A long article reveals the rise and fall of OpenSea and its SEC dispute

Ben Weiss, theverge Compiler Arain, ChainCatcher

On an overcast spring afternoon in April, I attended the seventh NFT.NYC, a paradise for all believers in monkey JPEGs with price tags and other NFTs. It was pouring rain at the Javits Center that day, and the theme party of this "NFT Super Bowl" felt abandoned.

"The number of participants this year 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, told me politely.

One ​​attendee who only told me his online name, Big Mac (there is a strong anonymous culture in the cryptocurrency circle), said that this conference was more like a "preseason game" than the "Super Bowl" of NFTs.

And Tom Smith, a man hawking anthropomorphic marijuana plant NFTs at a booth, was even more blunt: “It looks damn quiet in here.”

One ​​of the industry’s biggest names, OpenSea was one of the conference’s sponsors, but 33-year-old co-founder and current CEO Devin Finzer was nowhere to be seen. OpenSea’s other co-founder, Alex Atallah (who has since distanced himself from the startup), did take the main stage during one of the first sessions, but he didn’t want to talk about the technology that made him and Finzer paper billionaires twice over. Instead, he talked mostly about artificial intelligence.

While cryptocurrencies may be recovering in value, one much-hyped narrative from the last crypto boom has not: NFTs. In January 2022, total monthly sales for the asset class peaked at more than $6 billion, according to CryptoSlam. By July 2023, that number had fallen to under $430 million. NFTs are holding on, but they’re struggling.

“My mom thinks I’m a fraud,” I overheard one attendee say.

More storms are gathering at OpenSea, once the largest marketplace for NFTs. One of the most valuable private startups to emerge from the incubator Y Combinator now faces pending litigation from the Securities and Exchange Commission (SEC), previously unreported “affairs” from the Federal Trade Commission (FTC), attention from U.S. and international tax agencies, increased competition, allegations of sexism, 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, the story of how a startup inspired by cat JPEGs evolved into what one former employee called a “lite” version of Meta emerges, but now seems lost between big tech and cryptocurrency culture.

Out of the incubator

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

In 2017, Finzer, then in his 20s, teamed up with Atallah, a Stanford graduate and tech industry practitioner who was also in his 20s, to start a startup. Initially, Finzer and Atallah planned to use cryptocurrency to pay for sharing Wi-Fi with strangers, and in January 2018 they successfully entered Y Combinator, a famous incubator that has spawned tech giants such as Airbnb.

It was also at that time that blockchain, a decentralized database that no one controls, ushered in another wave of enthusiasm, and developers were promoting a new way to store data permanently on the blockchain. The new way claims that these tokens are “non-fungible,” meaning that they are not all the same, like Bitcoin. In other words, NFT holders can brag about being the true owner of a cartoon ape that is recorded in an unchangeable database.

Industry insiders say these tokens can represent almost anything: property deeds, patents, contracts, virtual real estate rights. But in late 2017, a company called Dapper Labs promoted a use that appealed to ordinary people: CryptoKitties, a game where users can buy and sell cat cartoons on Ethereum, one of the most popular blockchains.

On the platform that some claim is the next generation of the internet, it’s not just JPEGs of cats that circulate. There are CryptoPunks, pixelated images of people wearing mohawks and sunglasses; digital trading cards inspired by Pepe the Frog, a meme with a checkered (and sometimes racist) history; and EtherTulips, virtual tulips that, ahem, “fight” each other.

Finzer and Atallah noticed the craze and decided to pivot.

“They’re very ambitious,” John Caraballo, a contractor hired for three months to write the initial code for the OpenSea site, told me. “What they’re building is very cutting-edge, and no one has done it before.”

In May, after graduating from Y Combinator (which also included projects like cannabis-infused soda and VR-based psychotherapy), Finzer and Atallah announced that they had raised $2 million in funding for their NFT marketplace—backed by high-profile investors including Peter Thiel’s Founders Fund.

“There will be some completely different economic systems than our wildest imaginations—and we want 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 has not been exciting. Throughout 2020, the OpenSea platform was used by just a few hundred traders a day, according to DappRadar. A former employee said the company had fewer than 10 employees at the time.

(OpenSea spokesman Joshua Galper said tens of thousands of people used OpenSea’s site each week in mid-2020.)

“OpenSea is their life,” the former employee told me, describing other team members, including Finzer and Atallah. “It’s really fun, but it’s also very rigorous and very intense.”

