OpenSea, the largest trading marketplace for NFT, said today that one of his employees was using internal information to buy NFTs that were about to appear on his homepage – and likely to increase in value. Allegations were leveled against OpenSea’s head of product, Nate Chastain, last night after a community member posted suspicious transactions from his wallet. “We learned yesterday that one of our employees purchased items that they knew would be featured on our front page before appearing publicly there,” the announcement read. tweeted read by OpenSea CEO Devin Finzer. “This is incredibly disappointing.” The site explicit forbids “deceptive or manipulative trading activity” in the Terms of Service.
The statement was prompted by a community-led investigation into Chastain’s dealings. Yesterday on Twitter, a user named ZuwuTV Posted a thread claiming that Chastain ran “secret wallets” that bought the site’s front page NFTs before being “summoned”, and later sold them for a profit once the price rose due to their exposure. In the wire, ZuwuTV identified a September 14 transaction in which Chastain allegedly sent 5 Ethereum (about $17,000 USD) from his known wallet to an anonymous wallet who then sent the money to a third account. According to another user, ricefarmer.eth, bought the account four NFTs from artist Dailydust, one titled “Spectrum Of A Ramenfication Theory,” which OpenSea directly listed shortly after. The account would then have “flipped” the NFTs for a profit of approximately 2 Ethereum and funneled the funds back into Chastain’s original wallet. OpenSea has not confirmed which NFTs were traded based on internal information.
When the NFT community picked up on ZuwuTV’s investigation last night, it posted more trades suggesting that the leading behavior could have started as early as last month. Using tools such as Wayback Machine and the advanced search function of Twitter, ZuwuTV and other users showed that Chastain likely purchased future NFTs before or immediately after the OpenSea website was updated. Like other NFT platforms like Nifty Gateway, OpenSea’s front page is compiled by hand rather than algorithmically determined.
Because the Ethereum blockchain is transparent, meaning that all transactions are permanently recorded in a public ledger, users were able to follow the money trail that led back to Chastain’s widely known account. Each transaction is time-stamped and the NFT or Ethereum traded is known. This transparency has historically allowed users to protect the community by exposing extensive scams, such as when “cybersleuth” Fedor Linnik discovered the team behind a million-dollar “female-led” project. actually Russian men.
In an overnight Twitter Spaces titled “Investigating Allegations” (with the monocle face emoji at the end), more than 1,700 NFT collectors and traders gathered to discuss the situation. Many celebrated the possibilities of the blockchain, arguing that the technology allowed for a thorough investigation despite the disturbing findings. “Because there is a blockchain… at least we know a lot more and can talk about it,” said fungiblΞs, an NFT trader.
LURKLOVESYOU, one of OpenSea’s artists, whose work has reportedly been flipped by Chastain, said he was not paid or knowingly involved in the trade. He also suspected that he had been selected primarily because he had helped OpenSea with an art exhibition, but never received a warning from the site. “From an artist’s point of view, I’m just a guy who creates works of art and enjoys the NFT space and community. This shook me up a bit,” he said during the conversation.
In the wake of the investigation, OpenSea has implemented new policies regarding team members. They “may not buy or sell collections or creators while we are presenting or promoting them” and are “prohibited from using confidential information to buy or sell NFTs, whether available on the OpenSea platform or not.”
Chastain did not respond to a request for comment. At the time of writing, Chastain has yet to make a public statement and OpenSea has not directly named him as the employee involved. But despite the concerns raised by the allegations — relying on OpenSea’s centralized governance practices, the merits of Securities and Exchange Commission regulation versus community-led regulation, and insider trading in general — many NFT community members remain optimistic.
“These are nice words from OpenSea, but we’ve heard them before. If they persevere, this could be a good thing.” OK Hotshot, a friend of ZuwuTV who also does blockchain analysis, told The edge this morning.
“We just invented anti-insider trading by pushing this to a head. If this was a giant trading firm, they would have done so much to bury the story.” yuppie.eth, a community member and co-host of the Spaces, added last night. “We are currently working for the best interests of OpenSea’s customers.”