Author Ben Weiss, theverge

Translation by Arain, ChainCatcher

In April, on a cloudy spring afternoon, I attended the 7th NFT.NYC, a paradise for all believers in NFTs with price-tagged monkey JPEG images and other NFTs. That day, the Javits Center was pouring rain, and the themed gathering of the "NFT Super Bowl" felt somewhat abandoned.

"This year's attendance is definitely lower than last year," Ric Johnson, who is promoting an NFT that allows people to vote on whether Donald Trump should go to jail, politely told me.

An attendee named Big Mac (the cryptocurrency community has a strong culture of anonymity) told me that this conference was more like a "preseason" rather than an "NFT Super Bowl."

And Tom Smith, who was selling personified marijuana plant NFTs at a booth, was even more outspoken: "It looks really damn deserted here."

As one of the most well-known companies in the industry, OpenSea was one of the sponsors of this conference, but the 33-year-old co-founder and current CEO, Devin Finzer, was nowhere to be seen. Another co-founder of OpenSea, Alex Atallah (who later distanced himself from the startup), did take the main stage at the initial conference, but he didn't want to talk about the technology that made him and Finzer paper billionaires twice. Instead, he mainly talked about artificial intelligence.

While the value of cryptocurrencies may be rebounding, one hyped narrative from the last cryptocurrency boom has not recovered: NFTs. According to CryptoSlam's data, the monthly total sales of this asset class reached a peak of over $6 billion in January 2022. By July 2023, this number had dropped to below $430 million. NFTs are still holding on, but they are in a difficult situation.

"My mom thinks I'm a scammer," I overheard one attendee saying.

At OpenSea, once the largest NFT trading market, more storms are gathering. This startup, born out of the Y Combinator incubator, is now facing pending lawsuits from the Securities and Exchange Commission (SEC), previously unreported "matters" from the Federal Trade Commission (FTC), scrutiny from U.S. and international tax authorities, intensified competition, allegations of gender discrimination, and employee turnover.

Through 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, a startup inspired by cat JPEG images has evolved into what a former employee called a "lightweight version" of Meta's story, but now seems lost between big tech and cryptocurrency culture.

Emerging from the incubator

Finzer once described OpenSea as a gateway to a vast new internet. But now, as the NFT craze recedes, that statement seems shallow.

In 2017, Finzer, in his early 20s at the time, co-founded a startup with Stanford University graduate and fellow twenty-something tech industry professional Atallah. Initially, Finzer and Atallah planned to use cryptocurrency to pay for sharing Wi-Fi with strangers, and in January 2018, they successfully joined Y Combinator, a renowned incubator that has nurtured tech giants like Airbnb.

It was also around that time that blockchain (a decentralized, uncontrolled database) experienced another wave of hype, with developers promoting a new way to permanently store data on the blockchain. This new method claimed that these tokens were "non-fungible," meaning they were not all the same like Bitcoin. In other words, NFT owners could boast of being the true owners of a cartoon monkey, and this cartoon monkey was recorded in an immutable database.

Industry insiders say these tokens could represent almost anything: property deeds, patents, contracts, virtual real estate rights. But at the end of 2017, a company called Dapper Labs promoted a use case that appealed to ordinary people: CryptoKitties, a game where users could buy and sell cartoon cats on Ethereum (one of the most popular blockchains).

On platforms that some claim to be the next generation of the internet, what circulated was not just JPEG images of cats. There were also CryptoPunks, pixelated images of characters with Mohawk hairstyles and sunglasses; digital trading cards inspired by Pepe the Frog, a meme with a convoluted (sometimes even racist) history; and EtherTulips, virtual tulips that, well, "battle" each other.

Finzer and Atallah noticed this trend and decided to change direction.

"They were very ambitious," John Caraballo told me, a contractor who was hired for three months to write the initial code for the OpenSea website. "They were building something very cutting-edge that no one had done before."

