Author: Ben Weiss, theverge Compiled by Arain, ChainCatcher
On an overcast spring afternoon in April, I attended the seventh annual NFT.NYC, a haven for believers in monkey JPEGs with price tags and other NFTs. It was pouring rain at the Javits Center, and the “Super Bowl of NFTs” felt abandoned.
“There’s definitely less participation this year than last year,” Ric Johnson, who is promoting an NFT that lets people vote on whether Donald Trump should go to jail, told me politely.
One attendee, who only told me his online name, Big Mac (there is a strong culture of anonymity in the cryptocurrency circle), said that this conference was more like a "preseason game" than a "Super Bowl" for NFTs.
And Tom Smith, a man hawking anthropomorphic marijuana plant NFTs at a booth, was even more blunt: “It looks damn quiet in here.”
OpenSea, one of the industry’s most well-known companies, was one of the sponsors of the conference, but 33-year-old co-founder and current CEO Devin Finzer was nowhere to be seen. OpenSea’s other co-founder, Alex Atallah (who has since distanced himself from the startup), did take the main stage during one of the first sessions, but he didn’t want to talk about the technology that made him and Finzer paper billionaires twice over. Instead, he talked mainly about artificial intelligence.
While cryptocurrencies may have recovered in value, one much-hyped narrative from the last crypto boom has not: NFTs. In January 2022, total monthly sales for the asset class peaked at more than $6 billion, according to CryptoSlam. By July 2023, that number had fallen to less than $430 million. NFTs are holding on, but they’re struggling.
“My mom thinks I’m a liar,” I overheard one attendee say.
More storms are gathering at OpenSea, once the largest NFT marketplace. One of the most valuable private startups to emerge from the incubator Y Combinator, it now faces pending litigation from the Securities and Exchange Commission (SEC), previously unreported “matters” with the Federal Trade Commission (FTC), attention from U.S. and international tax agencies, increased competition, allegations of gender discrimination, and employee turnover.
Drawing on interviews with 18 current and former employees, as well as internal company documents and conversations with investors, artists and other stakeholders in the NFT industry, the story of how a startup inspired by cat JPEGs evolved into what one former employee called a “lite” version of Meta emerges, but now seems lost between big tech and cryptocurrency culture.
Coming out of the incubator
Finzer once described OpenSea as the gateway to a vast new internet. But now that the NFT craze has faded, that seems shallow.
In 2017, Finzer, who was in his 20s at the time, teamed up with Atallah, a Stanford graduate and a tech industry practitioner who was also in his 20s, to start a startup. Initially, Finzer and Atallah planned to use cryptocurrency to pay for sharing Wi-Fi with strangers, and in January 2018 they were successfully admitted to Y Combinator, a famous incubator that has nurtured tech giants such as Airbnb.
That was also the time when blockchains, or decentralized databases controlled by no one, were gaining popularity, as developers promoted a new way to store data permanently on blockchains. The new approach claimed that these tokens were "non-fungible," meaning that they were not all the same, like Bitcoin. In other words, NFT holders could show off that they were the true owner of a cartoon ape that was recorded in an unchangeable database.
Industry insiders say these tokens can represent just about anything: property deeds, patents, contracts, virtual real estate rights. But in late 2017, a company called Dapper Labs promoted a use that appealed to regular folks: CryptoKitties, a game where users can buy and sell cat cartoons on Ethereum, one of the most popular blockchains.
On the platform that some herald as the next generation of the internet, it’s not just JPEGs of cats that circulate. There are CryptoPunks, pixelated images of people wearing mohawks and sunglasses; digital trading cards inspired by Pepe the Frog, a meme with a checkered (and sometimes racist) history; and EtherTulips, virtual tulips that, ahem, “fight” each other.
Finzer and Atallah noticed the trend and decided to change direction.
“They’re very ambitious,” John Caraballo, a contractor hired for three months to write the initial code for the OpenSea site, told me. “What they’re building is very cutting-edge, and no one’s done it before.”
In May, after graduating from Y Combinator (which also included projects like cannabis-infused soda and VR-based psychotherapy), Finzer and Atallah announced that they had raised $2 million in funding for their NFT marketplace—backed by high-profile investors including Peter Thiel’s Founders Fund.
