Short answers, pulled from the story.
Wash trading is when an entity simultaneously buys and sells the same financial instrument, creating a false impression of market activity without actually changing its position or taking on market risk. It is considered manipulation because it deceives other investors about the true level of demand for an asset.
The United States enacted the Commodity Exchange Act in 1936 to prohibit wash trading in commodity markets. The law remains in force and is one of the earliest regulatory actions specifically targeting the practice.
From the inception of the NFT market through January 2023, wash trading volumes reached approximately $26.88 billion, compared to $10.46 billion in non-wash trades over the same period. A study by Advait Jayant found that over 70 percent of NFT transaction volumes were attributable to wash trading.
Self-Trade Prevention Functionality, or STPF, is a technical safeguard that automatically prevents orders from the same entity from trading against each other. The Intercontinental Exchange, known as ICE, has implemented it to comply with anti-wash-trading regulations.
Platforms use wash trading to boost their reported volume figures and project an image of popularity, attracting customers who interpret high activity as a sign of trustworthiness. Some platforms go as far as forging entries directly in their trading history databases.
Some participants in the Libor scandal used wash trades to generate commission fees for brokers as compensation for services that could not be openly paid for. The fabricated trades functioned as a disguised payment mechanism.