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Detecting wash trading for nonfungible tokens

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  • Serneels, Sven

Abstract

Nonfungible tokens have recently developed into a new financial market segment notorious for wash trading activity. Wash trades are made when users swap tokens between two or more of their own wallet addresses, most often to boost asset prices and volumes artificially, or to harvest marketplace rewards. The presence of wash trades can entirely distort the apparent fair value of tokens in a collection. They should therefore be detected and excluded from further financial assessments such as token valuations and appraisals. This letter introduces three novel strategies to flag transactions for suspicious wash activity, tailored to the NFT markets.

Suggested Citation

  • Serneels, Sven, 2023. "Detecting wash trading for nonfungible tokens," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322005517
    DOI: 10.1016/j.frl.2022.103374
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    References listed on IDEAS

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    1. Pennec, Guénolé Le & Fiedler, Ingo & Ante, Lennart, 2021. "Wash trading at cryptocurrency exchanges," Finance Research Letters, Elsevier, vol. 43(C).
    2. Imisiker, Serkan & Tas, Bedri Kamil Onur, 2018. "Wash trades as a stock market manipulation tool," Journal of Behavioral and Experimental Finance, Elsevier, vol. 20(C), pages 92-98.
    3. Dowling, Michael, 2022. "Fertile LAND: Pricing non-fungible tokens," Finance Research Letters, Elsevier, vol. 44(C).
    4. Dowling, Michael, 2022. "Is non-fungible token pricing driven by cryptocurrencies?," Finance Research Letters, Elsevier, vol. 44(C).
    5. Jason B. Cho & Sven Serneels & David S. Matteson, 2022. "Non-fungible token transactions: data and challenges," Papers 2210.07393, arXiv.org.
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    Cited by:

    1. Priyanka Bose & Dipanjan Das & Fabio Gritti & Nicola Ruaro & Christopher Kruegel & Giovanni Vigna, 2023. "Exploiting Unfair Advantages: Investigating Opportunistic Trading in the NFT Market," Papers 2310.06844, arXiv.org.
    2. Mingxiao Song & Yunsong Liu & Agam Shah & Sudheer Chava, 2023. "Abnormal Trading Detection in the NFT Market," Papers 2306.04643, arXiv.org, revised Aug 2023.
    3. Menvouta, Emmanuel Jordy & Serneels, Sven & Verdonck, Tim, 2023. "Practicable optimization for portfolios that contain nonfungible tokens," Finance Research Letters, Elsevier, vol. 55(PB).
    4. Proelss, Juliane & Sévigny, Stéphane & Schweizer, Denis, 2023. "GameFi: The perfect symbiosis of blockchain, tokens, DeFi, and NFTs?," International Review of Financial Analysis, Elsevier, vol. 90(C).

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