“There will emerge economic systems that are radically different from our wildest imaginations — and we want to help make them happen,” Finzer wrote in a blog post announcing the funding. “This is just the beginning of where things are going to get interesting…”
In the past three years, the NFT industry has not been exciting. According to DappRadar data, the OpenSea platform was used by only a few hundred traders every day throughout 2020. A former employee said that the company had less than 10 employees at the time.
(OpenSea spokesman Joshua Galper said that in mid-2020, tens of thousands of people were using OpenSea’s site each week.)
“OpenSea is their life,” the former employee told me, describing other team members, including Finzer and Atallah. “It’s really fun, but it’s also really rigorous and really intense.”
Move when the wind blows
Then, in March 2021, the NFT market began to heat up. Artist Mike Winkelmann, better known as Beeple, auctioned an NFT worth $69 million. According to DappRadar, the value of NFTs sold on the OpenSea platform more than tripled from the previous month.
OpenSea can take up to 10% commission from each transaction, and the increase in revenue has attracted the interest of investors. In the same month, Finzer announced that OpenSea raised $23 million from investors including venture capital giant Andreessen Horowitz, with a company valuation of $123 million. OpenSea is more eye-catching than ever, and the company began to expand.
“It was crazy,” one former employee told me. “We all wore many hats.”
The NFT craze continues. After Beeple’s artwork set huge sales records, a company called Yuga Labs launched the Bored BAYC Yacht Club, a collection of 10,000 NFTs of cartoon apes that promise holders access to exclusive events, perks, and products. People are spending millions of dollars just to claim to be the real owner of an ape with blond hair or heart-shaped sunglasses.
“When I first saw BAYC, I thought: ‘What the fuck is this?’ ” one former employee said. “And then seeing the prices people were paying for it — it was crazy.”
As more pictures of apes, punks, cats and penguins changed hands, OpenSea collected more commissions: Revenue soared from $9 million in the second quarter of 2021 to $167 million in the third and $186 million in the fourth, according to internal company documents.
“It was a really interesting period,” said another employee. “As soon as you launched a new feature, a lot of people would talk about it.”
Suddenly, Finzer and Atallah’s trading platform was generating significant cash flow, and investors flocked in. In July, the startup received another round of funding, raising $100 million at a valuation of $1.5 billion.
“It was really exciting with all the celebrities popping up and all the money grabs,” said one former employee. “I was getting emails from people I hadn’t spoken to in years. Everyone saw an opportunity to get rich quick.”
Insider trading, cashing out, options disputes... trouble is coming
But as funding increased, so did problems. “Every stressful thing felt like the end of the world,” Finzer told employees in 2023, reflecting on the company’s early days.
In September 2021, OpenSea asked product director Nate Chastain to resign after some industry insiders discovered that he was using insider information to trade NFTs. Chastain's method was simple. Every few days, OpenSea would promote a new series of NFTs on its homepage. Given that the platform is the de facto main place to buy and sell NFTs, the price of these tokens would rise after being recommended on the site. Chastain knew which ones would be selected, so he would resell them for profit shortly after the NFTs appeared on the homepage. "What Nate did at the time was quite common in this circle," said a former employee.
Chastain was ultimately sentenced to three months in prison—the first time the Justice Department successfully prosecuted an NFT insider trading case. Insider trading, however, was just the tip of the iceberg of OpenSea’s problems. Users were also angry about site crashes, spammy or intentionally fraudulent NFT collections, and stolen NFTs. “It was like a bloody orgy,” one former employee told me, describing the public good’s dire predicament. Another former employee said users joked that OpenSea should be renamed “BrokenSea.”
“OpenSea strives to remain responsive and focused on its users,” Galper said.
To handle the sudden surge in trading volume and other issues, Finzer and Atallah needed to expand OpenSea’s staff and start bringing in talent from big tech companies or with corporate backgrounds, according to multiple former employees.
“There is no mechanism for advancement within the company,” said one former employee.
“They hired these fucking beasts, these ‘crawlers’ from Amazon, Facebook, Google, and the like,” said another former employee. “It was like Game of Thrones, with the White Walkers coming through the door.”
