Thefts, fraud and lawsuits at the world's biggest NFT marketplace
Thefts, fraud and lawsuits at the world's biggest NFT marketplace
As OpenSea has grown, it has struggled to prevent theft and fraud. The company is facing at least four lawsuits from traders, and one of its former executives was indicted this month on charges related to insider trading involving NFTs. Via NYT
By David Yaffe-Bellany
Published: Jun 6, 2022
An image provided by Chris Chapman of his Bored Ape Yacht Club NFT artwork, which he had listed for sale on OpenSea, the largest NFT marketplace, setting the price at about $1 million
Chris Chapman used to own one of the most valuable commodities in the crypto world: a unique digital image of a spiky-haired ape dressed in a spacesuit.
Chapman bought the non-fungible token last year, as a widely hyped series of digital collectibles called the Bored Ape Yacht Club became a phenomenon. In December, he listed his Bored Ape for sale on OpenSea, the largest NFT marketplace, setting the price at about $1 million. Two months later, as he got ready to take his daughters to the zoo, OpenSea sent him a notification: The ape had been sold for roughly $300,000.
A crypto scammer exploited a flaw in OpenSea’s system to buy the ape for significantly less than its worth, said Chapman, who runs a construction business in Texas. Last month, OpenSea offered him about $30,000 in compensation, he said, which he turned down in hopes of negotiating a larger payout.
The company has made “a lot of stupid, dumb mistakes,” Chapman, 35, said. “They don’t really know what they’re doing.”
Chapman is one of many crypto enthusiasts who have raised questions about OpenSea, an eBay-like site where people can browse millions of NFTs, buy the images and put their own up for sale. In the last 18 months, OpenSea has become the dominant NFT marketplace and one of the highest-profile crypto startups. The company has raised more than $400 million from investors, valuing it at a staggering $13.3 billion, and recruited executives from tech giants like Meta and Lyft.
But as OpenSea has grown, it has struggled to prevent theft and fraud. The glitch that cost Chapman his ape has led to months of recriminations, forcing the startup to make more than $6 million in payouts to NFT traders. Chris Chapman at his home studio in Houston, April 9, 2022. OpenSea, one of the highest-profile crypto start-ups, is facing a backlash over stolen and plagiarized nonfungible tokens, or NFTs
Customers also complain that OpenSea is slow to block the sale of NFTs that were seized by hackers, who can turn a quick profit by flipping the stolen goods. And plagiarized art has proliferated on the site, outraging artists who once viewed NFTs as a financial lifeline. The company is facing at least four lawsuits from traders, and one of its former executives was indicted this month on charges related to insider trading involving NFTs.
OpenSea’s troubles are piling up just as demand for NFTs cools amid a crash in cryptocurrency prices. NFT sales have dropped about 90% since September, according to the industry data tracker NonFungible. OpenSea is also contending with competition from newer marketplaces built by established crypto companies like Coinbase.
The company’s clashes with users illustrate some of the central tensions of web3, a utopian vision of a more democratic internet controlled by regular people rather than giant tech companies. Like many crypto platforms, OpenSea does not collect the names of most of its customers and advertises itself as a “self-serve” gateway to a loosely regulated market. But users increasingly want the company to act more like a traditional business by compensating fraud victims and cracking down on theft.
In three interviews, OpenSea executives acknowledged the scale of the problems and said the company was taking steps to improve trust and safety. OpenSea, which is based in New York, has hired more customer-service staff, with the aim of responding to all complaints within 24 hours. The company freezes listings of stolen NFTs and has a new screening process to prevent plagiarized content from circulating on the platform.
“Like every tech company, there’s a period where you’re catching up,” said Devin Finzer, 31, OpenSea’s CEO. “You’re trying to do everything you can to accommodate the brand-new users that are coming into the space.”
OpenSea was founded 4 1/2 years ago by Finzer, a Brown University graduate whose previous startup, a personal-finance app, was sold to the financial technology company Credit Karma, and Alex Atallah, a former engineer at the software firm Palantir. They are now among the world’s richest crypto billionaires, according to Forbes.
Chris Chapman at his home studio in Houston, April 9, 2022. OpenSea, one of the highest-profile crypto start-ups, is facing a backlash over stolen and plagiarized nonfungible tokens, or NFTs
Their business model is simple. OpenSea takes a 2.5% cut each time an NFT is sold on its platform. Last year, business spiked as NFTs became a cultural sensation and the value of bitcoin and other cryptocurrencies skyrocketed.
Because OpenSea collects a fee from each NFT sale, some users argue that the company has a financial incentive not to clamp down on the sale of stolen goods. This year, Robert Armijo, an investor in Nevada, sued OpenSea for failing to stop a hacker who had stolen several of his NFTs from selling one of them on the platform. (OpenSea’s lawyers called the complaint “a nonstarter” and said the company acted promptly to stop the other stolen NFTs from being sold.)
In February, Eli Shapira, a former tech executive, clicked on a link that he said gave a hacker access to the digital wallet where he stores his NFTs. The thief sold two of Shapira’s most valuable NFTs on OpenSea for a total of more than $100,000.
Within hours, Shapira contacted OpenSea to report the hack. But the company never took action, he said. Since then, he has used public data to track the account that seized his NFTs and has seen the hacker sell other images on OpenSea, possibly from more thefts.
“It’s very easy for these hackers to go and open an account there and immediately trade or sell whatever they’ve stolen,” Shapira said. “All of these guys need to step up security.”
Last month, after The New York Times asked OpenSea about the case, the company responded to Shapira and froze any future sales of the stolen NFTs.
Anne Fauvre-Willis, who oversees OpenSea’s customer-support efforts, said the company had been working to improve response times when users reported thefts.
“Getting faster is important,” she said. “That’s something that we are investing in today and will continue to make a huge investment on going forward.”