At first he thought it was a nightmare.
Kodiak, who goes by that pseudonym as a creator of NFTs, or non-fungible tokens, woke up on Friday morning to a slew of Twitter direct messages alerting him that his NFT, part of the popular Bored Ape Yacht Club collection, a series of unique images of apes that have become lucrative collectibles, had sold at a far below market-value price. “I actually physically pinched myself,” he told Fortune.
Kodiak, who said he’s a product designer at Microsoft and the cofounder of NFT project Two Bit Bears based in Brooklyn, originally listed his Ape NFT months ago for 57 Ethereum (ETH), or at current levels around $154,000, on popular NFT marketplace OpenSea—a price that is now well below his NFT’s floor price (the real-time lowest price for an NFT collection item) of over 120 ETH. At current levels it would be worth well over $320,000. Since first listing the Ape, Kodiak said he had transferred it to a hardware wallet (often called a “cold wallet”), where investors can store their NFTs and cryptocurrencies, and then back again, at which point he said OpenSea didn’t show it was for sale anymore. “In my mind, that severed the moment it changes hands” between the wallets, he said. But what many users like Kodiak didn’t realize is that the listing was still active on the blockchain, even if it appeared inactive on OpenSea’s platform, and someone was able to purchase Kodiak’s NFT for its original below-market listing price. He said he reached out to OpenSea support “15 minutes later” after realizing it was gone, and received a response that they would investigate. As of Wednesday, he said OpenSea offered him reimbursement, but that he is negotiating with the platform.
Kodiak wasn’t the only one having issues with OpenSea in recent weeks. Many OpenSea users have recently complained of issues on the platform (many of them taking to Twitter to share their experiences), including many who experienced a similar problem as Kodiak did. Fortune spoke with OpenSea users, industry analysts, and others, who painted a picture of a rapidly growing platform that appears to have had trouble keeping pace with its users’ needs. Most of the users who spoke with Fortune said they still liked the platform, but simply wished it would fix site and communication issues that have long rocked the boat at OpenSea.
Users complain of a flurry of issues
The NFT space has grown exponentially in the past year. In 2021, users sent roughly $44.2 billion worth of cryptocurrency to Ethereum-based smart contracts associated with NFT marketplaces and collections, according to a 2021 report from blockchain data platform Chainalysis.
The vast majority of that NFT activity has been conducted through OpenSea, which was founded in 2017 and serves as something akin to eBay, allowing users to create, buy, and sell NFTs. In the month of January, OpenSea logged roughly $5 billion in volume on the platform—around double that of December, and a massive increase from its year-ago volume of about $8 million in January 2021, according to Dune Analytics. OpenSea charges a 2.5% transaction fee, and in December its revenue reportedly hit nearly $83 million, per Forbes. The company has over 600,000 users according to OpenSea’s website, and says it saw a 600-fold increase in transaction volume last year.
The platform’s rapid growth in such a short time period likely caught OpenSea off guard, suggests Martha Reyes, head of research at European digital asset brokerage Bequant. “They didn’t prepare enough mainly because I don’t think they saw it coming,” she told Fortune, referring to the boom in popularity of NFT art. “No one saw it coming.”
Many users have reported a variety of problems with OpenSea’s platform for months, from numerous outages, plagiarism, and bugs to an insider trading scandal last September that resulted in the resignation of an OpenSea employee who bought NFTs they knew would later be featured on the site’s front page. And on Thursday, the company reported that over 80% of NFTs created for free on OpenSea were either fraud or spam. This comes as artists have reported their art being stolen to make NFTs—something the company had tried to thwart via a controversial fix that limited the number of NFTs creators could mint (create) on the platform for free, but ultimately OpenSea lifted that limit.
Earlier in January, OpenSea suffered an outage that drove some users to Twitter to voice their frustrations. Sergio Martell, an entrepreneur and developer based in Mexico who is working on an NFT project called Metaclaims that uses OpenSea’s API, or application programming interface, told Fortune that OpenSea’s “unstable” site over the past couple of months has made it challenging to build Metaclaims. (The API lets developers pull the feed from OpenSea so they can display the NFT art from various collections in a project.) If the company’s “APIs are not working, then you’re not working,” he said. Martell added that OpenSea is “such a key element around all of the innovations you can do with NFTs that I am extremely grateful for having them, but I do find that I cannot really go to production with a service or with anything that is kind of mission critical because of their unreliability.” OpenSea cofounder and CEO Devin Finzer wrote in an early January blog post addressing recent outages that, “We take accountability for the recent instabilities,” adding that “improving site reliability has been a priority for some time.”
