Why OpenSea’s NFT Marketplace Can’t Win

Security concerns and endless imitation listings abound, but the platform’s attempt to address them has enraged users.

WHAT EXACTLY IS AN APE? Answering that question incorrectly on OpenSea, the internet’s most popular NFT marketplace may be expensive. The popularity of cartoon primates attached to unique cryptocurrency tokens, known as Bored Apes, soared last year. The lowest is now $309,000, and OpenSea is awash in knockoffs and rip-offs. Phunky Apes Yacht Club (PAYC) and PHAYC, two projects containing flipped copies of original Bored Apes, competed for the title of legitimate knockoff of the prized simians; other apes, of which there are many, were just straight-up copypastas.

OpenSea outlawed PAYC and PHAYC in December, a move that enraged the crypto community, whose spending has driven the latest NFT mania. OpenSea’s image as a proponent of Web3, a decentralized version of the internet free of censorship and gatekeeping, was tarnished by the move. A few days later, former Signal CEO Moxie Marlinspike’s experimental NFTs were withdrawn by OpenSea, giving the appearance that OpenSea was on the verge of becoming another conventional tech platform, the “How are you doing, fellow kids?” to the edgy Web3 insurgency.

OpenSea is caught between a rock and a hard place: its meteoric rise has resulted in more income, relationships with digital giants like Twitter, and investment, but it has also resulted in a slew of issues as the firm battles to keep up with new security incidents and countless copycat NFTs. If OpenSea manages to resolve those flaws, it may face a backlash from cryptocurrency purists, which has already resulted in the development of a competing NFT marketplace aimed at poaching its clients.

On the other side, digital artists, for whom the emergence of NFTs has been hailed as a godsend, believe that OpenSea does not go far enough in eliminating copying and unethical conduct. @NFTTheft, a Twitter account dedicated to uncovering plagiarism on OpenSea and other NFT businesses, is a caustic critic. “When I first heard the name ‘OpenSea,’ I immediately assumed that piracy was its primary purpose,” they add, desiring anonymity to avoid plagiarist punishment. “This has become the epicenter of piracy.”

In the same breath, the exact actions that made OpenSea a success story and a major concern can be pinpointed. The firm stated in December 2020 that anybody would be able to “mint” their NFTs on the platform for free; three months later, the company revealed that NFT collections would no longer require OpenSea’s prior permission to be posted. That strategy stood in sharp contrast to highbrow NFT sites like Nifty Gateway or Superrare, which showcased carefully selected art collections, and it helped OpenSea become the largest NFT marketplace on the internet. Because OpenSea charges a 2.5 percent transaction fee, it recorded a monthly transaction volume of $3.4 billion in August 2021, generating $85 million in revenue. The firm was valued at $13.3 billion after a slew of venture capital investments from big names like Andreessen Horowitz and Paradigm, as well as Hollywood star Ashton Kutcher. Twitter stated in January that it will use OpenSea’s API to allow users to make hexagonal NFT-based profile images. (In light of the current instances, Twitter declined to comment on the wisdom of working with OpenSea.)

On January 26, OpenSea attempted to reduce the number of bogus NFTs on the platform. It declared that free, limitless minting will be phased off, with users limited to five collections holding no more than 50 NFTs each. Following the backlash, the decision was changed within 24 hours. In a backpedaling Twitter thread, OpenSea claimed that “plagiarized works, phony collections, and spam” made up over 80% of NFTs created this manner. Another PR disaster a day later. Users on OpenSea began to warn that bots were on the search for an obsolete listing method that would allow them to buy NFTs for less than market value. According to firm spokesperson Allie Mack, the design error caused OpenSea to offer “almost 2K ETH [$6.2 million] in reimbursements to community members who were harmed.” This was on top of tales of NFT thefts, market manipulation, and security flaws that plagued the platform throughout 2021.

OpenSea has been paying the price for its breakneck expansion. Launched in 2017 with support from startup incubator Y Combinator, the firm had five workers as of March 2020 when it found itself at the heart of a worldwide NFT craze. Gauthier Zuppinger, cofounder of NFT data provider NonFungible, says, “OpenSea was truly at the basis of the NFT sector, and they were just not able to maintain this rapid expansion.” Devin Finzer and Alex Atallah, cofounders of OpenSea, have met Zuppinger numerous times and characterize them as “quiet, focused, hard-working,” more comparable to Mark Zuckerberg than loud crypto-bros. Still, OpenSea was expanding much too quickly. “You can’t always employ the right individuals at the right moment, and construct the appropriate infrastructure to support such tremendous growth, even with a lot of profit,” Zuppinger adds.

These difficulties might just be the result of maturation. “As a company scales, you’ll be introducing more people—and as you introduce more people, your level of code quality will 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 firm Blocknative Corporation. Dawson sees OpenSea’s problems as inevitable repercussions of the company’s growth, praising Finzer and Atallah for their “attention to detail” in establishing their platform.

