Anyone knows the legality of this? NFTs aren’t regulated, right? And OpenSea isn’t legally bound to act on its clients best interests?
OpenSea product chief accused of flipping NFTs with insider information
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Re: OpenSea product chief accused of flipping NFTs with insider information
#12Anyone 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.
Re: OpenSea product chief accused of flipping NFTs with insider information
#13Not 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.
Re: OpenSea product chief accused of flipping NFTs with insider information
#14Just validates that the entire NFT concept is as ridiculous as it sounds.
How does potential insider trading in any way validate NFTs being ridiculous?
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.
Re: OpenSea product chief accused of flipping NFTs with insider information
#15Anyone knows the legality of this? NFTs aren’t regulated, right? And OpenSea isn’t legally bound to act on its clients best interests?
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.
Re: OpenSea product chief accused of flipping NFTs with insider information
#16Not 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…
What does "refer to existing objects" mean? Are these any better than baseball cards or top trumps?
Re: OpenSea product chief accused of flipping NFTs with insider information
#17The 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…
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..
Re: OpenSea product chief accused of flipping NFTs with insider information
#18The 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
Oh man. This level of shame for someone not used to it (e.g. not a public figure) will certainly lead to some trauma.
Re: OpenSea product chief accused of flipping NFTs with insider information
#19[deleted]
Re: OpenSea product chief accused of flipping NFTs with insider information
#20Not 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…
What does "refer to existing objects" mean? Are these any better than baseball cards or top trumps?
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.)