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OpenSea, the largest NFT trading marketplace, said today that one of its employees used inside information to buy NFTs that were about to appear on their homepage – and likely an increase of value. Charges were brought against OpenSea’s product manager, Nate Chastain, last night after a community member made suspicious transactions from his wallet public. “Yesterday, we learned that one of our employees had purchased items that they knew were about to post on our home page before appearing publicly there,” the ad said. tweeted by Devin Finzer, CEO of OpenSea lu. “It’s incredibly disappointing. The site explicitly prohibits “deceptive or manipulative commercial activities” in its terms of use.
The statement was prompted by a community-led survey of Chastain’s trades. On Twitter yesterday, a user named ZuwuTV job a thread claiming that Chastain operated “secret wallets” which bought NFTs from the site’s homepage before they were “presented”, later selling them at a profit once the price rose due to their exposure. In the wire, ZuwuTV identified a September 14 transaction where Chastain allegedly sent 5 Ethereum (approximately $ 17,000) from his known wallet to an anonymous wallet which then sent the money to a third account. According to another user, ricefarmer.eth, the account purchased four NFTs from artist Dailydust, one titled “Spectrum Of A Ramenfication Theory,” which OpenSea directly featured shortly after. The account would then have “flipped” the NFTs for a profit of around 2 Ethereum and redirected the money to Chastain’s original wallet. OpenSea has not confirmed which NFTs have been traded using inside information.
As the NFT community resumed ZuwuTV’s investigation last night, it released more transactions suggesting the leading behavior could have started as early as last month. Use of tools such as Wayback Machine and the advanced search function of Twitter, ZuwuTV and other users show that Chastain probably bought potential NFTs before or immediately after the OpenSea website update. Like other NFT platforms such as Nifty Gateway, the OpenSea homepage is organized by hand rather than determined by an algorithm.
Because the Ethereum blockchain is transparent, meaning that all transactions are permanently recorded on a public ledger, users were able to follow the trail of money leading to Chastain’s publicly known account. Each transaction is time stamped and the traded NFT or Ethereum is known. This transparency has historically enabled users to protect the community by uncovering elaborate scams, such as when “cybersleuth” Fedor Linnik discovered that the team behind a million dollar “women-led” project was in fact Russian men.
In a late-night Twitter Spaces titled “Investigate the Allegations” (with the monocle face emoji at the end), more than 1,700 NFT collectors and traders joined in to discuss the situation. Many have celebrated the capabilities of the blockchain, saying the technology has allowed for further investigation despite the disturbing results. “Because there is a blockchain… at least we know a lot more and can talk about it,” said FunblΞs, an NFT trader.
LURKLOVESYOU, one of OpenSea’s star artists, whose work was reportedly returned by Chastain, said he was not paid or was not knowingly involved in the business. He also assumed he was selected primarily because he helped OpenSea with an art exhibit but never received a warning from the site. “From an artist’s perspective, I’m just a guy who does artwork and takes advantage of the NFT space and community. It shook me up a bit, ”he said during the conversation.
As a result of the investigation, OpenSea implemented new policies regarding team members. They “may not buy or sell collections or designers while we are showcasing or promoting them” and “they are prohibited from using confidential information to buy or sell NFTs, whether available on the platform. OpenSea form or not “.
Chastain did not respond to a request for comment. At the time of writing, Chastain has yet to make a public statement and OpenSea has not directly named him as the employee involved. Yet despite concerns raised by the allegations – trusting OpenSea’s central custody practices, the merits of Securities and Exchange Commission regulation versus community regulation, and insider trading in general – many members of the NFT community remain optimistic.
“These are fine words from OpenSea, but we’ve heard those words before. If they follow through, it could become a good thing ”, OK Hotshot, a friend of ZuwuTV who also does blockchain analytics, said The edge this morning.
“We just made up insider trading by blowing this up. If it were a huge trading company, they would have done so much to bury history ”, yuppie.eth, community member and Spaces co-host, added last night. “We are working in the best interests of OpenSea customers at this time. “
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