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OpenSea, the most popular platform for buying and selling digital collectibles, launched an internal investigation after admitting that one of its top executives used knowledge to buy items before their promotion on the market.
The website, which sells NFTs, or digital signs representing works of art, Confirmed on Wednesday that an employee “bought items they knew appeared on our front page before appearing there in public”.
The price of the collectibles usually rose when it was listed on the platform’s homepage due to the great interest of users.
The announcement comes after a user posted on Twitter that Nate Chastain, the head of OpenSea’s product, apparently sold the NFTs ‘shortly after the profit on the cover hype’ before returning the money to his digital wallet.
The user, ZuwuTV, publicly mentioned available transaction data on the ethereum blockchain, the immutable ledger that supports the creation of most NFTs and shares screenshots of their findings.
Some Twitter users have compared the activity to provisional trading or insider trading in regulated financial markets, the use — which is illegal in most markets — of using non-public knowledge to gain a trading advantage.
Such rules do not apply to the loose regulated market for digital token trading, although regulators around the world look closely on their existing legal powers for enforcement.
The news comes because OpenSea has become one of the most important platforms for the growing NFT madness, with artists, fashion houses and even sports groups joining the market as issuers. Over the past month, the market facilitate more than $ 3.8 billion in NFT transactions on its platform, according to data from DappRadar, with some digital artwork selling for millions of dollars.
But the craze could also ease the onslaught of ominous activities in a free-flowing sector with little investor protection, some experts have warned.
OpenSea said on Wednesday that the incident was “incredibly disappointing”. He added that the incident is being investigated immediately to take a full understanding of the facts and additional steps.
Chastain could not be immediately reached for comment.
OpenSea also said that as a result of the incident, it had for the first time drawn up formal policies prohibiting its staff from buying or selling digital collectibles before appearing on the platform or being promoted and from using confidential information to any NFTs. whether or not it is available on the OpenSea platform “.
The incident highlighted how the unchanging nature of blocks such as ethereum means that it is possible for anyone with technical knowledge to detect seemingly unscrupulous behavior.
In July, OpenSea raised $ 100 million in a round of funding led by prominent venture capital firm Andreessen Horowitz, which provided a value of $ 1.5 billion.
Additional post by Philip Stafford in London