Nov. 17，Footprint Analytics

Data Source: Footprint Analytics Wash Trade Analysis

Wash trading is one of the biggest hurdles in accurately assessing NFT projects, exchanges and the industry as a whole.

This report looks at one exchange in particular, X2Y2, and explains how wash traders position themselves to earn token rewards from wash trading and staking. It also analyses the profit and loss of the top 10 X2Y2 wash traders.

How do you earn income from wash trading on X2Y2?

In order to understand why people trade, we have to understand the trading reward and fees sharing tokenomics of X2Y2.

Trading Reward

X2Y2 marketplace distributes a fixed amount of X2Y2 tokens to users daily as trading rewards. The larger the portion of platform fees a wallet address contributes to X2Y2’s total daily platform fees, the more X2Y2 tokens it can claim from the daily token distribution. To pay more platform fees and earn a larger portion of the daily token rewards, wash traders will generate extremely large trading volumes through frequent back and forth trading between wallets they own. Currently, X2Y2 marketplace charges a 0.5% platform fee for trading.

Fees sharing

All 100% of the 0.5% platform fee X2Y2 receives are allocated to the X2Y2 staking pool for X2Y2 stakers. Wash traders can stake a large amount of X2Y2 tokens in the fees sharing contract to earn back the platform fees they have paid while washing trading for trading rewards.

Identifying Wash Trading Transactions:

Footprint Analytics has filtered X2Y2 wash trading transactions and recorded them in the “transaction_entity_tag” dataset. The method for wash trading filtering is as follows:

1. Overpriced NFT trades with 0% creators Fees

2. Transactions where the involved NFTs are bought more than a normal amount of times in 24hrs

3. Transactions where the involved NFTs are bought by the same buyer address in a short period of time

By inner joining the “transaction_entity_tag” dataset with “nft_transactions”, we can find out which addresses have generated the largest volume of wash trading transactions.

Calculating Profit and Loss of a Wash trader

In order to calculate the profit and loss of a wash trader, we have to identify the costs of washtrading and the token transfer transactions between the wallets and the x2y2 contracts of fee sharing and trading rewards. The details and contract address are listed below:

Costs:

• Total platform fees spent (x2y2 marketplace fee is 0.5%)

• Total transaction costs (Gas Fee paid for trading)

• Total value of x2y2 token staked for platform fees sharing

Revenue Sources:

• Total value of X2Y2 claimed from trading rewards policy

• Total value of X2Y2 and WETH claimed from fees sharing and compounding fees sharing staking contracts.

PnL Formula

Please note that this formula assumes all X2Y2 and WETH tokens are sold at market price for USD immediately after it is claimed by the users and does not take into account that users might hold onto the coins instead of selling them:

(Gas Fee Paid)

+

( Total Platforms Fees Paid)

+

(Total Value of X2Y2 Tokens Sent to Staking)

+

(Total Value of X2Y2 Tokens Claimed From Trading Rewards)

+

(Total Value of X2Y2 & WETH Claimed From Fees Sharing Staking Rewards)

+

(Total Value of X2Y2 Currently Staked On Fees Sharing Contracts)

The below figure shows the detailed wash trading volume, platforms fees paid, and net profit (without currently staked value) of top wash trading addresses. The date used is between 1st of May 2022 and 1st of November 2022.

This piece is contributed by Footprint Analytics community.

Footprint Analytics is building blockchain’s most comprehensive data analysis infrastructure with tools to help developers, analysts, and investors get unrivaled GameFi, DeFi, and NFT insights.

The engine indexes, cleans and abstracts data from 19 chains and counting — letting users build charts and dashboards without code using a drag-and-drop interface as well as with SQL or Python.

Footprint Analytics also provides a unified data API for NFTs, GameFi, and DeFi across all major chain ecosystems.

*Footprint Website: *https://www.footprint.network

*Discord: *https://discord.gg/3HYaR6USM7

*Twitter: *https://twitter.com/Footprint_Data

Figure 1 — Reward Statistics of Addresses with Most Wash Trading Volume (Source: @Hanson520 FootprintAnalytics）

You can click into the source to review the exact amount and USD of X2Y2 and WETH tokens received and sent to the staking contracts. Total PnL (Without Staked Value) is calculated using the PNL formula mentioned early in the report. We just have to add up the value of X2Y2 currently staked in the contract in order to calculate the final PnL of a wash trader.

Figure 2 below shows PnL of wash traders with information of the USD value of X2Y2 currently staked in the fee sharing contracts on 1st of November 2022. You can check the current amount of x2y2 a wallet address is staking by using the read contract function on Etherscan.

All related addresses used by a wash trader are summed up and grouped together. They can be identified by spotting wallets pairs with equal amounts of total wash trade volume. This is because these wallets only trade to each other.

Figure 2 — PnL Statistics of Top Wash Trader (Source: @Hanson520 FootprintAnalytics）

Observations

As we can see from Figure 2, wash traders’ profit and loss varies largely. This is mainly due to the price performance of x2y2 token. As shown in Figure 3, X2Y2 token has been in the downward trend since 1st of May. Wash traders who stake their tokens long term to earn fee sharing rewards will suffer the loss in value of X2Y2 tokens.

Figure 3 — X2Y2 Token Price Performance Since 1st of May (Source: @Hanson520 FootprintAnalytics)

Figure 4 breaks down the amount and value of X2Y2 tokens that wash traders have transferred in and out from the fees sharing staking contracts of X2Y2.

Figure 4 — Breakdown of the 4 traders with most losses and most profits (Source: @Hanson520 FootprintAnalytics)

Wash trader A and B have suffered the most losses and staked the most amount of X2Y2 tokens for fee sharing rewards. Wash Trader B has transferred all staked X2Y2 out and suffered a $131,770 loss. This is because the average price per token received from staking was $0.166, which is 6.74% lower than the average price per token ($0.178) when it was sent to staking. Although trader B earned 56,259 more tokens through staking, it did not cover up the loss in value of X2Y2 token.

Wash trader A has suffered the most loss, as he did not exit his staking position fully and majority of the tokens are still staked in the contracts. At the time of writing, those tokens only cost $0.0774 per token, which is 40% lower than the average token price sent out for staking.

Just like wash trader B, trader F also has transferred all staked X2Y2 out. However, he ended up profiting due to the fact that his average price per token received from staking ($0.163) was higher than the average price per token sent to staking ($0.162). By staking and exiting early, wash trader F has earned extra X2Y2 tokens and at a higher average price per token.

Key Takeaways

• 7 out of 10 top wash traders have made a profit from wash trading.

• The PnL of wash traders heavily depends on the price action of the X2Y2 token since the majority of rewards are distributed in X2Y2 only.

• The price of x2y2 has been in a downward trend since 1st of May, therefore, the longer the washer trader staked for rewards the less likely he will be able to make a profit.

• PnL of top 10 wash traders varies largely because it depends on when the traders have exited their staking position. Those who exited late suffered large losses because of the depreciating x2y2 token price. For example, trader A and B.

• Wash traders who staked for a long period of time to earn x2y2 tokens will not make up for the wash trading costs as the value of x2y2 token depreciates quickly.