Elliptic, a London-based blockchain analysis provider has revealed that over $100 million worth of Non-Fungible tokens’ have been stolen between July 2021 and July 2022. NFTs had their debut on mainstream media and crypto in 2021 with explosive interest and return on investments following the launch of well-known NFT drops like the Bored Ape Yacht Club (BAYC) and Mutant Apes (MA).
Despite being popularized in 2021 with the growth of NFT collections all over the world, the origins of NFTs can be traced back to 2012/13. TNFTs are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other.
Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can serve as a medium for commercial transactions.
NFT trading increased notably from summer 2021, with daily average sales of over $50 million and over $17.7 billion in NFTs sold throughout that year, an increase of over 200% from 2020. NFT trading remains primarily on the Ethereum blockchain, despite the high fees and congestions that plagues that network.
A downturn in the crypto markets since early 2022 has more recently also affected the NFT industry, with sales decreasing in Q2 2022 but still standing at a notable $9 billion. Meanwhile, alternative blockchains such as Solana and Polygon remain behind, despite aggressive marketing campaigns and creator funds to entice people from Ethereum.
What you should know
According to the report, over $8 million of illicit funds has been laundered through NFT-based platforms since 2017, representing 0.02% of trading activity originating from known sources. However, a further $328.6 million (0.81%) originates from obfuscation services such as crypto mixers. A proportion of this may reflect proceeds from illicit activity.
With over $100 million stolen in 12 months, it netted perpetrators $300,000 per scam on average. July 2022 saw over 4,600 NFTs stolen, the highest month on record, indicating that scams have not abated despite the crypto bear market.
May 2022 saw the highest confirmed value of NFTs stolen through scams, at approximately $24 million. However, actual numbers are likely to be higher, as thefts are not always publicly reported.
The most valuable NFT ever stolen is CryptoPunk #4324, which was sold by scammers soon after the theft on November 13th, 2021, for $490,000. Meanwhile, the largest single heist from an individual victim resulted in the loss of 16 blue chip NFTs worth $2.1 million on December 28th, 2021.
Social media compromises, particularly of NFT project Discord servers, have surged in 2022, accounting for 23% of all NFTs (close to 5,000, worth around $20 million) stolen this year. The growing availability of tailored malware that can bypass multi-factor authentication is likely to be partially responsible.
The report highlighted that there is a growing threat to NFT-based services from sanctioned entities and state-sponsored exploits. This has been emphasized by the $625 million heist from Axie Infinity’s Ronin Bridge by North Korea’s Lazarus Group and the possession of NFTs by the US-sanctioned Chatex cryptoassets exchange. Digital assets worth more than $160,000 originating from sanctioned entities have been used to purchase NFTs.
Tornado Cash, a US-sanctioned mixer, was the source of $137.6 million of cryptoassets processed by NFT marketplaces and the laundering tool of choice for 52% of NFT scam proceeds before being sanctioned by OFAC in August 2022. Its prolific use by threat actors engaging with NFTs further emphasizes the need for effective sanctions screening by NFT platforms.
Elliptic has analyzed over 80 high profile NFT scams reported on social media since July 2021. At least 4,650 NFTs, worth over $50.6 million based on average collection prices on the day of theft, have been stolen in that time period.
Prominent collections such as Bored Apes, Mutant Apes, Azuki, Otherside and CloneX constitute the bulk of value lost to scams. Together, these five collections constitute over two-thirds of the stolen NFT value since July 2021. However, scams of lower-priced NFTs are more likely to go unreported.
As hype around the metaverse and virtual real estate continues, prominent virtual land NFT collections such as NFT Worlds and The Sandbox’s LANDs are being increasingly targeted. Yuga Labs’ Otherside metaverse project, released on May 1st 2022, already saw NFTs from its collection being stolen just two days after launch.