Original title: The rise and fall of NFTs made and unmade OpenSea
Original author: Ben Weiss, theverge
Original translation: Arain, ChainCatcher
On a cloudy spring afternoon in April, I attended the seventh NFT.NYC, a haven for all believers in monkey JPEGs with price tags and other NFTs. It was pouring rain at the Javits Center that day, and the event was a climax. The “NFT Super Bowl” themed party felt abandoned.
“There’s definitely less participation this year than there was 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 gave me his screen name, Big Mac (cryptocurrency circles have a strong culture of anonymity), said the conference was more like a “preseason” than a “Super Bowl” for NFTs.
And Tom Smith, a man hawking anthropomorphic marijuana plant NFTs at a stall, was even more blunt: “It looks damn deserted in here.”
OpenSea, one of the most well-known companies in the industry, was one of the sponsors of the conference, but Devin Finzer, the 33-year-old co-founder and current CEO, was nowhere to be seen. Alex Atallah, another co-founder of OpenSea (who later The startup has kept its distance. He did take the main stage at one of the first conferences, 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 be recovering in value, one much-hyped narrative from the last crypto boom has not: NFTs. In January 2022, total monthly sales for the asset class reached more than $6 billion, according to CryptoSlam. By July 2023, that figure had fallen below $430 million. NFTs are still hanging 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, now faces a pending lawsuit from the Securities and Exchange Commission (SEC). previously unreported “affairs” with the Federal Trade Commission (FTC), attention from U.S. and international tax agencies, increased competition, allegations of sex discrimination, and employee turnover.
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 reveal how a startup inspired by JPEG images of cats evolved into what one former employee calls a The Meta “lite” story is vivid on paper, but now seems lost between big tech and crypto culture.
Coming out of the incubator
Finzer once described OpenSea as a gateway to a vast new internet. But now that the NFT craze has faded, that description seems shallow.
In 2017, Finzer, then in his 20s, teamed up with Atallah, a Stanford graduate and tech industry practitioner also in his 20s, to start a startup. Initially, Finzer and Atallah planned to use cryptocurrency to pay for sharing Wi-Fi with strangers. In January 2018, it successfully entered Y Combinator, a famous incubator that has nurtured technology giants such as Airbnb.
It was also around that time that blockchains, or decentralized databases controlled by no one, were gaining popularity, as developers promoted a new way to store data permanently on blockchains. The tokens are “non-fungible,” meaning they are not all the same, like Bitcoin. In other words, NFT holders can brag about being the true owner of a cartoon ape that The apes are recorded in an unchangeable database.
Industry insiders say these tokens can represent almost anything: property deeds, patents, contracts, virtual real estate rights. But in late 2017, a company called Dapper Labs promoted a use that appealed to ordinary people: CryptoKitties, which was A game where users can buy and sell cat cartoons on Ethereum, one of the most popular blockchains.
On the platform that some claim is 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; Frog, a meme with a checkered (and sometimes racist) history; and EtherTulips, virtual tulips that, ahem, “battle” each other.
Finzer and Atallah noticed the craze 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 website, told me. “What they’re building is very cutting-edge, and no one has 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—including $1 million from Peter Thiel’s founder, Steve Jobs. Supported by well-known investors including Renmin 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…”
For nearly three years, the NFT industry has not been exciting. According to DappRadar data, throughout 2020, the OpenSea platform was used by only a few hundred traders per day. 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 was their whole life,” the former employee told me, describing other team members, including Finzer and Atallah. “It was really fun, but 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 was $1.3 billion more than the previous month. It more than doubled month on 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, and the company estimated that Valued at $123 million. OpenSea was more visible 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 Ape Yacht Club, an NFT collection of 10,000 cartoon apes. Holders are promised access to exclusive events, privileges and products. People spend millions of dollars to claim they are the true owner of an ape with blond hair or heart-shaped sunglasses.
“When I first saw Boredom Ape, 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 and more images 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 quarter, according to internal company documents. $186 million in the fourth quarter.
