The NFT selling platform highlighted three main problems: people selling unauthorised copies of other NFTs, people making NFTs of content which does not belong to them, and people selling sets of NFTs which resemble a security.
The platform which sold an NFT of Jack Dorsey's first tweet for $2.9 million has halted most transactions because people were selling tokens of content that did not belong to them.
CEO and co-founder Cameron Hejazi of Cent marketplace on Saturday called this a "fundamental problem" in the fast-growing digital assets market.
Sales of NFTs, or non-fungible tokens, soared to around $25 billion in 2021, leaving many baffled as to why so much money is being spent on items that do not physically exist and which anyone can view online for free.
The US-based Cent executed one of the first known million-dollar NFT sales when it sold the former Twitter CEO's tweet as an NFT last March. But as of February 6, it has stopped allowing buying and selling, Hejazi told Reuters news agency.
"There's a spectrum of activity that is happening that basically shouldn't be happening - like, legally" Hejazi said.
While the Cent marketplace "beta.cent.co" has paused NFT sales, the part specifically for selling NFTs of tweets, which is called "Valuables", is still active.
Hejazi highlighted three main problems: people selling unauthorised copies of other NFTs, people making NFTs of content which does not belong to them, and people selling sets of NFTs which resemble a security.
He said these issues were "rampant", with users "minting and minting and minting counterfeit digital assets".
"It kept happening. We would ban offending accounts but it was like we're playing a game of whack-a-mole... Every time we would ban one, another one would come up, or three more would come up."
Such problems may come into greater focus as major brands join the rush towards the so-called "metaverse", or Web3. Coca-Cola (KO.N) and luxury brand Gucci are among companies to have sold NFTs, while YouTube said it will explore NFT features.
While Cent, with 150,000 users and revenue "in the millions", is a relatively small NFT platform, Hejazi said the issue of fake and illegal content exists across the industry.
"I think this is a pretty fundamental problem with Web3," he said.
The biggest NFT marketplace, OpenSea, valued at $13.3 billion after its latest round of venture funding, said last month more than 80 percent of the NFTs minted for free on its platform were "plagiarized works, fake collections and spam".
OpenSea tried limiting the number of NFTs a user could mint for free, but then reversed this decision following a backlash from users, the company said in a Twitter thread, adding that it was "working through a number of solutions" to deter "bad actors" while supporting creators.