Most of the current leadership team joined in the second half of 2021 and the first half of 2022, including COO Shiva Rajaraman and CTO Nadav Hollander. At its peak, OpenSea had about 300 employees - a considerable expense that Finzer and Atallah cut just a few months later.
“Our priority has always been to find the best talent anywhere, whether it’s from large tech companies, smaller companies, or crypto natives,” Galper wrote.
Yet the money kept coming. OpenSea’s revenue hit an all-time high of $265 million in the first quarter of 2022. The co-founders also closed their largest round to date: $300 million from a blue-chip venture capital fund, giving OpenSea a staggering $13.3 billion valuation. As of the end of 2021, Finzer and Atallah each owned 19% of OpenSea, according to Forbes. On paper, they had become billionaires. (Galper said the report about the co-founders’ stake in OpenSea was wrong. However, Forbes did not issue a correction statement on the co-founders’ ownership percentages.)
The company's investors include not only venture capitalists focusing on the cryptocurrency field, but also well-known figures in and outside Silicon Valley. These include "Shark Tank" ace Mark Cuban, basketball star Kevin Durant, actor Ashton Kutcher and DJ 3LAU, who are publicly disclosed investors. According to an internal company document, OpenSea's shareholder list also includes James Musk, YouTube co-founder Jawed Karim, Adobe Chief Strategy Officer Scott Belsky, and former Microsoft strategy director Charlie Songhurst.
Finzer, Atallah and a handful of early employees quietly cashed out some of their equity in the massive round, according to a source familiar with the deal.
Galper confirmed to me that some employees were indeed able to sell their shares “during the Series C round,” but he didn’t specify the size of Finzer and Atallah’s profits.
“The team and investors felt it was the right thing to do to provide some liquidity to those who have worked so hard to get the company to this milestone,” Galper added.
Five former employees told me that the co-founders never disclosed this secondary share buyback to the entire staff. “That was a little surprising to me because they seemed to be very transparent about other decisions,”
Two former employees said that employees who received shares after the Series C round were subsequently prohibited from selling their equity.
(Galper said the company “does not recall any employee asking to sell shares to specific investors after the Series C.”)
“The biggest news will be these secondary market share sales,” one former employee said. “The rest will be less interesting.”
Peak downhill
OpenSea seemed to be heading towards the mainstream, but troubles continued. Shortly after Hollander, OpenSea's current CTO, joined the company, his team discovered a serious vulnerability in the company's code that could allow attackers to receive payments without sending NFTs to victims. Although no actual attack occurred, Finzer later told employees in 2023, "This is one of the scariest things."
In March 2022, just as Finzer was celebrating OpenSea’s inclusion in Time magazine’s annual list of the 100 most influential companies, the NFT craze began to cool. According to CryptoSlam data, total sales across the market plummeted from about $6 billion in January 2022 to just over $1 billion in June. OpenSea’s quarterly revenue also fell, falling to $171 million in the second quarter.
Worse, OpenSea will still hold most of its cash reserves in ETH, the second-largest cryptocurrency by market cap, until the first half of 2022, according to former employees who attended an all-hands meeting. At the meeting, Finzer updated employees on the company's financial situation. Instead of converting cryptocurrency funds into less volatile assets, he said OpenSea wanted to walk the talk and support the cryptocurrency industry. The only problem? By June 2022, the price of ETH has fallen nearly 80% from November 2021.
OpenSea still generated $171 million in revenue in the second quarter of 2022, but after deducting losses from price declines and other debts, its net loss reached $170.7 million.
(Galper disputed that figure but did not provide financial data.)
“I was like, ‘What the hell, you’re not somebody’s individual investor, why take the risk when we have so much upside?’ ” one former employee thought after Finzer announced the financial misstep.
Despite its financial struggles, OpenSea is making a big splash at the NFT.NYC conference in the summer of 2022.
“I heard OpenSea took over an entire hotel downtown, is that true?” conference co-founder Jodee Rich asked during a meetup at Radio City Music Hall.
"Sounds about the same," Finzer replied, smiling.
