But the platform's CEO tells Decrypt that the debate that erupted around alleged "insider trading" at OpenSea was "misframing."
Speaking to Decrypt editor-in-chief Daniel Roberts and executive editor Jeff John Roberts at the Messari Mainnet conference, OpenSea CEO Devin Finzer argued, "I do think there was a misframing of it as insider trading. We don't view NFTs as financial assets, so that does not apply. That's a very specific term for a very specific thing."
Last week, OpenSea found itself in hot water after users pointed out that Nate Chastain, the firm’s now-former head of product, bought several NFTs immediately before they were featured on the platform’s main page.
What is insider trading?
According to the U.S. Securities and Exchange Commission’s definition, insider trading “refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.”
In other words, insider trading occurs when a person—who is privy to some non-public information—uses their knowledge to make a quick buck via trading a firm’s stock.
For example, if someone knows that a company is about to make a big announcement that will likely affect the price of its shares (for better or worse), they can buy or sell shares beforehand to make a profit after that announcement goes public.
In this light, while buying and reselling NFTs ahead of them being featured on the site is not exactly “insider trading” on paper, the act itself bears many similarities. Finzer acknowledged this, arguing that while Chastain’s actions didn't qualify as insider trading under the strictest legal definition of the term, they were still wrong and could undermine OpenSea customers’ trust in the platform.
We have a strong responsibility to our community, and we take any breach of trust incredibly seriously.
We've taken additional steps to address this and are investing in policies that move the space towards greater transparency and openness.
— Devin Finzer (dfinzer.eth) (@dfinzer) September 16, 2021
“This was a relatively small thing that was done by an employee, we took action, that employee then resigned due to this," Finzer said. "But we are putting in place more rigorous policies around the people who work at OpenSea and want to be able to participate in the NFT market.” He added, “We need to do it in a way that we build really strong trust with our community—and that's really the first priority for OpenSea.”
To that end, the platform is crafting stricter policies “around what employees can do with the information and privileges that they have by working at OpenSea,” Finzer concluded.