In May of this year, after graduating from Y Combinator (other projects at the time included cannabis-infused soda and VR-based psychotherapy), Finzer and Atallah announced that they had raised $2 million for their NFT marketplace, including support from prominent investors such as Peter Thiel's Founder Fund.

"Some completely different economic systems than we could have ever imagined are going to emerge—we hope to help make them happen," Finzer wrote in a blog post announcing the funding. "Things are just starting to get interesting…"

For nearly three years, the NFT industry was not exciting. According to DappRadar's data, in the entire year of 2020, only a few hundred traders used the OpenSea platform daily. A former employee said that there were fewer than 10 employees at the company at the time.

(OpenSea spokesperson Joshua Galper stated that tens of thousands of people were using the OpenSea website weekly in mid-2020.)

"Their whole lives were OpenSea," the former employee described other team members, including Finzer and Atallah, to me. "It was really interesting, but at the same time very strict and very tense."

Swaying with the wind

Then, in March 2021, the NFT market started to heat up. Artist Mike Winkelmann (better known as Beeple) auctioned an NFT worth $69 million. According to DappRadar's data, the value of NFTs sold on the OpenSea platform more than doubled from the previous month.

OpenSea could take up to a 10% commission from each transaction, and the increase in revenue attracted investors' interest. In the same month, Finzer announced that OpenSea had raised $23 million from investors, including venture capital giant Andreessen Horowitz, valuing the company at $1.23 billion. OpenSea was more eye-catching than ever before, and the company began to expand.

"It was really crazy at the time," a former employee told me. "We were all wearing multiple hats."

The NFT craze continued. After Beeple set a record for the sale of his artwork, a company called Yuga Labs launched the Bored Ape Yacht Club, a series of 10,000 cartoon apes, promising holders exclusive events, privileges, and products. People spent millions of dollars just to claim ownership of a golden-haired or heart-shaped sunglasses-wearing ape.

"When I first saw the bored apes, I thought, 'What the hell is this?'" a former employee said, "and then seeing the prices people were paying for it—crazy."

As more and more apes, punks, cats, and penguins changed hands, OpenSea's commission also increased. According to internal company documents, revenue soared from $9 million in the second quarter of 2021 to $167 million in the third quarter and $186 million in the fourth quarter.

"It was a very interesting period," another employee said, "every time you released a new feature, there was a lot of talk about it."

Suddenly, Finzer and Atallah's trading platform began to generate significant cash flow, and investors flocked to it. In July, the startup raised another round of funding, raising $100 million at a valuation of $1.5 billion.

"Celebrities suddenly emerged, all kinds of money-grabbing behaviors, it was really exciting," a former employee said, "people I hadn't heard from in years were emailing me…everyone saw the opportunity to get rich."

Insider trading, cashing out, options disputes…trouble is brewing

But with the increase in funds, problems followed. "Every stressful thing felt like the end of the world," Finzer said in 2023, looking back on the early days of the company.

In September 2021, OpenSea asked its product lead, Nate Chastain, to resign because some industry insiders found that he was using insider information to trade NFTs. Chastain's method was simple. Every few days, OpenSea would promote new NFT collections on its homepage. As the primary marketplace for buying and selling NFTs, the prices of these tokens would rise after being featured on the site. Chastain knew which ones would be selected, so shortly after the NFTs appeared on the homepage, he would resell them for a profit. "Nate's actions were quite common in this circle at the time," a former employee said.

Chastain was eventually sentenced to three months in prison—this was the Department of Justice's first successful prosecution of insider trading in the NFT space. However, insider trading was just the tip of the iceberg for OpenSea's problems. Users were also angry about website outages, spam or intentionally fraudulent NFT collections, and stolen NFTs. "It was like a bloody carnival," a former employee described the dire situation. Another former employee said that users joked that OpenSea should be renamed "BrokenSea."

"OpenSea has been working hard to maintain responsiveness and attention to users," Galper said.

According to several former employees, to cope with the sudden surge in trading volume and other issues, Finzer and Atallah needed to expand OpenSea's staff and began to bring in talent from large tech companies or with corporate backgrounds.