That same week, when most of OpenSea’s staff was in New York, Finzer held a company-wide meeting to ease any concerns employees had about the company’s future, according to two former employees. Both former employees said the message from the meeting was clear: Don’t worry.
Less than a month later, OpenSea laid off 20% of its staff.
Around the same time, Atallah said he would step down from OpenSea but would remain on the board. Former employees are unclear as to why Atallah decided to leave.
"There's always been a weird vibe between Devin and Alex," one employee said. "I don't think they're that good together."
Another employee said: “I heard they didn’t agree on a lot of things.”
One OpenSea investor who requested anonymity said Atallah told him he left on good terms. “I think he’s the type of guy who likes the early stages of a startup,” the investor said. “Once the company started to scale and became more corporate in nature, I think he probably said, ‘I want to move on to the next thing.’ ”
In a statement, Atallah denied suggestions that he had a conflict with Finzer and echoed the investor’s sentiment: “I have always enjoyed early-stage ventures and ultimately decided I wanted to explore new ventures again.”
But when Atallah left to pursue his next project, Finzer chose to stay on and lead the startup at a time when the company looked very different than it had just a few months earlier. In the third quarter of 2022, revenue plummeted to just $32 million, and OpenSea lost more than $27 million. “Morale got really weird really quickly,” said one former employee.
Back to the Dark
In October, a new thorn in the side of OpenSea emerged: a new NFT trading market called Blur. OpenSea once had a near monopoly on billions of dollars in NFT trading volume. But soon, it had to fight for the scraps.
Founded by a programmer who goes by the pseudonym “Pacman” and later reveals himself to be Tieshun Roquerre, a 20-something MIT dropout and Y Combinator graduate, Blur is doubling down on the idea of financializing NFTs: treating them as assets that traders swap back and forth in search of profit.
Many professional traders want to maximize profits, and royalty fees charged by marketplaces like OpenSea cut into their profits. Blur prioritizes the privileges of traders over creators, and does not give artists a percentage of every time a work is sold on its platform. Coupled with the promise of distributing cryptocurrency to its top users - essentially free money - NFT speculators flocked to this new market.
Blur quickly ate into OpenSea’s market share. According to DappRadar, by February 2023, Blur had surpassed OpenSea with almost three times the monthly trading volume of Finzer’s startup, thanks to its promise of an upcoming cryptocurrency offering. Meanwhile, OpenSea’s quarterly revenue continued to decline, falling to $23 million in the fourth quarter of 2022 and further to $19 million in the first quarter of 2023.
Finzer felt compelled to react. Blur’s sudden rise, one former employee said, “destroyed all of our product vision. It was a disaster.”
One current employee disputed that characterization. “As far as Blur coming out, it didn’t really interfere with my work,” they told me. “I continued to develop projects and work as normal.”
Multiple former employees told me that OpenSea quickly abandoned its mission to bring NFTs to the masses and decided instead to cater to speculators. According to a source familiar with the matter, Finzer even discussed the possibility of the company issuing a cryptocurrency with cryptocurrency founders and lawyers.
Galper confirmed that company executives had discussed issuing a cryptocurrency in the past, saying: “OpenSea has always been focused on the long term rather than focusing on short-term changes in the competitive landscape.”
But issuing tokens would be a risky move, as the U.S. Securities and Exchange Commission (SEC) has repeatedly claimed that the vast majority of cryptocurrencies are unregistered securities. After the FTX collapse in November 2022, the SEC launched a broad crackdown on the cryptocurrency industry, settling or filing lawsuits against some of the industry's largest players, including cryptocurrency exchanges Coinbase and Binance.
According to former employees, OpenSea conducted another round of smaller and undisclosed layoffs after the NFT.NYC conference in May 2023. One former employee said: “The running joke is that everyone is afraid of NFT.NYC because all the layoffs happened after it.”
"The company went through a minor reorganization that resulted in some team structure changes and, as a result, several employees leaving," Galper wrote.
In August, the exchange announced it would stop enforcing creator royalties, much to the dismay of some employees. Former employees said this sparked a wave of internal dissent. One employee added: "I think OpenSea still hasn't really identified their target audience and acted accordingly. They're just figuring it out."