“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 to it. In July, the startup raised another round of funding, raising $100 million at a $1.5 billion valuation.
“It was really exciting with all the celebrities popping up and all the money grabs,” one former employee said. “People I hadn’t spoken to in years were emailing me...Everyone was watching it.” Here is a chance to get rich.
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 its product director Nate Chastain to resign after some industry insiders discovered that he was using insider information to trade NFTs. Chastains method was simple. Every few days, OpenSea would promote a new NFT series on its homepage. The platform is the de facto place to buy and sell NFTs, which increase in price after being featured on the site. Chastain knows which ones will be picked, so he flips them for a profit shortly after they appear on the homepage. This practice was quite common in the circle at that time,” said one former employee.
Chastain was ultimately sentenced to three months in prison—the first successful prosecution of NFT insider trading by the Department of Justice. Insider trading, however, was just the tip of the iceberg for OpenSea’s problems. Users also complained about site downtime, spam, 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 plight. Another former employee said users joked that OpenSea should be renamed “BrokenSea” (meaning for the Sea of Faults).
“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 large 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, the White Walkers were coming through the door. Get in here.
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 A considerable expense, and one that Finzer and Atallah cut back on just a few months later.
“Our priority has always been to find the best talent wherever we can, 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. $1 billion, bringing OpenSeas valuation to a staggering $13.3 billion. According to Forbes, as of the end of 2021, Finzer and Atallah each owned 19% of OpenSea. On paper, they have become billionaires. (Galper said the report about the co-founders’ stakes in OpenSea was incorrect. However, Forbes did not issue a correction regarding the co-founders’ ownership percentages.)
The companys investors include not only venture capitalists who specialize in the cryptocurrency field, but also well-known figures in and outside Silicon Valley. They include Shark Tank ace Mark Cuban, basketball star Kevin Durant, actor Ashton Kutcher and DJ 3 LAU, all of whom are publicly disclosed investors. According to an internal company document, OpenSeas shareholder list also includes James Musk, YouTube co-founder Jawed Karim, Adobe Chief Strategy Officer Scott Belsky, and Microsofts former head of strategy 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,”
Those who received shares after the Series C round were subsequently barred from selling their equity, two former employees said.
(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 on its way to becoming mainstream, but troubles kept coming. Shortly after Hollander, now OpenSea’s chief technology officer, joined the company, his team discovered a serious vulnerability in the company’s code that could allow an attacker to steal data without sending a single line of code to a victim. While no attack actually took place, Finzer later told employees in 2023 that “it was one of the scariest things that could happen.”
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 have dropped from about $100 billion in January 2022 to $100 billion. OpenSea’s quarterly revenue also fell, to $171 million in the second quarter.
Worse still, 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. Finzer updated employees on the company’s financial situation. Rather than converting crypto funds into less volatile assets, he said OpenSea wanted to walk the talk and support the crypto industry. The only problem? By June 2022, As of January, the price of ETH has fallen by nearly 80% compared to 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, youre not somebodys individual investor. Why take this risk when we have so much upside? one former employee thought after Finzer announced the financial misstep. risk?
Despite its financial struggles, OpenSea still made 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 OpenSea employees were in New York, Finzer held a company-wide meeting to ease any concerns about the company’s future, according to two former employees. Both former employees said the message conveyed by the meeting was It’s 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.
Theres always been a weird vibe between Devin and Alex, and I dont think they really get along together, one employee said.
Another employee said: “I heard they didn’t agree on a lot of things.”
An 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. Once a company starts to scale, it becomes a lot more profitable,” the investor said. became more entrepreneurial, I think he might have said, I want to do 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 that 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, which now looks very different than it did a few months ago. In the third quarter of 2022, revenue plummeted. From $32 million to just $32 million, OpenSea lost more than $27 million. “Morale got really weird really quickly,” said a former employee.
Back to the Dark
In October, a new thorn in OpenSea’s side 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.