"There was no internal promotion mechanism in the company," a former employee said.

"They hired these damn beasts, these 'spiders' from companies like Amazon, Facebook, Google," another former employee said, "like in 'Game of Thrones,' the White Walkers coming through the door."

Most of the current leadership team members joined in the second half of 2021 and the first half of 2022, including Chief Operating Officer Shiva Rajaraman and Chief Technology Officer Nadav Hollander. At its peak, OpenSea had about 300 employees—a significant expense, which Finzer and Atallah cut just a few months later.

"Our top priority has always been to find the best talent from anywhere, whether it's from large tech companies, small companies, or native talent in the cryptocurrency industry," Galper wrote.

However, the funding kept coming in at the time. OpenSea's revenue reached a historic high of $265 million in the first quarter of 2022. The two co-founders also completed the largest round of funding to date: $300 million from blue-chip venture capital funds, valuing OpenSea at a staggering $13.3 billion. According to Forbes, by the end of 2021, Finzer and Atallah each owned 19% of OpenSea. (Galper stated that reports about the co-founders' ownership percentages in OpenSea were incorrect. However, Forbes did not issue a correction statement regarding the co-founders' ownership percentages.)

The company's investors included not only venture capitalists focused on the cryptocurrency space but also well-known figures from inside and outside Silicon Valley. These included "Shark Tank" star Mark Cuban, basketball star Kevin Durant, actor Ashton Kutcher, and DJ 3LAU, all of whom were publicly disclosed investors. According to an internal document from the company, OpenSea's shareholder list also included James Musk, YouTube co-founder Jawed Karim, Adobe Chief Strategy Officer Scott Belsky, and former Microsoft Chief Strategy Officer Charlie Songhurst.

According to a source familiar with the transactions, during this round of massive funding, Finzer, Atallah, and a few early employees quietly cashed out some of their shares.

Galper confirmed to me that some employees were indeed able to "sell their shares during the C round of financing," but he did not specify the scale of the profits for Finzer and Atallah.

Galper added, "The team and investors believe that providing some liquidity to those who have put in tremendous effort to reach this milestone for the company is the right thing to do."

Five former employees told me that the co-founders never disclosed the details of this secondary share buyback to the entire staff. "It surprised me a bit because they seemed very transparent in other decisions," one former employee said.

Two former employees said that employees who received shares only after the C round of financing were subsequently prohibited from selling their equity.

(Galper said, "The company does not recall any employees requesting to sell shares to specific investors after the C round of financing.")

"One of the biggest news would be the sale of these secondary market shares. The rest is not so interesting," a former employee said.

Peak to downhill

OpenSea seemed to be heading towards the mainstream, but trouble kept coming. Shortly after OpenSea's current Chief Technology Officer Hollander joined the company, his team discovered a serious vulnerability in the company's code that could allow attackers to receive payment without sending NFTs to the victims. Although no actual attacks occurred, Finzer later told employees in 2023, "This was 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 down. According to CryptoSlam's data, the total market sales plummeted from about $6 billion in January 2022 to just over $1 billion in June. OpenSea's quarterly revenue also declined, dropping to $171 million in the second quarter.

To make matters worse, according to a former employee who attended an all-staff meeting, until the first half of 2022, OpenSea still held most of its cash reserves in the form of ETH (the second-largest cryptocurrency by market cap). At the meeting, Finzer briefed the staff on the company's financial situation. He stated that OpenSea had not converted its cryptocurrency funds into less volatile assets and wanted to be consistent in supporting the cryptocurrency industry. The only problem? By June 2022, the price of ETH had dropped by nearly 80% from November 2021.

OpenSea still generated $171 million in revenue in the second quarter of 2022, but after accounting for losses due to price declines and other debts, the net loss reached $170.7 million.

(Galper questioned this figure but did not provide financial data.)