SEC Regulatory Storm
Amid the controversy surrounding OpenSea’s decision to eliminate royalties, Finzer and his partner, Yu-Chi Kuo, a former cryptocurrency hedge fund manager, left New York City for a “desert adventure” to attend the Burning Man festival, according to Kuo’s Instagram post.
(Galper said this was Finzer's first leave in more than a year.)
As Finzer and Kuo reveled in the desert mud, the SEC took its first enforcement action against the NFT industry, alleging that NFTs issued by Impact Theory, a media company created by the founder of Quest Nutritio, were unregistered securities. Just a few weeks later, the SEC charged Stoner Cats 2 LLC, the company behind Stoner Cats (an animated series backed by Mila Kunis and featuring Ashton Kutcher and Jane Fonda), with issuing NFTs that were unregistered securities. Impact Theory and Stoner Cats 2 agreed to cease and desist orders and paid legal penalties of $6.1 million and $1 million, respectively.
Unbeknownst to some OpenSea employees, their company was in the middle of two separate regulatory “matters.” The SEC had issued a third-party subpoena, or mandatory information request, to OpenSea concerning other entities. In addition, the SEC had assigned a dedicated attorney to OpenSea’s “case” and was engaged in “custodial document production” with the agency, according to internal company documents.
The legal counsel described the back-and-forth as an “SEC matter” and laid out OpenSea’s defense in an internal document. Those arguments included that NFTs are not securities, that OpenSea is not a securities exchange or broker, and that OpenSea is protected by the First Amendment and Section 230 of the Communications Decency Act, which prohibits online operators from being responsible for third-party content on their platforms. “The SEC does not comment on investigations that may or may not exist,” said SEC spokesman David Ausiello.
Cat and Mouse Game
OpenSea spokesman Galper confirmed that OpenSea has received requests from the SEC since 2022. He said: "As part of our standard practice, we cooperate with regulators and law enforcement agencies, and we are committed to complying with applicable laws and regulations."
While some employees were unaware of the SEC's affairs, a vocabulary guide instructed employees to use appropriate terminology when talking to each other or publicly about NFTs and OpenSea. Legal counsel told employees not to say "buy, sell or pay on OpenSea," but to say "buy on the blockchain," "buy using MoonPay (a cryptocurrency payment company)" or "buy using OpenSea." The guide said: "It is very important to make this clear distinction because it affects our tax and legal obligations."
Other terms employees should avoid using when talking about OpenSea include “exchange,” “broker,” “market,” “profit,” “shares,” “stock,” “trading,” “trader” — words commonly used to talk about securities and fall under the SEC’s jurisdiction.
There are also so-called “FTC matters,” in which OpenSea filed documents with regulators. The internal documents I obtained provided no details beyond mentioning the existence of such transactions, and the FTC did not respond to a request for comment.
Galper confirmed that OpenSea received the FTC's document request and said it last submitted documents to the agency in August 2023. He declined to say why the FTC and SEC requested documents from OpenSea, and did not comment when asked whether OpenSea had received a Wells notice, a formal notice from the SEC indicating that a company or individual is about to face litigation.
The day after I told OpenSea we planned to publish this story, Finzer announced on Platform X that his startup had received a Wells notice. “We are shocked that the SEC would take such a sweeping action against creators and artists. But we are ready to fight,” he wrote.
Christopher Odinet, a professor at Texas A&M University who has studied the legal issues surrounding cryptocurrency, told me, “Usually, when an agency asks for documents from a business, it’s because they think something’s not right.”
Christa Laser, a professor at Cleveland State University who has also studied the intersection of cryptocurrency and the law, said that while the FTC’s information request may stem from suspicion of OpenSea itself, its interest in the NFT market may simply be an attempt by regulators to better understand an emerging market.
“The FTC is more likely to make non-investigatory document requests than the SEC is to conduct investigations,” she said.
At the same time, various tax authorities at home and abroad are also constantly inquiring OpenSea. For example, according to internal documents, the Australian Taxation Office (ATO) and OpenSea have repeatedly communicated on whether the startup needs to pay taxes on the fees charged for each NFT sale on its platform and the full price of the NFT.