Blur was founded by a programmer who goes by the pseudonym “Pacman,” who later revealed himself to be Tieshun Roquerre, a 20-something MIT dropout and Y Combinator graduate. Blur is doubling down on a way to turn NFTs into The idea of financialization: View NFTs as assets that traders exchange back and forth in search of profit.
Many professional traders want to maximize profits, and marketplaces like OpenSea charging royalties cut into their profits. Blur prioritizes the privileges of traders over creators and does not give a royalty fee every time a work is sold on its platform. Artists get a percentage of the proceeds. Combined with the promise of distributing cryptocurrency to its most valuable 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 nearly three times the monthly trading volume of Finzer’s startup, thanks to its promise of an upcoming cryptocurrency offering. , OpenSeas 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 disrupt 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 company’s issuance of cryptocurrencies with cryptocurrency founders and lawyers. Monetary possibilities.
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 crackdown on the cryptocurrency industry. The company has launched a broad crackdown, reaching settlements or filing lawsuits against some of the industry’s biggest players, including cryptocurrency exchanges Coinbase and Binance.
According to former employees, after the NFT.NYC conference in May 2023, OpenSea carried out another round of smaller and undisclosed layoffs. One former employee said: “The joke going around is that everyone is afraid of NFT.NYC because All the layoffs happened after that.”
“The company went through a minor reorganization that resulted in some team structure changes and, as a result, several employees left,” 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 figured out their Target audiences and take targeted actions. They just keep 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 Burning Man, according to Kuo’s Instagram post. Burning Man.
(Galper said this was Finzer’s first vacation 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 with The NFTs issued by Stoner Cats 2 LLC, an animated series backed by Mila Kunis and featuring Ashton Kutcher and Jane Fonda, are unregistered securities. Impact Theory and Stoner Cats 2 agreed to a cease and desist order and paid $6.1 million and $10,000, respectively. $1 million legal fine.
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 request for information, to OpenSea concerning other entities. In addition, according to company insiders, The SEC also assigned a dedicated attorney to OpenSea’s “case” and engaged in “custodial document production” with the agency, according to the filing.
Legal counsel described the back-and-forth as an “SEC matter” and laid out OpenSea’s defense in an internal document. These included that NFTs are not securities, that OpenSea is not a securities exchange or broker, and that OpenSea Protected by the First Amendment and Section 230 of the Communications Decency Act, which shields online operators from liability for third-party content on their platforms. “The SEC does not make decisions based on facts that may or may not exist,” said David Ausiello, a spokesman for the SEC. Investigate and comment. ”
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. Instead of saying “buy, sell or pay on OpenSea,” legal counsel told employees. “Buy on the blockchain,” “Buy using MoonPay (a cryptocurrency payments company)” or “Buy using OpenSea.” The guide states: “It is important to make this distinction clearly as it affects our tax and legal obligations .
Other terms employees should avoid using when talking about OpenSea include “exchange,” “broker,” “market,” “profit,” “share,” “stock,” “trade,” “trader” — terms that are often used to describe OpenSea. A term commonly used to talk about securities that fall under the jurisdiction of the SEC.
There are also so-called “FTC matters,” in which OpenSea filed documents with regulators. The internal documents I obtained provide no further 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 FTCs 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 respond to a request for comment when asked if OpenSea had received a request from the SEC. Wells declined to comment when notified of the lawsuit, a formal notification that a company or person is facing imminent litigation.
The day after I told OpenSea we were planning to publish this story, Finzer announced on Platform X that his startup had received a Wells notice. “We were shocked that the SEC would take such sweeping action against creators and artists. But we Ready to stand up and fight,” he wrote.
Christopher Odinet, a professor at Texas AM University who has studied the legal issues surrounding cryptocurrency, told me, “Usually, when an agency asks a business for documents, 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 the market. An attempt to understand an emerging market.
“The FTC is more likely to make non-investigatory document requests than the SEC is to make investigations,” she said.
