Opensea rocked after employee admits front-running promos to flip NFTs
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Opensea says it is conducting a third-party review after an employee used insider information to profit on its leading NFT marketplace.
A Twitter user on Wednesday accused Nate Chastain, Opensea’s head of product, of using “secret wallets” to purchase items about to appear on Opensea’s front page and flipping them when the price spiked.
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?
— Zuwu🟩 👻🎃🦇 (@ZuwuTV) September 14, 2021
The Opensea statement didn’t name the employee but appeared to confirm the account and called the staffer’s conduct “incredibly disappointing.”
“We want to be clear that this behavior does not represent our values as a team,” Opensea said.
“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.”
Opensea has also banned team members from buying and selling collections while the platform is featuring or promoting them, such as with a spot on its homepage.
Staffers are also prohibited from trading on “confidential information” more generally.
OpenSea not having a code of conduct around employee trades is not a scandal, it just shows how early we are
— artchick.eth 🔥👠 (@digitalartchick) September 15, 2021
The drama has been trending on NFT Twitter, with Chastain yet to respond to it. Some were calling for his dismissal.
FWIW I think @opensea has no choice but to let Nate go here. It’s a shame because despite their flaws OpenSea does tons of things right. Nate actively seeks feedback from users and is the driving force behind the scenes afaict. Damage is done though, gotta part ways.
— VincentVanDough (@Vince_Van_Dough) September 15, 2021
Chastain appeared to have been caught shortly after flipping a picture called “Spectrum of a Ramenfication Theory,” which began being featured on Opensea’s homepage on Tuesday and was still there this morning.
It’s by an Indonesian illustrator, Dailydust, whose Twitter profile says they create “whimsical and colorful illustration.”
The wallet also bought another picture, “In the Middle of Lullaby, from the same DailyDust collection, for 0.125 Eth at 5.03am UTC. They then sold it at 5.12am for 0.5 Eth — a 0.375 Ether (US$1,288) profit in nine minutes.
How long has this been going on? Why do this on a public blockchain? Would Nate really risk his job and reputation for 2 eth? Maybe he is really a degen like all of us..
Of course this could be a ‘coincidence’ but the evidence is right here. What say you @natechastain??
— ricefarmer.eth 🍚 (@RiceFarmerNFT) September 15, 2021
ZuwuTV, the Twitter user who made the first allegation of front-running, also found another likely instance occurring on September 10.
An address bought an NFT at 1.43am UTC for 0.2 Ether, and sold it at 4.42am for 1 Ether. Screenshots from the Internet Wayback Machine suggested it became featured on Opensea’s homepage during that timeframe, ZuwuTV tweeted.
Another Twitter sleuth found an example of the address flipping a JPG for 1.2 Eth profit in 18 minutes on August 27.
The online detectives were able to put the pieces together because the profit from the sales were sent to an address known to be Chastain’s. It holds the CryptoPunk he uses as his Twitter avatar, as well as the Ethereum Name Service domain name “natec.eth”, which he uses in his Twitter profile.
Someone – “Nate, you know the blockchain records everything you ever do right and all your transactions?”
Nate from Opensea – pic.twitter.com/fvT9UX5sp4
— BIG DOG (2 sexy for dips) (@MoonOverlord) September 15, 2021
Chastain, a frequent Twitter user, hadn’t tweeted since the allegations.
The “insider trading” may not be limited to Chastain. Moneyprintergobrr.eth found examples of other wallets loading up on pictures in the DailyDust collection in a manner he found suspicious.
I hope @dfinzer and @opensea will expand the scope of their investigation to all employees, and should make it a policy that as part of your employment there you disclose all wallets under your control which would be audited on a regular basis.
— moneyprintergobrrr.eth (@printer_brrr) September 15, 2021
According to DappRadar, Opensea handled US$4.09 billion in NFT sales in the last 30 days, more than six times that of the second-most popular NFT marketplace by volume, Axie Infinity’s internal one.
More than 420,000 traders used the platform during that time.