"I was like, 'What the hell, you're not someone's personal investor. Why take this risk when we have so much room to grow?'" a former employee thought after Finzer announced this financial mistake.

Despite facing financial difficulties, OpenSea still made a splash at the NFT.NYC conference in the summer of 2022.

"I heard OpenSea booked an entire hotel in the city center, is that true?" conference co-founder Jodee Rich asked at a panel at the Radio City Music Hall.

"Sounds about right," Finzer replied with a smile.

According to two former employees, in the same week when most OpenSea employees were in New York, Finzer held a company-wide meeting to alleviate any concerns about the company's future. Both former employees said that the message conveyed at the meeting was clear: no need to worry.

Less than a month later, OpenSea laid off 20% of its staff.

Around the same time, Atallah announced that he would step back from OpenSea but would remain on the board. Former employees were unclear about why Atallah decided to leave.

"Devin and Alex always had a strange atmosphere between them, I don't think they got along very well," an employee said.

Another employee said, "I heard they disagreed on a lot of things."

An anonymous OpenSea investor said that Atallah told him he was leaving on good terms. The investor said, "I think he's the kind of person who likes the early stages of a startup. Once the company starts to expand and becomes more corporate, I think he might say, 'I want to go do the next thing.'"

Atallah denied any suggestion of conflict between him and Finzer in a statement and echoed the investor's view, saying, "I've always enjoyed early-stage work, and ultimately decided I wanted to explore my next venture."

But as Atallah left to pursue his next project, Finzer chose to stay and lead the startup, and the company's situation seemed very different from just a few months earlier. In the third quarter of 2022, revenue plummeted to just $32 million, and OpenSea incurred a loss of over $27 million. A former employee said, "Morale quickly became very strange."

Back to the dark

In October, OpenSea faced a new thorn in its side: a new NFT trading marketplace called Blur. OpenSea had once almost monopolized billions of dollars in NFT trading volume. But soon, it had to fight for scraps.

Blur was founded by a programmer using the pseudonym "Pacman," who later revealed his real identity as Tieshun Roquerre, a dropout in his twenties from MIT and a Y Combinator graduate. Blur doubled down on the idea of financializing NFTs: treating NFTs as assets for traders to exchange back and forth to seek profits.

Many professional traders wanted to maximize their profits, and marketplaces like OpenSea charging royalties would cut into their profits. Blur prioritized traders' privileges over creators and did not give artists a certain percentage of the sales on its platform. Combined with the promise of distributing cryptocurrency to its important 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, with the promise of upcoming cryptocurrency releases, Blur had surpassed OpenSea, with its monthly trading volume almost three times that of Finzer's startup. Meanwhile, OpenSea's quarterly revenue continued to decline, dropping to $23 million in the fourth quarter of 2022 and further to $19 million in the first quarter of 2023.

Finzer felt the need to respond. A former employee said, "The sudden rise of Blur disrupted all of our product visions. It was a disaster."

A current employee disagreed with this description. They told me, "As far as the emergence of Blur is concerned, it didn't really disrupt my work. I continued to develop projects and work as usual."

Several former employees told me that OpenSea quickly abandoned its mission to bring NFTs to the masses and instead decided to cater to speculators. According to a source familiar with the matter, Finzer even discussed the possibility of the company issuing its own cryptocurrency with cryptocurrency founders and lawyers.

Galper confirmed that company executives had discussed the issuance of cryptocurrency in the past, stating, "OpenSea has always been focused on long-term development rather than short-term changes in the competitive landscape."

But issuing tokens would be a highly risky move, as the U.S. Securities and Exchange Commission (SEC) has repeatedly asserted that the vast majority of cryptocurrencies are unregistered securities. After the collapse of FTX in November 2022, the SEC launched a broad crackdown on the cryptocurrency industry, 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 conducted another round of smaller and undisclosed layoffs. A former employee said, "The joke going around was that everyone was afraid of NFT.NYC because all the layoffs happened after it."

