Chainalysis Report: NFT Money Laundering on the Rise


Over the past year, the NFT industry recorded volumes of billions of dollars. But with the hype, scammers saw opportunity. According to Chainalysis, NFTs are used by criminals for money laundering and wash trading.

The non-exchangeable token (NFT) industry has grown rapidly over the past year. Many investors from the traditional crypto market have entered this world. In 2021 alone, the industry recorded volumes of billions of dollars.

However, a recent report by Chainalysis, a company that researches and analyzes blockchain, notes that NFTs are being used by criminals for money laundering and wash trading. The report lists these two main activities where illegal movements have been noted.

Demand for NFTs is growing as they help represent unique assets - physical or digital - on the blockchain. A blockchain-based ledger helps ensure the transparency and authenticity of the product. NFTs give the holder ownership of the data and are thus sold in specialized markets.

Last year, Chainlysis tracked cryptocurrencies totaling $44 billion sent to ERC-721 and ERC-1155. These two are specifically Ethereum-based smart contracts related to NFT markets and collections.

Wash trading NFT

Chainalysis reports that wash trading is an increasingly common phenomenon in the NFT industry. Wash trading refers to a transaction where the seller is on both sides of the transaction. This creates a false picture of the demand for a given product and causes its price to rise. The report notes:

"In the case of NFT wash trading, the goal would be to make someone's NFT appear more valuable than it really is by "selling" it to a new wallet that is also controlled by the original owner. In theory, this would be relatively easy with NFT as many NFT trading platforms allow users to trade by simply connecting their wallet to the platform, without needing to verify their identity."

Chainalysis has tracked the wash tradin by tracking NFT sales to self-funded addresses. Thus, NFT sellers conducted hundreds of transactions. In its in-depth investigation, Chainalysis identified 262 such users who sold NFT to self-funded addresses 25 times.

Of these, most reported losses, but 110 users reported profits. These wash traders reportedly took out $8.9 million.

While wash trading is officially illegal on conventional securities and futures, we still need clear law enforcement rules for NFT wash trading.

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NFT money laundering activities

Chainalysis also discovered NFT money laundering activities during its investigation. Chainalysis notes that such activity was more visible in Q3 and Q4. The report states:

"The value sent to NFT markets by illegal addresses jumped significantly in the third quarter of 2021. It exceeded the value of $1 million in cryptocurrencies. That number rose again in the fourth quarter, peaking at just under $1.4 million. In both quarters, the vast majority of this activity came from addresses related to frauds. They sent funds to NFT markets for purchases."

GameStop will launch an NFT marketplace for game items

Meanwhile, video game store chain GameStop has partnered with the Immutable X platform to launch its own NFT marketplace. Previously, various rumors about GameStop's plans in the NFT space could be seen on the net, whose shares experienced a sharp rise last year thanks to the attention of traders on social networks.

The company explained that it chose the Immutable X layer 2 Ethereum scaling solution due to the lack of fees for issuing and exchanging “carbon zero” NFTs. On its platform, GameStop plans to host "billions of low-cost gaming assets for easy buying and selling." The company cites digital real estate and game skins as examples of such assets. The technical part of the marketplace uses Starkware zero-knowledge proof technology, which allows you to fit thousands of Ethereum-based transactions into one.

In addition, GameStop and Immutable announced the launch of a $100 million fund to support Web3 games in their ecosystem. Funding will be used to attract game developers and studios to the marketplace and will be issued in IMX tokens.

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