Have you heard about the OpenSea NFT scandal? According to reports, an executive at the “eBay of NFTs” allegedly used insider info to purchase objects before they went public. People are calling it “NFT insider trading.” But is the outrage justified? Was it even illegal? Let’s dissect.
What Happened: OpenSea Exec Accused of NFT Insider Trading
The headlines read, “OpenSea Insider Trading,” and according to reports, the head of product at OpenSea got caught front-running sales. Using “secret” wallets, he bought and jacked the prices of NFTs before they hit the homepage — and then flipped them for a tidy profit.
I put secret in quotes because the ethereum blockchain, upon which OpenSea sits, is publicly available. In fact, it was digital sleuths who uncovered the activity after noticing “suspicious” wallet activity on the chain.
So, after vigilante investigators raised the alarm, OpenSea quickly shifted into crisis mode. A blog post penned by CEO Devin Finzer admitted: “One of our employees purchased items that they knew were set to display on our front page before they appeared there publicly.”
Since the incident, OpenSea has implemented new rules to ensure this doesn’t happen again. Specifically, contractors and team members cannot buy or sell “from collections or creators while we are featuring or promoting them.”
What happened to the person caught flipping NFTs? According to OpenSea, he signed a resignation letter and left the company.
But Was it Really a Scandal?
Industry outlets are painting the incident as a “scandal” — but is it?
Yes, traditional insider trading involving fiat financial instruments is squarely against the law. But with crypto and NFTs, we’re still breaking new legal ground. Boundaries are still being tested against state and federal legal frameworks. So if we’re giving a purely objective analysis based exclusively on legal facts, this NFT “insider trading” scandal probably wouldn’t qualify under strictly statutory terms.
That said, trust is an essential component of the success formula, and front-running sales isn’t exactly a way to garner it.
Business and Legal Lessons to Take from OpenSea’s NFT Scandal
What should blockchain businesses take away from the OpenSea NFT scandal? The importance of establishing employee protocols. Before the incident, OpenSea didn’t have rules addressing employee and vendor trading, and the oversight led to a PR disaster.
Get your ducks in a row, legally and procedurally. Doing so will save you from lots of future headaches.
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