Wind Blows

Then, in March 2021, the NFT market began to heat up. Artist Mike Winkelmann, better known as Beeple, auctioned an NFT for $69 million. The value of NFTs sold on OpenSea’s platform more than tripled from the previous month, according to DappRadar.

OpenSea can take a commission of up to 10% of each transaction, and the increase in revenue has attracted investor interest. That same month, Finzer announced that OpenSea had raised $23 million from investors including venture capital giant Andreessen Horowitz, valuing the company at $123 million.

OpenSea was more visible than ever, and the company began to expand.

“It was really crazy,” one former employee told me. “We all wore many hats.”

The NFT craze continued. After Beeple’s artwork set a huge sales record, a company called Yuga Labs launched Bored Ape Yacht Club, a collection of 10,000 NFTs of cartoon apes, with holders promised access to exclusive events, privileges, and products. People paid millions of dollars just to claim to be the real owner of a particular ape with blond hair or heart-shaped sunglasses.

"When I first saw BoredApe, I thought: 'What the fuck is this?'" said one former employee, "and then to see the prices people were paying for it - it was crazy."

As more and more pictures of apes, punks, cats and penguins changed hands, OpenSea collected more commissions. 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, according to internal company documents.

"It was a very interesting period," said another employee, "as soon as you launched a new feature, a lot of people would 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 received another round of funding, raising $100 million at a valuation of $1.5 billion.

"Celebrities popped up and all kinds of money-grabbing behaviors, (these) were really exciting," said a former employee. "People who hadn't been in touch for years sent me emails...Everyone saw an opportunity to get rich."

Insider trading, cashing out, option disputes... trouble is coming

But as the funds increased, so did the problems. "Every stressful thing felt like the end of the world," Finzer said when he reviewed the company's early days to employees in 2023.

In September 2021, OpenSea asked product director Nate Chastain to resign because some industry insiders found that he used insider information to trade NFTs. Chastain's method was simple. Every few days, OpenSea would promote new NFT collections on its homepage. Given that the platform is the de facto place to buy and sell NFTs, the price of these tokens would rise after being featured on the site. Chastain knew which ones would be chosen, so he would flip them for a profit shortly after the NFTs appeared on the homepage. "What Nate was doing was fairly common in the community at the time," said a former employee.

Chastain was ultimately sentenced to three months in prison—the first successful prosecution of an NFT insider trading case by the Department of Justice. Insider trading, however, was just the tip of the iceberg of OpenSea's problems. Users also raged about site crashes, spammy or intentionally fraudulent NFT collections, and stolen NFTs. "It was like a bloody orgy," one former employee told me, describing the public good's serious plight. Another former employee said that users joked that OpenSea should change its name to "BrokenSea."

"OpenSea strives to remain responsive and focused on its users," said Galper.

According to multiple former employees, to cope with the sudden surge in trading volume and other problems, Finzer and Atallah needed to expand OpenSea's workforce and start bringing in talent from large technology companies or with corporate backgrounds.

"There was no promotion mechanism within the company," said one former employee.

"They hired these damn beasts, these 'crawlers' from companies like Amazon, Facebook, and Google," said another former employee. "It was like Game of Thrones, the White Walkers came through the door."

Most of the current leadership team 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 considerable expense that Finzer and Atallah cut just a few months later.

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

And yet the money kept coming. OpenSea's revenue reached an all-time high of $265 million in the first quarter of 2022. The co-founders also closed their largest round to date: $300 million from a blue-chip venture capital fund, which gave OpenSea a staggering $13.3 billion valuation. According to Forbes, as of the end of 2021, Finzer and Atallah each owned 19% of OpenSea. On paper, they have become billionaires. (Galper said the report about the co-founders' stake in OpenSea was wrong. However, Forbes did not issue a correction statement on the co-founders' ownership percentage.)

The company's investors include not only venture capitalists focused on the cryptocurrency field, but also well-known figures in Silicon Valley and outside. That includes “Shark Tank” ace Mark Cuban, basketball star Kevin Durant, actor Ashton Kutcher, and DJ 3LAU, all publicly disclosed investors. OpenSea’s shareholder list also includes James Musk, YouTube co-founder Jawed Karim, Adobe Chief Strategy Officer Scott Belsky, and former Microsoft strategy chief Charlie Songhurst, according to an internal company document.

Finzer, Atallah, and a handful of early employees quietly cashed out some of their equity during the massive round, according to a source familiar with the deal.

Galper confirmed to me that some employees were indeed able to sell their shares “during the Series C round,” but he didn’t specify the size of Finzer and Atallah’s profits.

