NFT 'insider trading' netted OpenSea employee quick profits

He used secret wallets to buy and sell the NFTs before anyone else could.
He used secret wallets to buy and sell the NFTs before anyone else could. Photo credit: Getty Images

An employee of one of the world's largest crypto marketplaces has been using their knowledge of forthcoming promotions to snap up non-fungible tokens (NFTs) ahead of the public.

Nate Chastain, head of product at OpenSea, was accused on social media of using secret wallets to secure prized NFTs knowing they would feature on the front page and increase in value.

By doing this he was able to make a quick profit and then funnel the money back to his main cryptocurrency wallet.

The trades were identified because transactional data like purchases and transfers on the ethereum blockchain are permanent and visible to all, with Twitter user Zuwu bringing the attention of the trades to OpenSea.

"Why does it appear Nate Chastain has a few secret wallets that appears to buy your front page drops before they are listed, then sells them shortly after the front-page-hype spike for profits, and then tumbles them back to his main wallet with his punk on it?"

OpenSea responded in a blog post, acknowledging "one of our employees purchased items that they knew were set to display on our front page before they appeared there publicly".

"We are taking this very seriously and are conducting an immediate and thorough review of this incident so that we have a full understanding of the facts and additional steps we need to take," the company stated.

"This is incredibly disappointing. We want to be clear that this behaviour does not represent our values as a team."

OpenSea hasn't confirmed which NFTs were traded using internal information, website The Verge reported. 

American software engineer Grady Booch pointed out Chastain's behaviour in snapping up an NFT from artist Arya Mularama ahead of the public, which he tweeted about in August, wouldn't be tolerated in regulated markets.

"This would be called 'insider trading' and would be punishable with a large fine and incarceration," he wrote.

NFT sales have skyrocketed in 2021 with over US$4 billion of sales in just the last 30 days, according to data from DappRadar.

The increase in value of both cryptocurrencies and NFTs has seen an increase in scams associated with them.

At the end of August a fake NFT purporting to be from street artist Banksy sold for US$336,000.

And Government agency CERT NZ revealed today that cryptocurrency scams are on the rise in Aotearoa - up 50 percent in Q2 of 2021, with one scam defrauding someone out of more than $100,000.

OpenSea has now introduced policies where staff can't buy or sell from creators while they're being promoted or using confidential information to trade NFTs on the platform or any other.