What is a real ape? On OpenSea, the internet's most popular NFT marketplace, answering that question incorrectly can be costly. Last year, Bored Apes—cartoon primates linked to unique cryptocurrency tokens—skyrocketed in popularity. Now the cheapest cost $309,000, and OpenSea is crawling with imitations and rip-offs. Two projects featuring flipped versions of original Bored Apes, called Phunky Apes Yacht Club (PAYC) and PHAYC, vied for the title of authentic knockoff of the coveted simians; other apes, of which there are many, were just straight-up copypastas.
In December OpenSea banned PAYC and PHAYC, a step that elicited grumbles from the crypto crowd whose splurge has fueled the recent NFT craze. The move went against OpenSea’s self-styled image as a champion of Web3, a decentralized version of the internet free from censorship or gatekeeping. A few days later, a blog post by former Signal CEO Moxie Marlinspike, whose experimental NFTs were removed by OpenSea, gave the impression that OpenSea risked becoming another traditional tech platform, the “How do you do, fellow kids?” to the edgy Web3 insurgency.
OpenSea is trapped between a rock and a hard place: Its phenomenal growth has brought it more revenue, partnerships with tech giants like Twitter, and funding, but also a cartload of headaches as the company struggles to keep up with emerging security incidents and endless copycat NFTs. If OpenSea gets around to handling those issues, it could face a scornful backlash from cryptocurrency hard-liners, which has already resulted in the launch of a rival NFT marketplace overtly designed to poach its customers.
On the other hand, digital art creators, for whom the rise of NFTs has repeatedly been described as a boon, think that OpenSea does not go anywhere near far enough in banishing plagiarism and bad behavior. The person behind @NFTTheft, a Twitter account devoted to exposing plagiarism on OpenSea and other NFT stores, is scathing. “When I first heard the word ‘OpenSea,’ I thought that piracy was its goal from the start,” they say, requesting anonymity out of fear of harassment from plagiarists. “This is now the main place for piracy.”
One can pinpoint the exact decisions that made OpenSea a success story and a huge problem in the same breath. In December 2020, the company announced that everyone would be allowed to “mint” their NFTs on the platform free of charge; three months later, that was compounded by the announcement that NFT collections would no longer need OpenSea’s previous approval to be listed. That model was in stark contrast with that of highbrow NFT platforms like Nifty Gateway or Superrare—which featured highly curated art collections—and ended up making OpenSea the biggest NFT marketplace on the web. In August 2021, it reported a monthly transaction volume of $3.4 billion, equivalent to $85 million in revenue, as OpenSea extracts a 2.5 percent transaction fee. A venture capital bonanza followed from marquee players such as investment houses Andreessen Horowitz and Paradigm, and Hollywood actor Ashton Kutcher, giving the company a valuation of $13.3 billion. In January, Twitter announced that it would use OpenSea’s API to let people create hexagonal NFT-based profile pictures. (Twitter declined to comment on the wisdom of partnering with OpenSea in light of the recent incidents.)
Then, on January 26, OpenSea tried to curtail the amount of fake NFTs on the site. It announced that free, unlimited minting was coming to an end: Each user would be limited to up to five collections, each containing no more than 50 NFTs. Backlash ensued, and the decision was reversed within 24 hours. In a backpedaling Twitter thread, OpenSea stated that over 80 percent of NFTs minted that way consisted of “plagiarized works, fake collections, and spam.” One day later, another PR disaster. OpenSea users started complaining that bots were on the prowl to exploit an outdated listing mechanism that would allow them to snap up NFTs at below-market prices. The design flaw led OpenSea to issue “over 2K ETH [$6.2 million] in reimbursements to community members who were impacted,” according to company spokesperson Allie Mack. That came on top of reports of NFT thefts, market manipulation, and security vulnerabilities that dogged the platform throughout 2021.
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OpenSea has been paying the consequences of its lightning growth. Launched in 2017 with backing from startup accelerator Y Combinator, as of March 2020 the company counted five employees when it suddenly found itself at the epicenter of a global NFT frenzy. “OpenSea was really at the foundation of the NFT industry, and they were just not able to support this crazy growth,” says Gauthier Zuppinger, cofounder of NFT data provider NonFungible. Zuppinger has met OpenSea cofounders Devin Finzer and Alex Atallah on several occasions and describes them as “shy, focused, hard-working,” more akin to Mark Zuckerberg than to brash crypto-bros. Still, OpenSea was booming too much too fast. “Even with a lot of profit, you're not always able to hire the right guys at the right time, and build the required infrastructure to support such crazy growth,” Zuppinger says.
These issues might just come down to growing pains. “As you scale a company, you're going to be introducing more people—and as you introduce more people, your level of code quality is going to vary across the different hires,” says Taylor J. Dawson, a software engineer who worked as OpenSea’s founding engineer from February to June 2020, and now works for blockchain infrastructure company Blocknative Corporation. Dawson interprets OpenSea’s struggles as natural consequences of the company’s expansion, and stresses Finzer and Atallah’s “attention to detail” when it comes to developing their platform.
