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Rumors of insider trading are true

Rumors of insider trading are true

CryptoPunks — one of the most popular non-spongy tokens — shown in Times Square on May 12, 2021.

Alexi Rosenfeld | Getty Images

Rumors of insider trading on the NFT marketplace OpenSea are true, according to a statement from the startup, which was recently valued at $ 1.5 billion.

“Yesterday we were told that one of our employees bought items that they knew had to be displayed on our front page before they were shown there in public,” the company wrote in a blog post on Wednesday.

Although the statement did not identify the employee, OpenSea’s product manager, Nate Chastain, on Tuesday night was accused by Twitter user @ZuwuTV of using secret crypto wallets for front-run sales on the platform.

In a series of posts which has since gone viral, the Twitter user traces transaction receipts via the public blockchain, which allegedly showed that Chastain would buy an NFT just before OpenSea featured the piece on the front page of its site and then sell it after it jumped in price after the sum of its main page.

In the company’s written statement, the startup called the incident “incredibly disappointing” and said they were “conducting an immediate and thorough review.”

OpenSea would not confirm the employee’s name to CNBC “right now,” but a spokesman said they would “update everyone eventually after an internal investigation is completed.”

Chastain’s public LinkedIn account is now listed as “inaccessible”.

Chinese blockchain and crypto news platform 8btc sales are tracked allegedly linked to Chastain and his front-line scheme, noting a collective profit of 18,875 ethers, or about $ 67,000 at today’s price. CNBC did not independently confirm this figure, and OpenSea told CNBC that it does not share how much the employee earned on the plan.

OpenSea logged a record $ 3.4 billion in transaction volume last month, according to Dune Analytics. Despite billions of dollars for ether traders on the platform, the startup seems to have been relatively lax in terms of restrictions around employees using privileged information to invest in NFTs. However, that is changing as of today.

The company wrote that it has implemented two new employee policies, including banning OpenSea team members from buying or selling from collections or creators while being presented or promoted by the company, as well as preventing staff from “using confidential information to buy or sell” any NFTs, whether or not they are available on the OpenSea platform. ”

The entire section reveals the regulatory gap that exists across major shards in the broader crypto ecosystem. NFTs are found especially in a legal gray zone. They are not officially considered securities, nor is there much legal precedent around digital assets as a whole, so NFT-related insider trading does not appear to be illegal.

London-based fintech data analyst Boaz Sobrado says the OpenSea scandal clarifies two things: Blockchain’s transparency makes it a powerful tool for monitoring unpleasant behavior, as all trades are public and recorded forever – and crucial that “regulators are not “t do much” with that information.

“There’s a lot of talk about regulation right now, but what many of these bad actors are doing is clearly against the law right now. Regulators do not need to expand their powers to be able to fight this kind of fraud and misleading statements. “explained Sobrado.

“I think the regulators are not keeping an eye on the premium, and pretty much everyone is getting away with this,” Sobrado continued.

In the end, Sobrado thinks so shows that money has become so loose and the scams have become so cheeky that the people who participate in them neglect the simplest steps to cover their tracks.

“This is again a sign of the kind of nonsense going on in the sector right now. Although it’s good and everyone feels rich, there’s not much talk about it, but as soon as the market turns down, many of these people are going to be exposed and many people will be angry, “he said.

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