Galper wrote, "The company underwent a small-scale reorganization, resulting in some changes in team structure, and as a result, a few employees left."

In August, the trading platform announced that it would stop enforcing creator royalties, which left some employees feeling very disheartened. 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 taken targeted action. They're just constantly groping."

SEC regulatory storm

As the controversy over OpenSea's decision to cancel royalties unfolded, according to Kuo's Instagram post, Finzer and his partner, Yu-Chi Kuo, a former cryptocurrency hedge fund manager, left New York for a "desert adventure" to attend Burning Man.

(Galper said this was Finzer's first vacation in over a year.)

While 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 Quest Nutrition's founder, were unregistered securities. Just a few weeks later, the SEC also charged Stoner Cats 2 LLC, the entity behind Stoner Cats (an animated series supported by Mila Kunis, featuring Ashton Kutcher and Jane Fonda), with issuing unregistered securities through NFTs. Impact Theory and Stoner Cats 2 agreed to cease and desist and paid legal fines of $6.1 million and $1 million, respectively.

Some OpenSea employees were unaware that their company was involved in two separate regulatory "matters." The SEC had issued a third-party subpoena to OpenSea, which is a compulsory request for information involving other entities. Additionally, according to internal documents, the SEC had assigned a dedicated lawyer to OpenSea's "case" and was engaged in "document production."

The legal advisor described this back-and-forth as "SEC matters" and listed OpenSea's defense reasons in an internal document. These reasons included: NFTs are not securities, OpenSea is not a securities exchange or broker, and OpenSea is protected by the First Amendment and Section 230 of the Communications Decency Act, which states that online operators are not responsible for third-party content on their platforms. SEC spokesperson David Ausiello said, "The SEC does not comment on the existence or non-existence of investigations."

Cat and mouse game

OpenSea spokesperson Galper confirmed that OpenSea had received requests from the SEC since 2022. He said, "As part of our standard practice, we cooperate with regulatory and enforcement agencies, and we are committed to complying with applicable laws and regulations."

While some employees were unaware of the SEC's matters, a vocabulary guide instructed employees to use appropriate terms when discussing NFTs and OpenSea publicly or with each other. Legal advisors told employees not to say "buying or paying on OpenSea" but to say "purchasing on the blockchain," "purchasing using MoonPay (a cryptocurrency payment company)," or "purchasing using OpenSea." The guide stated, "It is important to make this distinction clear, as it will affect our tax and legal obligations."

Other terms to avoid when discussing OpenSea included "exchange," "broker," "market," "profit," "shares," "stocks," "trading," and "traders"—terms typically used in discussions of securities, falling under the SEC's jurisdiction.

There was also the so-called "FTC matters," in which OpenSea had submitted documents to regulatory agencies. The internal documents I obtained mentioned the existence of this back-and-forth but did not provide further details, and the FTC did not respond to requests for comment.

Galper confirmed that OpenSea had received document requests from the FTC and said the last time the company submitted documents to the agency was in August 2023. He declined to specify why the FTC and SEC had requested documents from OpenSea and did not comment when asked if OpenSea had received formal notices from the SEC indicating that a company or individual was about to face litigation—Wells notices.

The day after I informed OpenSea that we planned to publish this report, Finzer announced on X platform that his startup had received a Wells notice. "We are shocked by the SEC's comprehensive action against creators and artists. But we are ready to stand up and fight," he wrote.

Christopher Odinet, a professor at Texas A&M University who has researched legal issues surrounding cryptocurrencies, told me, "Typically, when an agency requests documents from a company, it's because they believe something is amiss."

Christa Laser, a professor at Cleveland State University who has also researched the intersection of cryptocurrencies and the law, said that while the FTC's information requests may stem from suspicions about OpenSea itself, its interest in the NFT market may simply be an attempt by regulatory agencies to better understand an emerging market.

She said, "Compared to the SEC, the FTC is more likely to make non-investigative document requests rather than investigations."

