An employee at OpenSea, one of the top marketplaces for non-fungible tokens (NFTs), used insider information to purchase NFTs and flip them for a profit, the company said in a statement. Nate Chastain, OpenSea’s head of product, was asked to resign after a Twitter user posted questionable transactions from his wallet.
“Yesterday we learned that one of our employees purchased items that they knew were set to display on our front page before they appeared there publicly,” said OpenSea CEO Devin Finzer in a blog post on Wednesday. “This is incredibly disappointing. We want to be clear that this behavior does not represent our values as a team.”
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Blockchains like Ethereum, where NFTs are created or “minted” and traded, are decentralized public ledgers that permanently and visibly record all transactions. The so-called transparency of the blockchain, touted by crypto advocates as an alternative to the murkiness of traditional markets, allowed Twitter user @ZuwuTV to access and review Chastain’s transactions and uncover suspicious activity.
It did not, however, prevent Chastain from engaging in insider trading in the first place. According to @ZuwuTV, Chastain used “secret wallets” to acquire NFTs that he knew would be featured on OpenSea’s homepage; once the tokens increased in value, he resold them for a profit. By way of example, Twitter user @ricefarmer.eth explained one such transaction: on September 14, Chastain sent 5 ETH (~$17,000) from one “secret” wallet to another, using the latter to purchase four NFTs by artist Dailydust including one titled “Spectrum of a Ramenfication Theory.” Twenty minutes later, after the piece rose in value because it was featured on the homepage, it was sold and the profit transferred to Chastain’s known account.
“How long has this been going on? Why do this on a public blockchain? Would Nate really risk his job and reputation for 2 eth?” @ricefarmer.eth tweeted.
The incident raises questions about blockchain technology and its promises to disrupt the financial industry by making it more transparent, presumably impeding corrupt and illegal practices like insider trading.
“Maybe it’s not exactly ethical, but I’d almost definitely do the same thing,” one user weighed in. “It’s not like he’s stealing peoples shit, he just is in a unique position to know which projects are almost definitely gonna pump before they do. Let’s be real, it’d be kinda dumb not to take advantage.”
At the same time, the fact that members of OpenSea’s community banded together and led a successful investigation that resulted in Chastain’s resignation shows the decentralizing potential of the blockchain in action. According to the Verge, over 1,700 NFT collectors and traders joined to discuss the situation in a late-night Twitter Spaces conversation titled “Investigating allegations.”
In its statement, OpenSea announced two new policies: moving forward, company team members may not buy or sell NFTs while they are being promoted on the homepage, and are prohibited from “using confidential information to purchase or sell any NFTs, whether available on the OpenSea platform or not.” (The platform has not yet responded to Hyperallergic’s request for comment.)
In a recent tweet, @ZuwuTV said they welcomed OpenSea’s speedy response and Chastain’s resignation. “What I’m not happy about is people still tagging him and harassing him to resign and attacking him in a toxic manner,” they tweeted. “He faced his consequences.”