In early October, OpenSea’s legal team flew to Australia to argue that its platform should be exempt from tougher tax crackdowns, according to company documents. If the Australian Taxation Office (ATO) doesn’t decide in favor of OpenSea, Finzer’s startup will need to shoulder about $130 million in taxes, based on numbers discussed internally in August 2023. That’s not to mention inquiries from tax authorities in Washington state, India, and Taiwan.
The Australian Taxation Office declined to comment on OpenSea, citing confidentiality and privacy laws. Washington state declined to comment for similar reasons. Tax agencies in India and Taiwan did not respond to requests for comment.
Galper, the OpenSea spokesman, declined to comment on the company’s communications with tax authorities.
“We do have a lot of interest from policymakers and regulators, and ultimately, the courts and the public will see what we have to say,” Gina Moon, former general counsel for OpenSea, said at a general meeting, according to a document I obtained.
Will OpenSea 2.0 arrive as scheduled?
On Halloween, when OpenSea’s quarterly revenue fell to its lowest level since the NFT boom, Finzer and his partner attended Heidi Klum’s annual Halloween party at Marquee nightclub in New York City. According to Kuo’s Instagram, Finzer dressed up as an “AI hacker,” wearing glasses, a hoodie with the OpenAI logo, and a keyboard. His partner dressed up as his “AI girlfriend,” complete with a blood-stained knife and a mechanical-looking prosthetic limb.
(Galper, the OpenSea spokesman, countered that Finzer’s outfit was improvised and that he showed up only for the photo ops, then hurried home after walking the orange carpet to take a work call and continue planning a major transformation for his startup.)
Three days later, the day after former FTX CEO Sam Bankman-Fried was convicted of fraud, OpenSea announced massive layoffs, resulting in the departure of more than 100 employees, about 56% of the total workforce. Finzer said at X that he was "realigning the team around 'OpenSea 2.0'," a strategic and product change that he did not publicly provide many details about.
“It’s a huge bet and it’s pretty aggressive,” he later told employees.
According to a memo Finzer sent to employees, departing employees received four months of cash severance and six months of health insurance, among other benefits.
Finzer invited the remaining employees to an off-site meeting to discuss the company’s new direction. “The real goal of these changes is to move from a follower position to a leader position,” he said during an all-hands meeting at a Hollywood mansion that once belonged to Katy Perry and Russell Brand, according to a document obtained by me.
According to executive team member Lorens Huculak at the all-hands meeting, OpenSea plans to "become the gateway to Web3," referring to the idea that the future internet will be based on blockchain. The startup plans to rewrite much of its code to make it easier for users to track crypto transactions on the platform without having to visit other websites. "We will be an aggregator, not only of chains, but also of protocols, markets, all kinds of liquidity, including tokens," Huculak said.
According to a source familiar with the new product, the product revamp also includes features that make OpenSea more competitive with Blur. "This is just a repackaging of OpenSea Pro," they said, referring to the section of the OpenSea platform dedicated to NFT speculators. However, a current employee refuted this characterization, saying that the relaunch is more than just upgrading and adding features to track transactions for traders. However, the employee declined to provide further details about the relaunch.
"Our plans for 2.0 are confidential," Galper said in a statement.
Apparently, the new product vision and massive layoffs didn’t initially inspire employees or investors. Shortly after the transformation, The Information reported that Coatue Management, one of OpenSea’s largest backers, had actually cut the startup’s valuation to just $1.4 billion in the second quarter of 2023, a significant drop from $13.3 billion less than two years ago.
Subsequently, several senior executives of OpenSea left after the layoffs, including the general counsel, vice president of operations, head of human resources, and head of communications. According to internal company communications, OpenSea offered remaining employees a cash bonus of 20% on top of their existing salary to retain them.
(“We paid people who didn’t want to stay at OpenSea to leave, and those who believed in the future of the company chose to stay and help us build,” Galper said.)
Amid the exodus, executives worried that there were no women among the remaining engineers or product managers, especially because some who left the company complained of gender discrimination, according to internal documents.
(OpenSea previously hired an outside investigator to look into one of the complaints, which the investigator found to be without merit.)
