The scene of the crime?
Photo: Konstantin Sergeyev
The new world of crypto is seeing a new kind of insider-trading scandal. A 31-year old Brooklynite named Nate Chastain came under siege this week from an angry online mob of pixelated cartoon characters and weird monkey avatars claiming he had used unfair practices to buy digital art low and sell it high. Chastain, an executive at the largest exchange for non-fungible tokens (or NFTs), allegedly front-ran the market he was administering in the ultra-buzzy, stupidly moneyed world of digital art secured on the blockchain. By late Thursday, he was out of a job and potentially facing legal questions.
Chastain stepped down on Thursday as the head of product at OpenSea.io, a kind of online gallery–slash–auction house for NFTs. Sales of art-themed NFTs at OpenSea — by far the largest player in the space — have exploded this year, surpassing more than $1 billion in trading volume last month. If, for instance, you find yourself looking to spend $18,000 or more on an image of a bored-looking monkey for use as a Twitter avatar, OpenSea is the place to go. But the fast-developing scandal around Chastain’s apparent actions has soured relations between crypto-art enthusiasts and the platform they use as a hub.
“It is unethical for him to front-run the front-page listings, trading off of material private information. I made some posts saying not to rush to judgment, but the OpenSea official statement confirms that it happened,” a crypto investor who goes by Beanie Maxi told Intelligencer. “Other than that,” he added, “I’d say Nate is a nice guy.”
The problems began for Chastain and OpenSea with a tweet posted by a pseudonymous Twitter user (represented, of course, by an NFT):
In simple terms, Zuwu was observing that blockchain data — where all transactions are visible — showed that a wallet associated with Chastain’s avatar had been buying up specific NFTs just before they were promoted on OpenSea’s main page and then selling them on the price spike that tended to follow. The tweet immediately blew up in the, of course, extremely online world of NFT enthusiasts, where Chastain was known as an active and friendly participant. In the hours following, OpenSea all but confirmed Chastain’s breach, calling it “incredibly disappointing.” By Thursday, Chastain appeared to have stepped down, updating his Twitter profile to “Past: @opensea.” OpenSea CEO Devin Finzer announced on Thursday afternoon that “we requested and accepted” the resignation of an unnamed employee who had violated the company’s standards of behavior.
For the crypto world, this kind of allegation couldn’t have come at a worse time. The Biden administration has been unapologetic about its intent to rein in the exploding growth in the industry, even writing into the $1 trillion stimulus package new rules that, if the bill is signed into law, would regulate many of the players much more tightly. Gary Gensler, chair of the Securities and Exchange Commission, has made no secret of his mission to tame the industry, telling Intelligencer, “Anything that we do to bring more investor protection to this Wild West of the crypto market, I think, has benefits.” The era of unsupervised growth in the crypto markets looks to be coming to an end — and Chastain’s saga may be remembered as an example of what the would-be regulators were worried about.
“This sort of activity is going to, unfortunately, lead people to be less trusting of the crypto markets and give regulators more ammunition to want to regulate,” said Robert G. Heim, a partner at Tarter Krinsky & Drogin, a New York–based law firm that serves clients in the crypto industry.
Chastain’s twitter profile.
Chastain was an engaged member of the frenetic and ongoing conversation around NFTs on Twitter. On an average day, he would weigh in multiple times in response to questions and complaints about OpenSea. While his own Twitter avatar depicts him as some kind of blue-haired pirate, he is in fact a product of America’s most selective educational institutions, including Phillips Exeter Academy — where he received an award for his poetry — and Harvard. An old Facebook post suggests that he was no stranger to extreme wealth. “Celebrating my 21st birthday on St. Barths. Just came back from Governeur Beach (now essentially Roman Abramovich’s swimming pool), Shell Beach and Do Brazil,” he wrote at the time.
From there, according to his Facebook page, he worked as a comedy writer, first at Mad magazine, then at The Onion. The skill he honed of finding relatable humor in people’s frustration launched his path into crypto, he said on the podcast The Defiant, according to a partial transcript: “I think it was helpful to get started on that wavelength of frustration because I think a great strength for a product manager is being able to empathize with the user sort of making use of your product and understanding what’s causing them pain.” He later joined ConsenSys, another crypto company, as a product manager from 2018 to this past February, but there “were no issues with his employment during his time at ConsenSys,” said spokesman Elo Giminez.
No law-enforcement authority has accused Chastain of doing anything wrong, and he hasn’t publicly tried to explain what happened. (He did not respond to requests from Intelligencer to get his side of the story.) But it’s at least possible he could be in legal jeopardy. While the SEC hasn’t made a determination that NFTs fall under the definition of a security under a 1933 law, Gensler could try to make the case that this amounted to securities fraud and file a civil action against him, Heim said. But even if the SEC decides not to make that case, other federal agencies may want to take a look at Chastain’s situation. “The DOJ could conceivably look at this situation under the lens of a wire-fraud case,” Heim said.
Every day, crypto is looking less and less like a world without rules.