Will OpenSea's "Insider Trading" Draw the SEC's Attention?

The Tweet That Exposed Nate Chastain

Prelude

Nobody is too big to fail in NFT Land and, despite incredible marketplace activity, OpenSea has made a lot of mistakes which are undermining crypto artists’ trust in the platform. I was working on a roundup of ways in which OpenSea has been dropping the ball when the Nate Chastain "Insider Trading" controversy broke this week.

There's been a lot of drama on NFT Twitter around Nate Chastain's actions and his exit. So I decided to give the topic of OpenSea FAILS a rest for a week cause some folks were getting quite emotional about the situation.

What's funny is that what he did is not symbolic of OpenSea's problems, though he figures into that tale in other ways.

However, the way the press has reacted makes me wonder if the SEC will start paying closer attention to NFT marketplaces.

Will OpenSea Draw the SEC's Attention?

OpenSea's Nate Chastain got exposed via Twitter for what's being called "Insider Trading."

Here's a reasonable account of events which began with a tweet by @ZuwuTV though most outlets seemed to have been alerted by OpenSea statements on the issue:
OpenSea product chief accused of flipping NFTs using insider information

To be honest, I could have broken that story cause so much that happens is first revealed on Twitter and I'm on there all the time. I was watching the story unfold the night it broke. If I was running a serious NFT media operation, which no one truly is at this point, I would have somebody tracking Twitter 24/7 and breaking news. Then watch the other outlets play HORSE.

That said, the worst result for NFT Land from Nate Chastain's trading games, is that major media outlets are juxtaposing 'OpenSea' and 'Insider Trading' in the headlines:

Financial Times
OpenSea admits NFT insider’s trading incident

CNBC
There was insider trading on NFT platform OpenSea, the $1.5 billion start-up admits

BBC
OpenSea admits insider trading of NFTs it promoted

The Guardian
NFT trader OpenSea bans insider trading after employee rakes in profit

Bloomberg
OpenSea Says Employee Resigned Over NFT Insider Trading Scandal

CNBC
OpenSea, amid insider trading controversy, rolls out NFT marketplace app

It also inspired a misdirected Twitter thread by Anil Dash who maintains that since people in NFT Land were responding to Nate's actions by using the term "insider trading," that proves they're unregistered securities.

anildash @anildash

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. There are no similar public statements when artists get ripped off on the platform. OpenSea confirms executive used insider knowledge when buying NFTsThe marketplace acknowledged that its head of product purchased NFTs that he knew were going to be displayed prominently.theblockcrypto.com

September 15th 2021

33 Retweets104 Likes

Good example of a smart man who's lost his grip on this corner of reality.

In any case, the headlines are appearing in the kind of media outlets people at the SEC were reading before NFTs were invented. There have been previous indicators that it will eventually examine NFT Land but this incident is a particularly bad look.

The SEC does have a lot of other things on its plate. Nevertheless, this kind of thing worries me.

Further Reading

I've looked at the topic of NFTs as unregistered securities before in the following three posts:

NFT Entrepreneur Newsletter
Dapper Labs Lawsuit Reveals NBA Top Shot Moments May Be Unregistered Securities

NFT Entrepreneur Newsletter
Legal Risks and Challenges Ahead for NFTs: IP Rights, Unregistered Securities, Anti-Money Laundering

The Defiant
NFT Investing on a Budget With Fractions and Index Funds

Coming Up Next

I’ll be taking a look at the concept of NFT Marketplaces as a Feature in the next NFT Entrepreneur newsletter

Recently, Showtime, a social network for crypto artists, Cent, a community blogging site, and SushiSwap, a decentralized exchange, have all added or announced that they are adding NFT minting and marketplaces.

This approach is relatively new for Western NFT-related sites but is a phenomena that is fairly commonplace with Asian crypto exchanges. Along with services to create an NFT storefront on one's own website, basically a mini-marketplace, such as NFTify and JOYST, the NFT platform and marketplace world may soon look quite different.

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