Nonfungible token (NFT) marketplace OpenSea, which works as a platform to buy and sell digital collectibles, is investigating a case in which one of its top executives used inside knowledge to buy items ahead of promotion, the Financial Times (FT) reported.
The site said an employee “purchased items that they knew were set to display on our front page before they appeared there publicly,” per FT.
The revelation came after Nate Chastain, the head of Product for OpenSea, was revealed to be selling NFTs allegedly right after the front-page hype would boost profits. He would then move the funds back to his digital wallet, the report stated. A Twitter user exposing the scheme cited transaction data that is available to the public on the ethereum blockchain, which is the ledger supporting the creation of the bulk of NFTs.
According to some Twitter users, the activity was akin to front-running or insider trading on regulated financial markets, which consists of using private knowledge to gain an advantage. Those rules don’t apply to the loosely regulated market for trading digital tokens, according to the report. Regulators around the world have been looking into existing legal powers for enforcement.
OpenSea said the incident was “incredibly disappointing,” adding that the company is reviewing how it happened, per the report.
The company has become a prominent platform to work with NFTs, and artists, fashion houses and sports groups have been using it to make money. However, some critics worry that the NFT trend might be proliferating illicit activity, according to the report.
OpenSea has seen $3.4 billion in transaction volume in ethereum. Its most popular NFT collection is CryptoPunks, which consists of 10,000 unique characters. Visa recently purchased a cryptopunk NFT at an auction — “CryptoPunk 7610” — for roughly $150,000.