OpenSea, NFT’s largest trading marketplace, said today that one of its employees was using internal information to buy NFTs that were about to appear on its homepage and would likely increase in value. LastSea product chief Nate Chastain was charged last night after a community member disclosed suspicious transactions in his portfolio. “Yesterday we learned that one of our employees bought items they knew they had to display on our front page before they appeared publicly,” the ad read. he tweeted read by OpenSea CEO Devin Finzer. “This is incredibly disappointing.” The Site explicitly prohibits “misleading or manipulative business activities” in its Terms of Service.
The statement was prompted by a community-led investigation into Chastain’s trades. Yesterday on Twitter, a user named ZuwuTV published a thread that states that Chastain operated “secret portfolios” that bought NFTs from the site’s home page before they were “featured” and subsequently sold them with profits once the price increased due to their exposure. Al fil, ZuwuTV identified a Sept. 14 transaction where Chastain allegedly sent 5 Ethereum (about $ 17,000) from his known wallet to an anonymous wallet that then sent the money to a third account. In accordance with another user, ricefarmer.eth, the account bought four NFTs from artist Dailydust, one titled “Spectrum Of A Ramenfication Theory,” which OpenSea presented directly shortly thereafter. The account was then allegedly “turned around” the NFTs with a profit of approximately 2 Ethereum and returned the money to Chastain’s original portfolio. OpenSea has not confirmed which NFTs were traded using internal information.
As the NFT community picked up ZuwuTV’s investigation last night, it posted more transactions suggesting that front-run behavior might have already begun last month. Using tools like Wayback Machine and the advanced search function of Twitter, ZuwuTV and other users he showed that Chastain probably bought NFT with possible features before or immediately after the OpenSea website update. Like other NFT platforms like Nifty Gateway, the OpenSea home page is hand-crafted rather than algorithmically determined.
Because Ethereum’s blockchain is transparent, meaning all transactions are permanently recorded in a ledger, users were able to track the money that leads to Chastain’s public account. Each transaction has a timestamp and the traded NFT or Ethereum is known. Historically, this transparency has allowed users to protect the community by uncovering elaborate scams, such as when Fedor Linnik, a “cyberneticist,” discovered that the team behind a million dollars “run by women” was actually Russian men.
In a Twitter Spaces at night titled “Complaints Investigation” (with monocle-faced emojis at the end), more than 1,700 NFT collectors and traders came together to discuss the situation. Many celebrated the capabilities of the blockchain, arguing that the technology allowed for thorough research despite the disturbing findings. “Because there’s a chain of blogs … at least we know a lot more and we can talk about it,” said fungiblΞs, an NFT trader.
LURKLOVESYOU, one of OpenSea’s prominent artists, who allegedly reversed Chastain’s work, said he was not remunerated or consciously involved in the negotiation. He also assumed that he had been selected primarily because he had helped OpenSea with an art show, but never received any notice on the site. “From an artist’s point of view, I’m just a guy who makes artwork and enjoys the NFT space and community. That moved me a little bit,” he said during the conversation.
Following the investigation, OpenSea has implemented new policies regarding team members. “They may not buy or sell collections or creators while presenting or promoting them” and are “prohibited from using confidential information to buy or sell any NFT, whether or not it is available on the OpenSea platform.”
Chastain did not respond to any requests for comment. At the time of writing, Chastain has not yet made any public statements and OpenSea has not named him directly as the employee involved. However, despite the concerns raised by the complaints, relying on OpenSea’s centralized curative practices, the merits of the Securities and Exchange Commission’s regulation versus community-led regulation and insider trading in general, many members of the NFT community remain optimistic.
“These are good words from OpenSea, but we have heard those words before. If they follow suit, that could be a good thing. ” OK Hotshot, said a friend of ZuwuTV who also does blockchain analysis The Verge this morning.
“We have just invented the privileged anti-reporting trade by blowing this up. If it was a huge commercial company, they would have done so much to bury the story. yuppie.eth, a community member and co-host of Spaces, was added last night. “Right now we’re working for the best interest of OpenSea customers.”