TL; DR Breakdown
- OpenSea Executive Chastain under fire for insider trading.
- Unhappy NFT collectors have taken shots at OpenSea, among other issues.
The head of product development, Nate Chastain, at OpenSea, which is one the largest NFT marketplace in the world, has come under fire for using insider information in NFT trading. The NFTs were bought before they were featured on the platform and later sold when their value soared to make profits. They were doing quite well as the number of transactions surged since July.
OpenSea admits this is ‘incredibly disappointing”
OpenSea appears to have confirmed the accusations that Nate Chastain used insider information on the platform for NFT trading when they were promoted and returned profits to his public wallet. On-chain data suggests Chastain, using confidential information, could buy NFTs before they were announced on the homepage and helped him make huge profits.
NFTs tend to jump in value when they or the artists are promoted on the homepage of OpenSea. Allegedly, Chastain knew that certain NFTs were listed on the homepage and used this information to trade NFTs.
Twitter user Zuwu posted a message indicating that they had analyzed on-chain data; that is when the crypto community first became aware of Chastain’s activities. The Twitter post accused Chastain of buying NFTs ahead of homepage listings by using “a few secret wallets.”
A more recent development is that Nate Chastain resigned today from his post as product head, according to OpenSea. Although Chastain has not replied to confirm, his Twitter status shows OpenSea as a past status.
I think we all say that coming, and I’m happy it happened. What I’m not happy about is people still tagging him and harassing him to resign and attacking him in a toxic manner. He faced his consequences. Meme all you want, but no toxic bsZuwu
Mark Cuban says about the matter:
Any discussion of crypto regulation has to start with the facts that there are already laws against fraud and that “crypto” is not monolithic. There are many layers to “crypto” here are my thoughts and all are subject to change as I learn moreMark Cuban
Other Twitter users also responded to the threat, and it soon became apparent that someone had been “flipping” NFTs, and the profits were being returned to Chastain’s public address. Using another address linked to Chastain, NFT were bought just minutes before they were listed on OpenSea’s homepage. The profits were then returned to Chastain’s public account.
The transaction history for the featured NFTs exists as proof of what happened. The NFT Spectrum Of A Ramenfication by Dailydust was bought by the other address, linked to Chastain’s, for 0.25 ETH at 5:05 UTC on Sep. 14. A few minutes later, OpenSea promoted the NFT on their Twitter account. The price of Spectrum Of A Ramenfication jumped immediately after the Twitter post. Making a profit of 500%, the NFT was sold for 1.5 ETH at 5:26 UTC.
The address was also used to buy and sell other Dailydust’s NFTs for similar returns, and just minutes later, the address sent 7.1ETH to Chastain’s public address.
New Policies for NFT Trading?
OpenSea published a blog post to confirm that an employee had used insider information to trade NFTs. OpenSea is conducting an “immediate and thorough” review of this incident and added that team members would not trade NFTs from featured or promoted collections.
Nevertheless, the news has raised concerns of market manipulation, centralization, and lack of transparency over the criteria for listing a project on OpenSea’s homepage. In addition to that, NFT collectors have taken shots at OpenSea. The 2.5% trading fee the platform charges, search functions, and categorizations were also among the issues highlighted.
Following up on this development, one wonders if smart contracts (SCs) are the most likely source of fraud due to intentional omissions, undisclosed actions, and lack of clarity by users. Should SCs need to be approved first? What regulation body will handle fraud reports and certify audits to prove lack of fraudulent intent?
While OpenSea remains the biggest marketplace for NFTs, it remains to be seen how they will ensure that such events do not occur in the future. Read about another OpenSea issue here.
Should NFT trading be regulated by a third party? Please give us your opinion in the comments below.