Yet OpenSea’s attention to detail didn’t seem to extend to security, arguably the most crucial part of the platform. The company hired its first chief security officer in December 2021. Before that, OpenSea’s Mack says, the platform’s security was overseen by vice president for engineering Dan Roelker, who had worked for DARPA’s cyberwarfare program from 2011 to 2014, according to his LinkedIn profile. Roelker himself joined the company in August 2021. Dawson says that when he worked for OpenSea in 2020, no one in particular was in charge of security. A cryptocurrency expert with knowledge of OpenSea’s operations, speaking anonymously to avoid jeopardizing potential business relationships with the company, describes OpenSea’s course of action on security matters as “years behind what needs to be done.” They blame OpenSea's own decision to make NFT minting open and free to everyone as the cause for the explosion of NFT plagiarism that the platform was unable to quash.
The activist behind @NFTTheft says that, as of October 2021, the majority of plagiarized art reported to the Twitter account concerned NFTs minted on OpenSea. That, the person behind the handle says, is a shift from March 2021. “Before, plagiarism was distributed among different marketplaces: now, OpenSea is the main source,” they say. @NFTTheft says that thieves initially made NFTs out of artwork scraped from DeviantArt—an online artist community that has been aggressively fighting art theft—but that more recently they started lifting images from Twitter or Steam. In their view, OpenSea is too slow at responding to reports of stolen art and copyright infringement, which they say can take up to a week. In @NFTTheft’s opinion, OpenSea has no incentive to remove plagiarized art from its platform, as that would alienate customers who have unwittingly purchased illicit NFTs, who would end up with no NFT and no refund from OpenSea.
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Mack, the OpenSea spokesperson, says that the company’s “policies prohibit plagiarism and copyminting, which we regularly enforce in various ways, including delisting and in some instances, banning accounts,” and that OpenSea is developing technology—including automated moderation, image recognition, and enhanced search tools—to better address the problem. Mack says that the company is aiming to respond to customer reports in less than 72 hours on average (rather than the week artists claim it takes to get a response) and is planning to have a team of “nearly 200 people” in customer support by the end of the year, having already added more than 100 in the past two months.
It’s debatable whether that will be enough to win over @NFTTheft and other digital artists, as well as the advocates of decentralization and cryptocurrency, many of whom are avid NFT buyers. Centralized content moderation is kryptonite for the crypto crowd—a mark of the Big Tech companies that, in the Web3 narrative, are supposedly destined for the dustbin of history. And OpenSea’s Web3 credentials have already been called into question: The company’s closed-source technology, its decision to raise funds from VCs rather than by selling a token to its supporters, and rumors of an imminent IPO—later quashed—earned it hostility in some quarters. That culminated, on January 10, in the launch of rival NFT marketplace LooksRare. LooksRare adopted a more decentralized architecture, redistributing the ether cryptocurrency from its 2 percent transaction fees to users who had bought its $LOOKS tokens; crucially, LooksRare doled out free $LOOKS tokens to users with a significant history of trading on OpenSea, in a bid to lure them away from the platform—a move cryptocurrency media dubbed a “vampire attack.”
“LooksRare was made to create an NFT marketplace that’s by NFT people, for NFT people,” says a LooksRare spokesperson going by the name Slug, relaying comments from several members of the all-pseudonymous management team. “$LOOKS stakers earn platform fees, whereas the platform fees from most other markets we’re aware of go to a central entity. When you compare the models, which approach is more vampiric?” LooksRare’s trading volume has zoomed past OpenSea’s, but researchers have pointed out that most of it came from “wash trading”—that is, from accounts buying their own NFTs in order to inflate prices.
Jamie Burke, the founder and CEO of London-based VC firm Outlier Ventures, says that the showdown between OpenSea and LooksRare is healthy for both the companies and the NFT industry at large. “I think having competition makes people stay innovative,” he says. “Intellectually, I'm interested in seeing how these two different models compete, seeing them duke it out and see the pros and cons.” As things stand, Burke says, “OpenSea is the standard” for NFT companies. And the work with Twitter on NFT profile pictures demonstrates that it is opening up its API to partners, which Burke sees as positive.
That will still not sort out OpenSea’s unresolved oscillation between Web3 libertarianism and Web2 responsibility. The incentives, the cryptocurrency expert with knowledge of OpenSea’s operations says, are diabolically aligned: Going for a curated, sanitized model would cost OpenSea a big slice of the NFT crowd that longs for a Wild West ecosystem, but staying on the current light-touch course would bring about an endless string of PR crises. “They're going to want to keep the ‘anything goes' environment while doing just enough moderation to look like they're making a sufficient best effort,” the anonymous cryptocurrency expert says. “They want it to be ‘anything goes’ but they need to do just a little bit of work to get the heat off their backs all the time.”
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