How Much Wash Trading Is Really Happening on Blur?

Upstart marketplace Blur has risen to the top of the NFT world in recent weeks, vaulting ahead of longtime leader OpenSea through tokenized trading rewards. The cause of the surging trading volume has split opinion in the NFT space, prompting a notable Web3 analytics firm to discount much of the recent trading data from the Blur marketplace.

CryptoSlam, a leading platform for tracking NFT sales, announced on Friday that it would remove $577 million worth of Blur trades from its data due to “market manipulation.” The platform also said that it will filter future Blur trades on its platform through an updated algorithm that excludes what it sees as suspicious sales.

On-chain data shows that Blur’s sudden rise in NFT trading volume is primarily fueled by whales—that is, traders with significant holdings of a given asset—who are constantly buying and selling NFTs via the marketplace’s bid pools in an effort to “farm” token rewards for the next airdrop. But there’s some disagreement in the space over whether that kind of DeFi-like token flipping really constitutes wash trading.

Blur, for its part, points to data aggregated on Dune Analytics that shows a much smaller percentage of wash trading on its platform, and CryptoSlam confirmed to Decrypt that it has expanded its methodology to denote alleged wash trades. But is this merely a quibble over semantics or a disagreement over how to interpret what’s really happening right now in the rapidly changing NFT space?

A changing space

In an email to subscribers on Friday, CryptoSlam explained the decision to filter out a large chunk of the recent Blur trading data. The platform said that about 1% of high-value NFT traders are driving the majority of trading volume on Blur lately, flipping NFTs at a rapid rate in an effort to generate trading rewards on the marketplace.

“This misrepresents the current NFT market,” CryptoSlam wrote in the email, “and puts traders at risk who often chase projects’ rising action.”

That figure expanded to nearly $824 million as of Monday morning, representing over 80% of Blur’s total NFT trading volume ($1.02 billion) that CryptoSlam had recorded since the marketplace launched its BLUR token airdrop on February 14. CryptoSlam has yet to analyze all of Blur’s trading data from its October 2022 launch up until the airdrop.

By contrast, CryptoSlam says that rival marketplace OpenSea had facilitated about $6.6 million worth of “wash trades” between February 14 and early Monday, out of over $249 million in total volume—adding up to about 2.5% of its total trading volume. In other words, by CryptoSlam’s criteria, OpenSea is still handling more organic NFT trading volume than Blur.

Wash trading in the NFT space, as it has most commonly been described, occurs when a trader buys and sells NFTs between their own wallets, often at inflated sums, or when multiple traders do the same in a coordinated fashion. It’s typically done to manipulate trading volume metrics or game token reward models, as seen with earlier NFT marketplaces like LooksRare and X2Y2.

Randy Wasinger, CryptoSlam’s founder and CEO, told Decrypt that unfiltered trading data paints what the company believes is an inaccurate picture of trading trends. CryptoSlam has a duty to separate “true sales from wash, farming, or otherwise artificial on-chain trades,” he said.

"These flagged transactions are the byproduct of token farming incentives recently introduced by Blur in their war with OpenSea and other marketplaces,” Wasinger said. “They're not arm's-length transactions between an unrelated buyer and seller.”

As Decrypt reported last week, Blur surged ahead of OpenSea in terms of total trading volume following the airdrop of its own Ethereum token on February 14. Blur launched some $290 million worth of free BLUR tokens to traders, based on the current value of the token, and promised another similar airdrop ahead with its “Season 2” campaign.

Blur’s gamified rewards model dangles free tokens in front of traders who use the platform exclusively—which means not using rivals like OpenSea or X2Y2—and who trade via its bidding pools. The marketplace has generated some $487 million worth of total NFT trades over the last week alone, per data from DappRadar.

In practice, the marketplace’s heaviest users are constantly buying and selling assets, with some NFTs being flipped multiple times a day. According to public blockchain data surfaced last week, about 50% of Blur’s NFT trading volume is being generated by just 300 wallets, while 1% of traders (565 wallets) make up 74% of the total asset value locked in Blur’s bid pools.

In other words, a relatively tiny amount of users who are trading NFTs en masse like fungible tokens are heavily skewing the data. But even as Blur takes the lead in terms of raw NFT trading volume, OpenSea still has more daily wallets making trades.

Blurred terms

When asked Friday about CryptoSlam's claim that it had handled $577 million worth of "wash trades” from the February 14 airdrop up until that point, a Blur representative pointed to another resource—a Dune dashboard based on public blockchain data, compiled by pseudonymous Web3 data analyst Hildobby.

