[HN Gopher] OpenSea product chief accused of flipping NFTs with ... ___________________________________________________________________ OpenSea product chief accused of flipping NFTs with insider information Author : jbegley Score : 70 points Date : 2021-09-15 20:33 UTC (2 hours ago) (HTM) web link (www.theverge.com) (TXT) w3m dump (www.theverge.com) | d--b wrote: | Anyone knows the legality of this? NFTs aren't regulated, right? | And OpenSea isn't legally bound to act on its clients best | interests? | dcolkitt wrote: | Not against the law at all. If market manipulation and insider | trading of art was illegal half the gallery owners, collectors | and critics in New York and London would be in jail. | | Bad look for OpenSeas and unethical? Sure. | space_rock wrote: | You can't rig an auction. That's illegal. eBay can't trade in | it's own items to get the prices higher | [deleted] | mekkkkkk wrote: | Anyone surprised by this must be living under a rock. NFTs and | crypto in general has turned into mostly an unregulated | playground for market manipulation. | | It's sad to see these fantastic technologies falling into | darkness. Same can be said about the majority of the internet and | its phenomenon to be honest. | space_rock wrote: | I was agreeing with you until you said fantastic technology. | Crypto has always involved outrageous fraudulent claims about | the technology in its sales pitches. The technology they sell | does not exist. Decentralised trading is still incomplete | research. It's vaporware | brightball wrote: | Just validates that the entire NFT concept is as ridiculous as it | sounds. | ryanSrich wrote: | How does potential insider trading in any way validate NFTs | being ridiculous? | dreyfan wrote: | Because it's all a sham and the monetary success of a | particular drop is contingent upon how well it's advertised. | By knowing when and what drops would be featured, that was | the information asymmetry he was exploiting. There is nothing | fundamentally useful about a single NFT so far. It's all | speculative bullshit in every sense of the imagination. This | is just the ICO scams of 2019 regurgitated [1]. | | [1] https://en.wikipedia.org/wiki/Greater_fool_theory | vkou wrote: | > There is nothing fundamentally useful about a single NFT | so far. | | If NFTs were useful, they'd be securities, and would be | regulated by the SEC. | | The entire point of NFTs is that they are naked, useless, | purely speculative instruments. It's a big blackjack table, | except unlike in Vegas, the house has an edge. | SkyMarshal wrote: | Most NFTs are technologically uninteresting for one reason or | another. | | Either the actual art exists off-chain somewhere and there's | just a hash of it onchain, which the "owner" controls with | the private key of the transaction or contract the hash is | in. But the art can still be copy-pasted all over the | Internet and the only way to prevent rando's from using it | for free is with traditional copyright law, so it's not | actually decentralized. | | Or the art itself is onchain but it's just some avatar | manually drawn in Microsoft Paint (cryptopunks I'm looking at | you) and not pseudo-randomly procedurally generated in the | smart contract or anything technologically novel and notable | like that. | | The concept of NFTs is interesting and may lead to something | truly cool someday, but most of the implementations right now | are trash. | dcolkitt wrote: | Don't you remember that time someone got caught insider | trading stocks and it made everyone realize that the joint | stock corporation was a bad idea. | iblaine wrote: | Reminds me of a situation where I worked at an affiliate network | that tracked ads and commissions. Adsense was relatively new back | then and I figured out how to match impressions to clicks to | AdWords keywords to sales. You could approximate the ROI/click | for keywords on Google and to some extent SEO. The reaction from | upper management was excitement then fear that the tool would get | out, which it eventually did. Surely this will be a learning | experience for OpenSea. It does happen. Here's another example. | [1] | | [1] | https://www.theatlantic.com/business/archive/2015/10/draftki... | Animats wrote: | Not clear whether this is even illegal, though. As long as they | refer to existing objects, they're not securities, and since | they're all different, they're not commodities. So they escape | both SEC and CFTC regulation in the US. (The UK's Financial | Conduct Authority, though...) That's the whole point of NFTs. | | In 2019-2020, the SEC cracked down on Initial Coin Offerings. | They grandfathered in the early coins, and shut down some out and | out scams. Then the SEC started sending out letters, "explain to | us why your ICO isn't a security offering requiring registration | as an IPO". Suddenly there was a huge drop in ICOs. | | So then came NFTs, which looked like they were going to evade | regulation. Then some of the NFT issuers started making NFTs | which looked like IPOs. Selling land in virtual worlds that don't | exist yet, for example. That's a no-no. That passes the Howey | Test - value paid into a common enterprise, with the expectation | of future gains, to be derived from the efforts of others. That's | the definition of an investment in the US. If the value of an NFT | depends on the _future_ efforts of the organization involved with | the NFT, it 's a security. | | That doesn't quite seem to be the case here, though. It's legal, | and fairly common, for an art dealer to front-run artworks or | have shill buyers. You're supposed to know what the art is worth. | | Selling NFTs in bulk, though, might start to look like a security | for regulation purposes. Selling fractional shares in NFTs | definitely is. The SEC is working on a guidance memo. If you're | starting up an NFT, you definitely need some time with a | securities lawyer. Remember, the whole point of most NFTs is to | try to evade securities regulation. That comes with serious legal | risks. | | [1] https://www.howeycoins.com | space_rock wrote: | Can eBay pump up the price of it's own items with fake trading | bots? No that's fraud. There are laws around auctions and | trading. I'm guessing it's illegal | Y_Y wrote: | What does "refer to existing objects" mean? Are these any | better than baseball cards or top trumps? | vkou wrote: | I don't think 'refer to existing objects' is the meaningful | bit, here. You can print and sell and trade and auction | baseball cards of players that don't exist, and they'll still | be regulated the same way as baseball cards of players who | do. (Which is to say, not at all.) | | I think the meaningful bit is whether or not an NFT is a | baseball card, or ownership of... Some yet to be generated | value, somehow derived from a baseball card. | | The latter is obviously a security, the former is, to my | layman eyes, probably not. | | Continuing on this train of thought, it should be worth | noting that useless things (Ownership of a baseball cards) | are not regulated, but useful things (Ownership of a stake in | the value generated by a baseball card) are regulated. | | It makes sense, in a perverse way - if someone wants to spend | their money on a useless thing, that's on them. If someone | wants to spend their money on a useful thing, then, well, the | buyer should expect some assurance that they are not being | completely lied to and swindled. (Which is why the SEC | regulates securities markets, and not art auctions.) | [deleted] | HashThis wrote: | This makes OpenSea corrupt. | qeternity wrote: | The entire crypto world is like this. | | MtGox pumping and wash trading with Willy bot. Bitmex trading | against and liquidating customers. Coinbase hiring Litecoin | creator Charlie Lee and having him frequently wash trading 99% of | LTC volume. Each of these has been _the_ preeminent exchange at | some point in time, just as OpenSea is for NFT. | | FTX was born from one of if not the largest crypto trader/market | maker, and one of two known Tether customers (who apparently | account for a large majority of Tethers). Alameda was the | only/largest liquidity provider on FTX for some time. Binance has | been similarly accused (without solid proof) of trading against | customers. Of course they claim to have walls between these | relationships. But then again, so did Mt Gox, Bitmex, Coinbase, | OpenSea and loads of others that would take too long to mention. | | Crypto is a casino where there are a handful of dealers that are | running thousands of tables. They are all colluding. The grift is | to exchange real fiat currency for chips at their casino. | | It has been proven at a shocking number of blue chip institutions | (dare I say a majority). Given our expected likelihood of | uncovering these things, it seems highly probable that it's | happening everywhere. | felixbraun wrote: | IMO people overestimate how much alpha is in knowing your | customer's positions (as exchange owner). | | Open interest, volume and price data down to seconds is | available via APIs in real-time, from which it is absolutely | possible to build a model of positioning. | | If you launch a new exchange, your biggest problem is lack of | liquidity, meaning user's limit positions won't fill 'timely' | and market orders slip, which is very bad UX obviously. | | That is why it is fairly obvious that one of the best market | makers in the industry launched their own exchange; Alameda | could provide excellent liquidity from day one for FTX, which | was ultimately what led to their success in a very competitive | environment. | thebean11 wrote: | I wonder if this is actually unique to crypto, or if it's | common in any industry where participants have a massive | financial incentive to "cheat"? There's plenty of instances of | hedge funds and stock traders acting like this. I bet there | would be more if they were under as little regulation as the | crypto exchanges.. | qeternity wrote: | Well, I spent most of my career as a hedge fund trader so I | can also comment on this: of course everyone is looking for | the upper hand and people will bend or break rules to achieve | this. But this is universal to all games, and fundamentally | the game is fair. | | In crypto, the game is not fair. The refs are players and | there are no rules. | thebean11 wrote: | Could you be more specific about what makes crypto less | fair than the other markets hedge funds trade in? | qeternity wrote: | Read my original comment. For all of the Occupy Wall | Street rhetoric, overwhelming majority of people in | finance are law abiding participants. That's not to say | that they're particularly moral or honest people. But in | regulated markets, regulators seek to make rule breaking | a negative EV outcome, so rule following becomes the | logical behavior for a self interested actor. Regulators | might not always succeed, but it still shifts the outcome | distribution massively. | | In crypto, the opposite is true. Because there are no | penalties, otherwise malicious behavior is encouraged. | First and foremost: exchanges trading against customers. | This would never be allowed in a regulated market, just | like we would never allow judges to wager on the cases | over which they preside. It creates a horrible conflict | of interest. But in crypto, conflicts of interest are the | most successful business models (across a load of | projects). | | Crypto is mostly regulatory arbitrage. I'll be the first | to change my mind when the facts change, and maybe I'm | just not as visionary as every other lambo hopeful. But | as it stands today, this is the reality. | thebean11 wrote: | Let's say hypothetically all financial regulation is | lifted tomorrow, I have a hard time believing the current | "honest" participants won't have a similar free for all. | | We may be saying the same thing: the difference is the | regulation, not the moral character of participants. | geofft wrote: | But the _entire_ value proposition of cryptocurrency is | how difficult it is to regulate via traditional law | enforcement mechanisms. | | Which can be used for good, of course - the standard | example being things like "transferring money across | immoral embargoes". But in this case, if the difference | is regulation, then the question for ordinary folks who | are not themselves trying to pull a scam is - would you | rather work with dishonest con men who believe they will | get in trouble with law enforcement if they actually con | you, or with dishonest con men who believe they can get | away with it? | bko wrote: | > This transparency has historically allowed users to protect the | community by uncovering elaborate scams, such as when | "cybersleuth" Fedor Linnik discovered that the team behind a | million-dollar "female-led" project was actually Russian men. | | This made my chuckle. The article that it links to was aptly | titled "This $1.5 million 'women-led' NFT project was actually | run by Russian dudes" [0] | | Since so much is driven by identity, is there a service where you | can rent out front people to "lead" the team that check the right | boxes? Kind of like the those ghost board members that sit on | thousands of board of directors on Cayman Islands shell corps and | just do what management says? | | [0] https://www.inputmag.com/culture/fame-lady-squad-nft- | women-m... | rchaud wrote: | > Since so much is driven by identity, is there a service where | you can rent out front people to "lead" the team that check the | right boxes? | | Like much of modern crypto-centric products, this is a solution | in search of a problem. People are accustomed to going in | headfirst without knowing who is behind these projects. It's | 'decentralized' and features 'smart contracts' for 'trustless | commerce'. What more do you need? | vkou wrote: | > Since so much is driven by identity, is there a service where | you can rent out front people to "lead" the team that check the | right boxes? | | Yes, it's called stock photography. Buy a couple of pictures of | smiling people from a peddler of it, and stick them on your | website's 'About Us' section. | aresant wrote: | The NFT community has been processing this news by changing their | Twitter handles to Nate's with his imagined excuses and | explanations -> | | https://twitter.com/BoredPimp/status/1437989964680032264 | | https://twitter.com/nogoodlogan/status/1438014313722040322 | | https://twitter.com/Milkman2228/status/1437971018950250499 | chejazi wrote: | Oh man. This level of shame for someone not used to it (e.g. | not a public figure) will certainly lead to some trauma. | space_rock wrote: | Criminals and scammers are not normally the sensitive types ___________________________________________________________________ (page generated 2021-09-15 23:00 UTC)