OpenSea, a major digital marketplace for NFTs, admitted on Wednesday that an employee used insider knowledge to buy highly-valued collectibles before they were prominently displayed on the market's homepage. Angered traders on social media have compared the incident to insider trading.
The OpenSea marketplace is a main destination for NFT buyers online, with billions of dollars in value trading hands weekly. It's one place where you might buy a pixelated CryptoPunk for as much as a house in order to flex on social media, or a Bored Ape. The site works like an auction house, and items in collections are bid on by the public once they go live. Some collections are given the coveted spot of promotion on the site's homepage, a process that involves NFT creators tagging OpenSea on social media and having the submissions reviewed by staff.
The trouble began on Tuesday night, when a Twitter user accused OpenSea head of product Nate Chastain of abusing his position to buy NFTs in collections that are slated to be promoted on the homepage and then quickly selling them for a profit.
"Hey @opensea why does it appear @natechastain has a few secret wallets that appears to buy your front page drops before they are listed, then sells them shortly after the front-page-hype spike for profits, and then tumbles them back to his main wallet with his punk on it?" the user, who goes by "Zuwu", wrote, and included links to blockchain records that backed up the accusation.
In a blog post on Wednesday, OpenSea confirmed that an employee had indeed used insider knowledge to purchase NFTs before they were featured on the homepage.
"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," the post stated. "This is incredibly disappointing. We want to be clear that this behavior does not represent our values as a team. We are taking this very seriously and are conducting an immediate and thorough review of this incident so that we have a full understanding of the facts and additional steps we need to take.”
"We’re conducting a thorough review of yesterday’s incident and are committed to doing the right thing for OpenSea users," OpenSea CEO Devin Finzer said in a tweet.
According to the blog post, OpenSea is implementing new policies that prevent staff members from trading NFTs while they're being promoted and from using confidential information to trade NFTs.
OpenSea did not immediately respond to a request for comment seeking clarification if the employee mentioned in the blog post is indeed Chastain and if he is still employed by the company.
It might be surprising to many that such a large marketplace for speculative investments would not have a policy in place preventing insiders from profiting on their knowledge. Indeed, many Twitter users compared the staff member's activities to insider trading, when someone with insider knowledge (for example, knowledge of a new product about to hit the market, or an imminent failure) uses it to make money on the stock market.