In recent weeks, many OpenSea users have reported the same issue Kodiak experienced: NFTs, often ones they believed to be inactive listings on OpenSea, were sold for old prices that were frequently well below the current market price. It appears most users had transferred their NFTs from one wallet to another (in some instances to avoid paying gas fees, what users pay for transactions to be processed on the blockchain, for canceling the listing), leaving the listing active on the blockchain even if it no longer appeared active on OpenSea’s user interface.
That’s what happened to Carson Turner, an aviation specialist in Atlanta, who ended up buying back his NFT at a 10 ETH premium, as Bloomberg previously reported. After contacting OpenSea, the company refunded him roughly that same amount “in consideration for any confusion,” according to an email viewed by Fortune. All in all, he told Fortune he lost “a few hundred dollars.”
Montriond, an OpenSea user based in the U.K. who requested anonymity to protect his identity at his job in the banking sector, experienced a similar issue. He told Fortune that two of his Apes were sold in early January despite the fact that he believed they were not listed (he said he originally listed the pair together for roughly 99 ETH, but decided to delist them). “I was unaware they were still up for sale. There was nothing in OpenSea when I looked several times,” he told Fortune. Montriond promptly contacted OpenSea, which first directed him to resources if he believed his wallet could have been compromised, which it was not, according to Montriond, and then suggested he must have approved the sale, according to emails viewed by Fortune. “They weren’t taking any responsibility for it, and I think I just ended up leaving it,” he said.
To address the inactive listings issue, OpenSea announced several actions in the past week, including shortening the default listing duration for NFTs, adding a “listings” feature on the platform that shows users all of their active and inactive listings, and sending out emails alerting users to the issue, encouraging them to check and cancel any inactive listings.
But those emails spurred another problem: Once users canceled their inactive listings, some found their NFTs were still promptly bought at old listing prices. According to OpenSea and experts, exploiters with bots scouring the blockchain watching for cancellation transactions to be submitted likely snatched up more NFTs at old prices as the requests to cancel the listings came through. John Chan, an artist and NFT creator based in the U.K. who goes by Swolfchan on Twitter, experienced this issue on Jan. 27. He said that, following the advice in OpenSea’s email, he canceled a listing of a Mutant Ape at 15 ETH, only to see the same NFT quickly sold at a previous listing price of 6 ETH. “They shouldn’t have put out an email trying to help people just to make the problem so much worse,” he told Fortune. Chan tweeted on Jan. 30 that OpenSea offered him a total of 19.39 ETH in compensation, but that he “proposed a counter offer and [am] waiting for a reply.”
The issue prompted some Twitter users like Dfarmer to suggest possible fixes.
To date, OpenSea has reimbursed users over 1,000 ETH, or roughly $2.7 million at current levels, according to the company. The collections affected by the issue, per blockchain analytics firm Elliptic, included Bored Ape Yacht Club, Mutant Ape Yacht Club, CyberKongz, and Cool Cats.
Some users, including multiple ones who spoke with Fortune, believed OpenSea was late in addressing the issue that left many users confused and frustrated. OpenSea admitted in a blog post by cofounder Alex Atallah on Jan. 26 that “we wish we had been clearer and more proactive in educating users on the risks of leaving orders uncanceled before transferring an NFT,” and that “we understand the community’s frustration that we haven’t been more public in our communication on this topic.” (The company maintains it was not a bug or an exploit, but rather an unfortunate reality of the nature of the blockchain that is not specific to OpenSea.)
Fortune used OpenSea for an NFT auction with creator pplpleasr in August 2021. The auction was successful, raising 429 ETH, or about $1.3 million at the time, although during the auction there were technical issues that OpenSea later took responsibility for, citing DoS attacks as the culprit.
OpenSea’s torrid growth
Even in OpenSea’s earlier days, the company had an “extremely fast paced” environment where “everyone was like, grinding, grinding, grinding,” according to Taylor Dawson, a software engineer at blockchain monitoring platform Blocknative who worked at OpenSea as an engineer from February to June of 2020. Dawson told Fortune that during his time at the company, it was a “very small team” of roughly seven employees, adding that the culture was “one of excellence,” and he felt there was “camaraderie, and it was actually a really fun environment.”
Less than two years later, the company has grown to more than 150 employees, according to OpenSea. The company is flush with cash, thanks to a $300 million Series C funding round in early January, co-led by Paradigm and Coatue, that pushed the platform’s valuation to a lofty $13.3 billion (up from a $1.5 billion valuation in a July round). But that increase in staff seemingly hasn’t been enough to keep pace: In announcing the fundraise, the company said it needs to grow its team “quickly” and would prioritize “expanding our efforts across customer support, trust and safety, and site stability and integrity.” OpenSea currently has many open roles, including several under a category titled “customer happiness” and in engineering.