His Dune dashboard points to about $345 million worth of wash trading through Monday, since Blur's October launch, or nearly 14% of its total recorded volume. He also previously declared Blur’s trading volume “legit” in early February, albeit ahead of the recent surge, and has detailed his methodology for tracking wash trades on NFT marketplaces.

Hildobby's methodology for categorizing wash trades comes down to four key elements. He flags trades if: the buyer and seller used the same wallet, an NFT is traded back and forth repeatedly between multiple wallets, if a wallet has purchased the same NFT three or more times (only for NFTs using the ERC-721 token standard), or if the buyer's and seller's wallet were both initially funded by the same wallet.

“We typically like to reference analysts who have a history of doing thorough research with well-documented methodologies, rather than taking bold claims at face value,” the Blur rep said of CryptoSlam’s announcement. “Intellectual rigor is required to develop an understanding of what’s happening so that we can improve the space.”

CryptoSlam’s Wasinger told Decrypt that its previous methodology for singling out wash trading was very similar to Hildobby’s, but that it has since expanded its criteria to “identify a new class of wash trades.” In short, it targets sales from traders who are providing liquidity to NFT trading pools without much consideration of their status as collectibles or unique assets.

“This new class of wash trading is more difficult to detect and involves a key determination—that during a small time period, a particular wallet's trading activity signals that it has no regard for the metadata of a particular collection,” Wasinger said. “So we assume that it is trading an asset that has a similar risk profile and is ‘substantially identical’ to other assets that were recently traded.”

CryptoSlam, which raised a $9 million seed round in 2022 and is backed by Mark Cuban, has previously taken action to exclude suspicious or manipulated data from its reporting. In early 2022, the company said that it had removed more than $8 billion worth of trading data from upstart marketplace LooksRare, which likewise incentivized traders with token rewards.

On LooksRare, traders were pricing the NFTs at exaggerated values and selling them amongst their own controlled wallets to create the illusion of organic trades. There may be some coordination happening with Blur trades as well, but much of the volume appears to come from NFT whales rapidly trading assets back and forth within the platform’s bid pools.

The Blur representative said that the startup had “been extremely careful” in developing a token incentive model that didn’t reward trades based solely on enormous sums of NFT trading volume, and said that it was “fortunate enough to learn from [LooksRare’s] mistakes and focus on rewarding liquidity.”

“Many analysts have misunderstood the volume on Blur and compared it to LooksRare,” the Blur representative added, “which is understandable [because] the details are nuanced and good research is difficult to do in the space.”

Is it wash trading?

Both CryptoSlam and Hildobby are talking about wash trading, but they’re not exactly saying the same thing. CryptoSlam has specifically expanded its own criteria to deal with what many in the NFT space call airdrop farming—trading huge amounts of NFTs with the apparent external motivator of boosting the amount of reward tokens they’ll receive as a result.

It’s a debate that has raged across the NFT community in recent weeks. Some NFT creators and collectors have decried Blur’s gamification tactics and how flippers are apparently forcing major market-wide shifts. OpenSea, long the market leader, recently cut some of its creator royalty protections as it scrambled to adapt to Blur’s sudden market dominance.

Others in the space see it as a natural evolution for NFTs. After all, financial gain has long been a key motivator for NFT traders. The idea of unique NFTs trading hands over and over again and being flipped like fungible tokens doesn’t sit right with everyone—but if it’s possible on the blockchain, traders will find a way to maximize the opportunity.

Wasinger admitted that “wash trading” may not be the best descriptor for what’s happening at Blur. He said that “inorganic trading” is a better fit, and it’s a broader term that encompasses what he called “some judgment calls in the code” beyond Hildobby’s own stated methodology.

But currently on CryptoSlam’s website, it’s all categorized as wash trading. CryptoSlam’s primary goal with the move, Wasinger said, was to clean up the data on its platform, which showed suddenly skyrocketing Ethereum NFT trading volume without context on the impact of Blur’s mechanics. In his view, it gave the wrong impression of the market.

“The aggregate volume we're now reporting is significantly cleaner than it was before,” he said.

It appears that the entire NFT market is reckoning with Blur’s sudden impact, from creators to rival marketplaces and even data sources. The trading spike has muddled previously reliable metrics, and it has forced players in the space to reconsider their perceptions of NFTs and how they’re used.