However, OpenSea’s meticulous attention to detail did not appear to extend to security, which is probably the most important aspect of the platform. In December 2021, the firm recruited its first chief security officer. Previously, vice president for engineering Dan Roelker, who worked for DARPA’s cyberwarfare program from 2011 to 2014, according to his LinkedIn page, was in charge of the platform’s security, according to OpenSea’s Mack. In August 2021, Roelker joined the firm. According to Dawson, no one in particular was in charge of security at OpenSea in 2020. OpenSea’s security strategy is “years behind what needs to be done,” according to a cryptocurrency specialist with knowledge of the firm’s operations who spoke anonymously to avoid harming possible commercial partnerships with the company. They point to OpenSea’s choice to make NFT minting open and free to everyone as the source of the platform’s inability to control NFT plagiarism.

According to the activist behind @NFTTheft, the bulk of copied art submitted to the Twitter account as of October 2021 related NFTs minted on OpenSea. The person behind the account claims that this is a change from March 2021. “Previously, plagiarism was dispersed among other markets; currently, OpenSea is the primary source,” they claim. According to @NFTTheft, criminals first created NFTs using artwork stolen from DeviantArt—an online artist community that has been actively combating art theft—but that they have lately begun stealing photos from Twitter or Steam. According to them, OpenSea takes too long to respond to allegations of stolen art and copyright infringement, which can take up to a week. According to @NFTTheft, OpenSea has no motivation to remove copied art from its site because doing so would alienate consumers who had inadvertently purchased unlawful NFTs and would receive no NFT and no refund from OpenSea.

OpenSea’s “policies prohibit plagiarism and copymining, which we regularly enforce in various ways, including delisting and, in some instances, banning accounts,” according to Mack, and the company is developing technology to better address the problem, including automated moderation, image recognition, and enhanced search tools. Mack claims that the firm aims to respond to customer reports in less than 72 hours on average (rather than the week that artists claim it takes) and that by the end of the year, it will have a team of “almost 200 employees” in customer care, up from more than 100 in the previous two months.

It’s arguable whether that’ll be enough to win over @NFTTheft and other digital artists, as well as supporters of decentralization and cryptocurrencies, many of whom are regular NFT customers. For the bitcoin camp, centralized content management is kryptonite—a signature of Big Tech businesses that, according to the Web3 narrative, are headed for the trash of history. And OpenSea’s Web3 credentials have already been questioned: the company’s closed-source technology, its choice to solicit funding from VCs rather than selling a token to its supporters, and reports of an impending IPO (later suppressed) have all sparked criticism. On January 10, LooksRare, a competitor NFT marketplace, was launched. LooksRare adopted a more decentralized architecture, redistributing the ether cryptocurrency’s 2% transaction fees to users who had purchased its $LOOKS tokens; more importantly, LooksRare gave away free $LOOKS tokens to users with a significant history of trading on OpenSea, a move cryptocurrency media dubbed a “vampire attack.”

“LooksRare was created to provide an NFT marketplace that is run by NFT people, for NFT people,” says Slug, a LooksRare spokeswoman who relays statements from many members of the all-pseudonymous management team. “Platform fees from most other markets we’re aware of go to a central entity, whereas platform fees from $LOOKS stakers go to a central entity.” Which technique is more vampiric when you compare the models?” Although LooksRare’s trading volume has surpassed that of OpenSea, experts have pointed out that the majority of it is due to “wash trading,” or accounts buying their own NFTs to boost prices.

The battle between OpenSea and LooksRare, according to Jamie Burke, founder and CEO of London-based venture capital company Outlier Ventures, is good for both firms and the NFT market as a whole. “I believe that competition encourages individuals to be creative,” he argues. “From an intellectual standpoint, I’m interested in watching how these two distinct models compete, to see how they battle it out and see the benefits and drawbacks.” “OpenSea is the standard” for NFT enterprises, according to Burke. Also, Burke sees the collaboration with Twitter on NFT profile images as a positive sign that the company is giving up its API to partners.

Even yet, OpenSea’s unsolved oscillation between Web3 libertarianism and Web2 responsibility will remain. The incentives, according to a bitcoin specialist familiar with OpenSea’s operations, are diabolically aligned: Going for a controlled, sanitized approach would cost OpenSea a significant portion of the NFT population who yearns for a Wild West ecology, while sticking on the present light-touch path would result in a never-ending succession of PR issues. “They’ll want to maintain the ‘anything goes’ environment while exercising just enough moderation to appear as though they’re putting up a sufficient best effort,” the anonymous bitcoin expert predicts. “They want it to be ‘anything goes,’ but they need to put forth a little effort to keep the heat off their backs.”