Staffing has seemingly long been a struggle for OpenSea. As Cointelegraph reported at the time, in August of last year OpenSea’s former head of product Nate Chastain tweeted, “We need to ramp up hiring at OpenSea. We are 37 people handling 98% of all NFT volume.”
Roughly five months later, the sentiment is similar: On Jan. 14, Twitter user Snowflake, who claimed to work in operations at OpenSea, wrote in a tweet that “OpenSea is hiring like crazy for all roles! The more team members we have on board…the faster we can improve the platform for everyone.”
According to David Pakman, a managing partner at crypto-focused investment firm CoinFund, which owns a stake in OpenSea competitor Rarible: “I think it’s one reason why OpenSea is raising a lot of money, not just because they can, [but] because they now feel like they need to build up the infrastructure that consumers are expecting when they’re spending the amount of money they’re spending on their platform,” he told Fortune. The experts that spoke with Fortune largely believe many of OpenSea’s woes are normal growing pains.
But OpenSea’s issues have also opened the company up to more competition in recent weeks. Rival marketplace LooksRare launched in early January, right around the time that many OpenSea users were experiencing these issues, and has since skyrocketed in popularity. The platform offers users a token called LOOKS to incentivize them to use the platform (such tokens are common in the cryptocurrency space), in a so-called vampire attack on OpenSea. Meanwhile, crypto exchange titan Coinbase is also launching its own NFT marketplace, which currently has a wait list. Mark Palmer, a managing director and fintech and crypto analyst at BTIG who covers the likes of Coinbase, argues that “given the competitiveness of this particular market…any sort of snafus that do occur leave the door open for those large platforms to enter.”
That competition is “going to heat up” given how popular the space has become, suggests Reyes of Bequant. Most of the OpenSea users who spoke with Fortune had also begun to use LooksRare and currently hold LOOKS tokens.
The future of NFT art
CoinFund’s Pakman likens the industry’s growing pains to internet dial-up in the late 1990s. “We have so much more infrastructure” and a “better customer experience to build that it’s so easy to criticize because everything barely works right now,” Pakman said. “We’re at the same period of immature infrastructure as ’96, but people are spending $100,000 on an NFT.” There are “way more customers and economic activity than we’re built up before today,” he added.
But it poses another big question that OpenSea, and the crypto space broadly, has continued to contend with for some time: What responsibilities does a company operating in a decentralized space like NFTs have to the customers that use their services, when Web3’s philosophy is one of decentralization and community-led decisions?
Lots of voices in the crypto and NFT community have long opined on the centralized versus decentralized debate. Twitter user Crypto_Life10 wrote in response to an OpenSea user declaring their NFTs were sold at an old price that “that’s how a smart contract works. Being a decentralized exchange [OpenSea] is not obligated to ‘notify’ you of this. The [NFT] wasn’t acquired with honest intentions. I get that. But it was an exploit within the parameters of the code. Nothing was ‘hacked,’” Crypto_Life10 tweeted.
However other observers have taken issue with OpenSea’s more hands-on approach to dealing with prior incidents, like its decision to freeze trading on multiple NFTs in late December that OpenSea user and New York City gallery owner Todd Kramer reported stolen. Some argued the company shouldn’t have intervened.
Those like OpenSea user Montriond believe that while ultimately the assets “sit in my wallet” and he is responsible for them, “there is a duty of care for a platform that’s taking a commission and is earning fees…with a large amount of zeros behind,” he said.
But many experts think more education would go a long way. OpenSea user Turner suggests that more how-to materials on OpenSea “would go very far in helping educate the community.” And Sasha Fleyshman, who manages a $50 million NFT portfolio for crypto investment firm Arca, believes OpenSea should “be educating people, because one, it’s good for them—the more people get educated, the more comfortable they are, the more money they put in, that’s more revenue. But two, at some point, you kind of have a responsibility as someone that’s benefited at this stage,” he told Fortune. (OpenSea currently has multiple posts explaining different aspects of its platform and NFTs as well as a few videos.)
Despite their frustrations, most of the OpenSea users Fortune spoke with are still using the platform. “The NFT space would not have grown if it were not for OpenSea—their website, their user interface, all of that is phenomenal,” Turner said. “They deserve a lot of credit for that as well. They just need to kind of get it in gear and speed up some of these fixes on the vulnerabilities.”
As for Kodiak? He’s still working with OpenSea to resolve his complaint.
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