, see people you follow, keep that that filter in mind when you do these searches and see if it's actually people that you're, that you're confident in. And if they're talking about it, you know, maybe that's.

[00:29:07] Story, but see what they're saying. I have definitely found that, oh, I found that I get a lot more dms from people pumping things and then look at like, who they're, you know, almost, they're not followed by anybody that I know. Like that's a pretty good rule, even though they have a good following. But.

[00:29:27] Ah man. There's always new scams out there, right? Yeah. Well, it depends on the day, but I think that's a good, I think that's a good way to look at it with those different options, you know, as we, uh, get to the end here. I don't think we're gonna have time for Vitalik again this week. I know, I know.

[00:29:43] He's been waiting in the waiting. He's waiting. He's like on the line right now. I just, you know, uh, maybe I'll send him a moon cat M&M's only and I just dunno if we can do that. No, I can't. I don't have the technology for that. All right, well, I will see you out there and leave a, leave a rating. Leave a review.

[00:30:04] We love those things. Later, later.