At the same time, various tax authorities at home and abroad are also constantly inquiring about OpenSea. For example, according to internal documents, there is a dispute between the Australian Taxation Office (ATO) and OpenSea over whether the startup needs to collect a tax on each NFT sale on its platform. There was repeated communication on fees and taxes paid on 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) does not decide in favor of OpenSea, according to internal discussions in August 2023, OpenSea will be exempt from the tax. According to the figures, Finzers startup will need to bear about $130 million in taxes. 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 at OpenSea, said at a general meeting, according to a document I obtained. ”
Will OpenSea 2.0 arrive as expected?
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 holding a keyboard. His partner dressed up as his “AI girlfriend” with a bloody 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 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 a massive layoff, 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 strategy and product change for which he did not provide many details publicly.
“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. “These changes are necessary,” 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. The real goal is to move from a follower position to a leader.”
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. Huculak said: “We will be an aggregator, not only of chains, but also of protocols, markets, all kinds of liquidity, including tokens.”
According to a source familiar with the new product, the revamp also includes features that make OpenSea more competitive with Blur. “This is just a rebrand of OpenSea Pro,” they said, referring to the OpenSea platform’s dedicated service for NFT speculators. However, a current employee disputed that characterization, saying the relaunch was about more than just upgrading and adding features for traders to track trades. The employee declined to provide further details about the relaunch, though.
“Our plans for 2.0 are confidential,” Galper said in a statement.
Apparently, the new product vision and mass layoffs did not initially inspire employees or investors. Shortly after the transformation, The Information reported that Coatue Management, one of OpenSea’s largest backers, actually sold the startup to the public in the second quarter of 2023. The valuation dropped to just $1.4 billion, a sharp 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 20% salary increase on top of their current salaries. of cash bonuses 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 it,” 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 concluded was 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 how quickly people got back on track,” said another.
NFTs will not end with the demise of 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. While waiting in line in the rain to board the boat, I chatted with James Woods, a collector who The T-shirt features 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 at any NFT-related event or important event in my life,” he said. It worked out great, said Woods, who also wore sunglasses, a sailor hat and a hoodie. He even wore it on a first date at a casino: It worked out great.
Finally, we boarded the ship, which had ice sculptures, a DJ, free food (like a bar mitzvah buffet, one attendee told me), free booze, a gold-plated elevator, and energy drinks. I met a guy who called himself Breads. There were also people talking to him, a man named Toast (the two had a warm reunion), a man who said Cyber Frogs changed his life, and a man holding a stuffed animal named Chonky. Miss.
Most people I chatted with had a bad opinion of OpenSea. After all, I was on enemy territory. “They didn’t double down on supporting the creators that made them the best exchange in the market,” Woods said, referring to OpenSea. Deciding not to enforce the royalty payments, “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, co-founder and COO of Magic Eden. Like OpenSea, Magic Eden is backed by the well-known Backed by venture capital firms, it is valued at more than $1 billion, according to its most recent funding round. “This is not an industry where you can sit down and count chickens,” Yin, who goes by the nickname Z, told me. “Everything is changing very quickly. ”
While Blur has taken away hardcore NFT traders from OpenSea, Magic Eden appears to be cannibalizing OpenSea’s popularity among creators. In February, Yuga Labs, the company behind Bored Ape Yacht Club and other blue-chip NFT collections, joined Magic Eden In April, Yin’s company surpassed OpenSea and Blur in monthly NFT trading volume, according to DappRadar.
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. However, some added that speculation for speculation’s sake is currently a waste of money. The company’s culture doesn’t scale beyond cryptocurrency enthusiasts. “I think the way it’s done is kind of bad,” one former employee said. “I don’t think selling JPEGs is worth it.”
As the yacht party came to an end, 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 collectors items. Dont 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 2024 net income by $2.3 billion, though.) ) In June, transaction volumes on its platform fell to lows not seen before the NFT craze in early 2021, according to DappRadar.
OpenSea is still well-funded. 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.