"If we receive an employee complaint, we take it seriously and investigate it promptly," Galper said in a statement. "Any allegations of sex discrimination have not been substantiated, and we have never engaged in any litigation, arbitration or mediation on this topic."
“There’s a lot less crap now, like Slack messages and meetings,” said one. “I was pleasantly surprised at how quickly people got back on track,” said another.
NFTs won’t end with OpenSea
On the same spring day that I visited NFT.NYC, I headed to a pier on the Hudson River.
OpenSea competitor Magic Eden is hosting what it calls the “Degen Yacht Party” on a floating casino converted into a party boat. Waiting in line in the rain to board the boat, I chatted with James Woods, a collector who wears a T-shirt with an image of an NFT he owns: a pink dog wearing black sunglasses, a sailor hat, and a brown hoodie. “I try to dress like this for any NFT-related event or important event in my life,” said Woods, who also wore sunglasses, a sailor hat, and a hoodie. He even dressed like this for his first date at the casino: “It worked out great.”
Eventually, we boarded the ship, which had ice sculptures, a DJ, free food (like a buffet at a bar mitzvah, one attendee told me), free booze, a gold-plated elevator, and energy drinks. I talked to a guy who called himself “Breads,” another named “Toast” (the two had an enthusiastic reunion), a man who said “Cyber Frogs” had changed his life, and a woman holding a stuffed animal named “Chonky.”
Most people I chatted with had a bad opinion of OpenSea. After all, I was on enemy territory. “Instead of doubling down on supporting the creators who made them the best exchange in the market,” Woods said, referring to OpenSea’s decision not to enforce royalty fees, “instead, they betrayed all of us.”
The yacht swayed from side to side in the rain, but we never left the dock. The storm was too strong. Finally, on the third floor, I chatted with Yin Zhuoxun, the co-founder and chief operating officer of Magic Eden. Like OpenSea, Magic Eden is backed by well-known venture capital firms and, according to a recent funding round, is valued at more than $1 billion. “This is not an industry where you can sit down and count chickens,” Yin, who goes by Z, told me. “Everything is changing very quickly.”
While Blur has snatched away hardcore NFT traders from OpenSea, Magic Eden appears to be eating into OpenSea’s popularity among creators. In February, Yuga Labs, the company behind Bored Ape Yacht Club and other blue-chip NFT collections, launched a competing marketplace alongside Magic Eden. In April, Yin’s company surpassed both OpenSea and Blur in monthly NFT trading volume, according to DappRadar data.
Despite the market volatility, most people I interviewed who have a financial interest in the NFT industry are optimistic about its future.
“If anyone thinks that OpenSea is declining and therefore NFTs are dead, that’s wrong,” TJ Fuller, co-founder of Forgotten Runes, a fantasy project that lets fans own characters as NFTs, told me. He believes the technology is still innovative: “It doesn’t matter where we trade NFTs.”
Most of the former OpenSea employees I spoke to also see future use cases for these tokens: tickets to live events or items in video games where users can more definitively say they own them. But some added that the current culture of speculation for speculation’s sake doesn’t scale beyond cryptocurrency enthusiasts. “I think the way it’s going right now is kind of bad,” said one former employee. “I don’t think selling JPEGs is worth it.”
As the yacht party came to a close, I walked off the dance floor, pushed past a man playing a flute like a Metallica member, and said goodbye to Woods, who was wearing a sailor hat. When asked for his final thoughts on NFTs, he said: “Buy them as collectibles. Don’t expect to make money from them.”
That may be good advice for OpenSea, which lost about $30 million in the first three quarters of 2023, according to an internal document I obtained. (It expects November layoffs to reduce the company’s expenses in 2024, though.) In June, trading volumes on its platform fell to lows not seen before the NFT boom of early 2021, according to DappRadar.
OpenSea still has plenty of money. According to an internal document, as of November 2023, it has $438 million in cash and $45 million in cryptocurrency reserves, and is relying on these funds, hoping that the "2.0" transformation can help it get through the difficulties.
Finzer has said he wants his startup to build an ocean, not an aquarium.
But if the NFT market continues to decline, OpenSea won’t be leading the ocean of digital collectibles — it will be drowning in the water.
