Wash You Talking About?

Crypto Art Aug 15, 2020

If you are savvy to the financial side of things for even a minute and collect crypto art, you have no doubt already run across the numerous threads that permeate  social networks on the topic of market manipulation and especially wash trading. If not, or if you need a refresher, here is a definition of wash trade:

A wash trade is a form of market manipulation in which an investor simultaneously sells and buys the same financial instruments to create misleading, artificial activity in the marketplace. First, an investor will place a sell order, then place a buy order to buy from themself, or vice versa.

Since the early days of crypto art, people having hyperbolic crypto trading mentalities- with its pamp it! and HODL! and various other motivational memes, have sought to reinvent all the swindles that are not possible in regulated markets.

This of course includes wash trading of art.

Before delving deeper into the topic, let's check out the featured artwork.

obxium. "BRAINWASHED," 2020 (SuperRare)

It is a loud and signature style piece. A strong pop art showing and seemingly some nationalistic pride or nod to France saturates this work by the satirical slinger of "Warpedmoji," obixum. Mr Clean's shiny dome and blank gaze leaves an exploding head emoji like a grinning rocket, with nothing remaining, but an oddly ringed purple expression of shock.

While this artwork does not necessarily speak to wash trading, it could be alluding to the sort of mental gymanistics required to consume the crypto art or broader cryptocurrency space and is so at least certainly tangentially related.

The Problem

Whenever there are new financial markets of an unregulated nature, human behavior lends itself to a repeat of past activities used to manipulate those markets. The crypto art market is without exception, and is perhaps just now really beginning to come to terms with the amount of market manipulation actually present in the space.

Unfortunately, this comes at a cost- community members both denying and leveling accusations of wash trading on specific platforms against each other and entire organizations springing up to investigate and report or tweet about what is being discovered.

obxium. "Crypto Art," 2019 (KnownOrigin)

The resulting drama is ruining the space.

So, what is the gist of this problem anyway?

Many crypto artists are highly competitive in nature and willing to do a lot more for their art than merely create and promote it. One effective, but ethically dubious way to attempt an increase in the going rate for work by a given artist is to artificially inflate the value of that artist's work through wash trading.

Here's a hypothetical scenario demonstrating how crypto art wash trading works.

How a crypto artwork goes from zero to 2.5 ETH in 24 hours or less.

Step 1: The artist bankruptsy mints a work entitled "ART" as token ID 5309 in the GrabbinGwei art market.

Step 2: Not long after, the user alexis places a bid for 2.5 ETH on the artwork. In reality, alexis is merely a sock-puppet account for bankruptsy. GrabbinGwei does not verify its users with any sort of KYC protocols, so there is no guarantee that anyone is who they claim to be.

Step 3: Finally, bankruptsy is overjoyed to receive the bid from alexis, and of course accepts it. The ETH does not actually change hands, and so this technique costs the artist only the transaction fees.

Now "ART" has the appearance of being worth at least 2.5 ETH or more to the unsuspecting collector who does not fully research the artist, the artwork, and event the sales history and provenance. Once it is sold again at an increased price, the artist's standing and perceived value is further elevated as well.

Solutions?

One thing that is not a solution, is to blame the collector.

The argument that collectors should be better education and do more intesive research is both weak and sad. Crypto art is already technology-laden and difficult enough for collectors already, and reasoning like this will abosutely deter future adoption.

Ask yourself how many people try to first verify every sale of a given piece of art in the traditional art world before buying it...

Should it really be up to all collectors to become blockchain research experts such that they can gather all available intelligence on a piece of art to ensure it has a legitimate provenance and purchase history?

No- the correct solution to this issue lies at the feet of the centralized platforms selling the art. Such platforms should stand up for the collectors and artists by ensuring that they have implemented measures to thwart market manipulation techniques.

This provides collectors and artists fair and level markets where all can thrive without the shady behaviors most negatively associated with cryptocurrency (i.e. "all of 2018") trading, for example.

In the meantime, there is public shaming...

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