Last week, NFT marketplace OpenSea parted ways with an executive who was found to have used inside information to profit from trading in a collection of non-replaceable tokens on the site.
However, the platform’s CEO told us that the controversy surrounding OpenSea’s alleged insider trading was “mischaracterized.”
Speaking at the Messari Mainnet conference, OpenSea CEO Devin Finzer said, “I do think there’s a misframing of it as insider trading. You know, we don’t think of NFT as a financial asset, so that doesn’t really apply. It’s a very specific term for a very specific thing.”
Last week, OpenSea found itself in hot water after users pointed out that the company’s current head of product, Nate Chastain, had purchased several NFTs immediately before they appeared on the platform’s homepage.
Following allegations from the community, OpenSea later confirmed that one of its executives had indeed profited from the insider information. That individual eventually left the company.
What is insider trading?
Insider trading, as defined by the SEC, “generally means the purchase or sale of securities based on material, nonpublic information about the securities in violation of a fiduciary duty or other relationship of trust and confidence.”
In other words, insider trading occurs when a person – who knows some non-public information – uses their knowledge to make a quick buck by trading a company’s stock.
NFT Marketplace OpenSea Confirms Executives Profited From Insider Information
For example, if someone knows that a company is about to make a major announcement that could affect its stock price (for better or worse), they can buy or sell the stock in advance and profit from the announcement when it becomes public.
With this in mind, while buying and reselling NFTs before they go public is not exactly “insider trading” on paper, the conduct itself bears many similarities.Finzer acknowledges this as well, arguing that while Chastain’s actions do not qualify as insider trading under the strictest legal definition, they are still wrong and could undermine OpenSea customers trust in the platform.