NFT trader OpenSea bans insider trading after employee rakes in profit

Executive was found to be buying artworks shortly before they were promoted on site’s front page

A non-fungible token (NFT) marketplace has introduced policies to ban insider trading, after an executive at the company was discovered to be buying artworks shortly before they were promoted on the site’s front page.

OpenSea, one of the leading sites for trading the digital assets, will now prevent team members buying or selling from featured collections and from using confidential information to trade NFTs. Neither practice was previously banned.

“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 Devin Finzer, the co-founder and chief executive of the site.

“This is incredibly disappointing. We want to be clear that this behaviour does not represent our values as a team. We are taking this very seriously and are conducting an immediate and thorough third-party review of this incident so that we have a full understanding of the facts and additional steps we need to take.”

NFTs are digital assets whose ownership is recorded and traced using a bitcoin-style blockchain. The NFT market boomed earlier this year as celebrities including Grimes, Andy Murray and Sir Tim Berners-Lee sold collectibles and artworks using the format. But the underlying technology has questionable utility, with some dismissing the field as a purely speculative bubble.

The insider trading came to light thanks to the public nature of the Ethereum blockchain, on which most NFT trades occur. Crypto traders noticed that an anonymous user was regularly buying items from the public marketplace shortly before they were promoted on the site’s front page, a prestigious slot that often brings significant interest from would-be buyers. The anonymous user would then sell the assets on, making vast sums in a matter of hours.

One trade, for instance, saw an artwork called Spectrum of a Ramenification Theory bought for about £600. It was then advertised on the front page and sold on for $4,000 a few hours later.

One Twitter user, ZuwuTV, linked the transactions to the public wallet of Nate Chastain, OpenSea’s head of product, demonstrating, using public records, that the profits from the trades were sent back to a wallet owned by Chastain.

While some, including ZuwuTV, described the process as “insider trading”, the loosely regulated market for NFTs has few restrictions on what participants can do. Some critics argue that even that terminology demonstrates that the sector is more about speculation than creativity.

“The fact that people are responding to this as insider trading shows that this is securities trading (or just gambling), not something designed to support artists,” said Anil Dash, the chief executive of the software company Glitch. “There are no similar public statements when artists get ripped off on the platform.

“If Etsy employees bought featured products from creators on their platform (or Patreon or Kickstarter workers backed new creators etc) that’d be great! Nobody would balk. Because they’d be supporting their goal,” Dash added.

Contributor

Alex Hern

The GuardianTramp

Related Content

Article image
What is cryptoart, how much does it cost and can you hang it on your wall?
When is a meme worth $600,000? When technology has created a ‘unique’ version that can’t be owned by anyone else

Patrick Lum and Lucy Clark

04, Mar, 2021 @7:36 PM

Article image
Can anyone become an NFT collector? I tried it to find out
This year non-fungible tokens burst into the mainstream after several digital images and animations sold for absurd amounts – so I entered the world of NFTs myself

Oscar Schwartz

23, Mar, 2021 @9:00 AM

Article image
Boy, 12, makes £290,000 in non-fungible tokens with digital whale art
Benyamin Ahmed’s Weird Whales sell in cryptocurrency and ownership is stored on blockchain

Charlie Moloney

27, Aug, 2021 @1:28 PM

Article image
Art, amulets and cryptokitties: the new frontier of cryptocurrencies
‘Non-fungible tokens’ are unique images, clips or poems traded online for increasingly large sums

Alex Hern UK technology editor

26, Feb, 2021 @7:00 AM

Article image
Cryptoart! What is it and can you eat it? | First Dog on the Moon
The only good thing about all of this is getting to say fungible a lot it is a funny word. What does it even mean?

First Dog on the Moon

12, Mar, 2021 @4:59 AM

Article image
Non-fungible tokens are revolutionising the art world – and art theft
Artists have been dismayed to find their work ending up in the ‘control’ of others

Alex Hern UK technology editor

12, Mar, 2021 @3:55 PM

Article image
Grimes sells digital art collection for $6m
‘Non-fungible tokens’ craze sees musician sell video pieces for $7,500 each at short-notice auction

Alex Hern

02, Mar, 2021 @12:39 PM

Article image
‘I went from having to borrow money to making $4m in a day’: how NFTs are shaking up the art world
Digital art is a billion-dollar business, with everyone from Paris Hilton to Damien Hirst trading in ‘non-fungible tokens’. But are NFTs just a get-rich-quick scheme masquerading as culture?

Rosanna McLaughlin

06, Nov, 2021 @11:30 AM

Article image
NFTs are helping artists solve a vital problem: who owns digital artwork?
Digital art can be easily and endlessly duplicated, but non-fungible tokens allow buyers to confirm ownership

Kari Paul

03, Apr, 2021 @10:00 AM

Article image
NFT beats cheugy to be Collins Dictionary’s word of the year
The abbreviation of ‘non-fungible token’ tops a shortlist also including pingdemic, climate anxiety and metaverse

Alison Flood

24, Nov, 2021 @7:01 AM