Meanwhile, various tax authorities at home and abroad continue to make inquiries to OpenSea. For example, according to internal documents, the Australian Taxation Office (ATO) has repeatedly communicated with OpenSea about whether the startup needs to pay taxes on the fees it collects for each NFT sale on its platform and the full price of the NFT.

According to company documents, in early October, OpenSea's legal team flew to Australia to argue that its platform should be exempt from more stringent tax measures. If the Australian Taxation Office (ATO) does not make a decision favorable to OpenSea, according to internal discussions in August 2023, Finzer's startup would need to pay approximately $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 also declined to comment for similar reasons. Tax authorities in India and Taiwan did not respond to requests for comment.

OpenSea spokesperson Galper declined to comment on the company's communication with tax authorities.

According to a document I obtained, former Chief Legal Counsel of OpenSea, Gina Moon, said at a company-wide meeting, "We have indeed piqued the interest of policymakers and regulatory agencies, and in the end, the courts and the public will see our point of view."

Will OpenSea 2.0 arrive as planned?

On Halloween, as OpenSea's quarterly revenue dropped to its lowest level since the NFT craze began, 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 as an "AI hacker," wearing glasses, a hoodie with the OpenAI logo, and holding a keyboard. His partner dressed as his "AI girlfriend," carrying a blood-stained knife and what looked like a mechanical prosthetic limb.

(OpenSea spokesperson Galper countered that Finzer's costume was a last-minute improvisation, and he only appeared for photos, rushing home to take work calls after walking the orange carpet, continuing to plan a major overhaul for his startup.)

Three days later, on the same day that former FTX CEO Sam Bankman-Fried was convicted of fraud, OpenSea announced a large-scale layoff, resulting in over 100 employees leaving, about 56% of the total workforce. Finzer announced on X that he was "realigning the team around 'OpenSea 2.0'," a strategic and product overhaul for which he did not provide many details publicly.

"This is a huge gamble, and quite radical," he later told employees.

According to a memo from Finzer to employees, departing employees received a 4-month cash severance and other benefits such as 6 months of health insurance.

Finzer invited the remaining employees to an offsite meeting to discuss the company's new direction. According to a document I obtained, at a company-wide meeting, he said in a Hollywood mansion that once belonged to Katy Perry and Russell Brand, "The real goal of these changes is to transition from a follower to a leader."

According to Lorens Huculak, a member of the executive team, OpenSea plans to "become the gateway to Web3," referring to the concept of the future internet being based on blockchain. The startup plans to rewrite most of its code to make it easier for users to track crypto transactions on the platform without needing to visit other websites. Huculak said, "We will be an aggregator, not only of chains, but also of protocols, markets, various liquidity, including tokens."

According to a source familiar with the new product, the product revamp also includes features to make OpenSea more competitive with Blur. "It's just a repackaging of OpenSea Pro," they said, referring to the section of the OpenSea platform specifically for NFT speculators. However, a current employee disputed this description, stating that the relaunch is not just an upgrade for traders and adding tracking features. However, the employee declined to provide more details about the relaunch.

Galper said in a statement, "Our plans for 2.0 are confidential."

Apparently, the new product vision and large-scale layoffs did not initially inspire employees or investors. Shortly after the transformation, The Information reported that Coatue Management, one of OpenSea's biggest supporters, actually lowered the startup's valuation to just $1.4 billion in the second quarter of 2023, a significant decrease from nearly two years ago when it was $13.3 billion.

Subsequently, several senior executives at OpenSea resigned after the layoffs, including the Chief Legal Counsel, Vice President of Operations, HR Director, and Communications Director. According to internal communications, OpenSea offered the remaining employees a 20% cash bonus on top of their existing salaries to retain them.

"We pay people to leave who don't want to stay at OpenSea, and those who believe in the company's future choose to stay and help us build," Galper said.

According to internal documents, during the wave of resignations, executives were concerned that there were no women among the remaining engineers or product managers, especially as some departing employees complained of gender discrimination.

