The suspicions of a Twitter user about insider trading have led to a full investigation at OpenSea and sparked concerns about the safety and regulations around the NFT marketplace.
The scandal began on Tuesday when a Twitter user (@ZuwuTV) tagged OpenSea and raised concerns around Nate Chastain, the head of product at the company. The user pointed out that Chastain seemed to have multiple, secret crypto wallets that apparently bought artworks even before they were listed on the website. Then, after the works were listed and there was a spike in their demand, Chastain would sell them off at a profit.
Chastain would then funnel the money back to his personal Ethereum wallet. However, it was a simple mistake that allowed users to spot the patterns: his profile pic. Chastain used a CryptoPunk avatar (an NFT bought from the platform in February 2021) on his Twitter profile, as well as some other wallets. Read more about it here.
The next day, OpenSea confirmed the scandal via a blog post from Devin Finzer, its CEO. In the post, Finzer called the whole thing “extremely disappointing”. While Finzer didn’t name Chastain, he did give a description of the event that matched the earlier accusations. It has also been confirmed that Chastain has since then stepped down from his position.
However, the larger concern around the issue was that while insider trading was unethical, it wasn’t illegal. The NFT marketplace is not regulated by the Securities and Exchange Commission. As of now, OpenSea has formulated two new policies in response: Employees cannot buy or sell NFT works while they are featured or promoted on the platform. Furthermore, they cannot buy or sell NFTs using confidential information even when they are featured on other platforms.
However, the event has led to calls for regulating the entire NFT marketplace to avoid such scandals in the future.