(OpenSea had previously hired an external investigator to look into one of the complaints, and the investigator found that the complaint was unfounded.)

Galper said in a statement, "If we receive employee complaints, we take them seriously and investigate them promptly. No allegations of gender discrimination have been substantiated, and we have never been involved in any litigation, arbitration, or mediation on this subject."

One employee said, "There's a lot less chatter now, like Slack messages and meetings." Another said, "I'm pleasantly surprised that people have quickly gotten back on track."

NFT won't end with OpenSea's decline

On the same spring day that I visited NFT.NYC, I went to a pier on the Hudson River.

OpenSea's competitor, Magic Eden, was hosting a so-called "Degen Yacht Party" on a floating casino boat. In the rain, I queued to board and chatted with James Woods, a collector with NFT images printed on his T-shirt: 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," Woods said, also wearing sunglasses, a sailor hat, and a hoodie. He even dressed like this on his first date at the casino: "It worked well."

Eventually, we boarded the boat. There were ice sculptures, a DJ, free food (one participant told me it was like a buffet at an adult ceremony), free drinks, a gold-plated elevator, and energy drinks. I chatted with someone called "Breads," another called "Toast" (they had a passionate reunion), someone whose life was changed by "Cyber Frogs," and a lady holding a plush toy named "Chonky."

Most of the people I talked to had negative opinions about OpenSea. After all, I was on enemy territory. "They didn't double down on supporting the creators that made them the top trading platform in the market," Woods said, referring to OpenSea's decision not to enforce royalties, "Instead, they betrayed all of us."

The yacht rocked back and forth in the rain, but we never left the dock. The storm was too intense. Finally, on the third floor, I chatted with Yin Zhuoxun, co-founder and COO of Magic Eden. Like OpenSea, Magic Eden has also received support from well-known venture capital firms, with a valuation of over $1 billion according to a recent funding round. "This is not an industry where you can sit down and count your chickens," Yin told me, his nickname is Z, "Everything is changing rapidly."

While Blur has taken away loyal NFT traders from OpenSea, Magic Eden seems to be eating into OpenSea's popularity among creators. In February, Yuga Labs, the company behind the Bored Ape Yacht Club and other blue-chip NFT collections, launched a competitive marketplace with Magic Eden. In April, according to DappRadar data, Yin's company surpassed OpenSea and Blur in monthly NFT trading volume.

Despite market turmoil, most of the people I interviewed who have economic interests in the NFT industry are optimistic about its future.

"If anyone thinks that OpenSea's decline means NFTs are dead, they are wrong," TJ Fuller, co-founder of Forgotten Runes, a fantasy project that allows fans to own characters in NFT form, told me. He believes the technology is still innovative: "Where we trade NFTs doesn't matter."

Most of the former OpenSea employees I interviewed also see future use cases for these tokens: tickets for live events or items that users can more clearly claim in video games. However, some added that the current culture of speculation for the sake of speculation cannot expand beyond cryptocurrency enthusiasts. "I think the way it's done now is a bit bad," a former employee said. "I don't think selling JPEG images is worth it."

As the yacht party was coming to an end, I stepped off the dance floor, pushed past a man playing the flute like a member of Metallica, and bid farewell 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."

For OpenSea, this may be good advice. According to an internal document I obtained, the company lost about $30 million in the first three quarters of 2023. (However, it expects the layoffs in November to reduce expenses in 2024.) According to DappRadar data, in June, the trading volume on its platform dropped to a low not seen since the beginning of the NFT craze in early 2021.

OpenSea still has ample funds. According to an internal document, as of November 2023, it has $438 million in cash and $45 million in cryptocurrency reserves, relying on these funds to help it weather the storm with the "2.0" transformation.

Finzer once said he hoped his startup could build an ocean, not an aquarium.

But if the NFT market continues to decline, OpenSea will not lead the ocean of digital collectibles—it will drown in the water.

Original article link: https://www.theverge.com/24161573/opensea-crypto-nfts-workplace-rise-fall

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