Galper added: “The team and investors felt it was the right thing to do to provide some liquidity to those who had worked so hard to get the company to this milestone.”

Five former employees told me that the co-founders never disclosed this secondary share buyback to all employees. “That was a little surprising to me, because they seemed to be transparent about other decisions.”

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

(Galper said: “The company does not recall any employees asking to sell shares to specific investors after the Series C round.”)

“The biggest news will be these secondary market share sales. The rest is less interesting,” said a former employee.

Downhill from the Peak

OpenSea seemed to be going mainstream, but troubles continued. Shortly after Hollander, OpenSea’s current CTO, joined the company, his team discovered a serious vulnerability in the company’s code that could allow an attacker to receive payment without sending an NFT to the victim. Although no actual attack occurred, Finzer later told employees in 2023 that “this was one of the scariest things.”

In March 2022, just as Finzer was celebrating OpenSea’s inclusion on Time magazine’s annual list of the 100 most influential companies, the NFT craze began to cool. Total sales across the market plummeted from about $6 billion in January 2022 to just over $1 billion in June, according to CryptoSlam. OpenSea’s quarterly revenue also fell, to $171 million in the second quarter.

To make matters worse, OpenSea still held most of its cash reserves in ETH, the second-largest cryptocurrency by market value, until the first half of 2022, according to former employees who attended an all-hands meeting. At the meeting, Finzer updated employees on the company’s financial situation. Instead of converting cryptocurrency funds into less volatile assets, he said, OpenSea wanted to walk the talk and support the cryptocurrency industry. The only problem? By June 2022, the price of ETH had fallen nearly 80% from November 2021.

OpenSea still generated $171 million in revenue in the second quarter of 2022, but after deducting losses from price declines and other debt, its net loss reached $170.7 million.

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

After Finzer announced the financial misstep, one former employee thought to himself: "I was like, 'What the hell, you're not someone's individual investor. Why take the risk when we have so much upside?'"

Despite its financial woes, OpenSea made a big splash at the NFT.NYC conference in the summer of 2022.

"I heard OpenSea took over an entire hotel downtown. Is that true?" conference co-founder Jodee Rich asked during a meetup at Radio City Music Hall.

“Sounds like that,” Finzer replied, smiling.

That same week, when most of OpenSea was in New York, Finzer held a company-wide meeting to ease any concerns employees had about the company’s future, according to two former employees. Both former employees said the message from the meeting was clear: Don’t worry.

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

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

“There was always a weird vibe between Devin and Alex, and I don’t think they really got along,” one employee said.

“I heard they didn’t see eye to eye on a lot of things,” another employee said.

An OpenSea investor who requested anonymity said Atallah told him he was leaving on good terms. “I think he’s the kind of guy who likes the early stages of a startup,” the investor said. “Once it started to scale and became more corporate in nature, I think he was probably like, ‘I want to move on to the next thing.’”

In a statement, Atallah denied suggestions that he and Finzer had clashed, echoing the investor’s sentiment: “I’ve always liked the early stages and ultimately decided I wanted to explore new things again.”

But while Atallah left to pursue his next project, Finzer stayed on to lead the startup, which now appears to be in a very different place than it was just a few months ago. In the third quarter of 2022, revenue plummeted to just $32 million, and OpenSea lost more than $27 million. “Morale got really weird really quickly,” said one former employee.

Back in the Dark

In October, a new thorn in OpenSea’s side emerged: a new NFT trading marketplace called Blur. OpenSea once had a near monopoly on billions of dollars in NFT trading volume. But soon it had to fight for scraps.

Blur was founded by a programmer who goes by the pseudonym “Pacman,” who later revealed himself to be Tieshun Roquerre, a 20-something MIT dropout and Y Combinator graduate. Blur doubled down on an idea that financialized NFTs: treating them as assets that traders swap back and forth in search of profit.

Many professional traders want to maximize profits, and the royalty fees charged by marketplaces like OpenSea cut into their profits. Blur prioritizes the privileges of traders over creators, and does not give artists a percentage of every time a work sells on its platform. Coupled with the promise of distributing cryptocurrency to its top users—essentially free money—NFT speculators flocked to this new market.

Blur quickly ate into OpenSea’s market share. By February 2023, Blur had surpassed OpenSea on the strength of its promise of an upcoming cryptocurrency offering, DappRadar reported, with monthly trading volumes nearly three times that of Finzer’s startup. Meanwhile, OpenSea’s quarterly revenue continued to decline, falling to $23 million in the fourth quarter of 2022 and further to $19 million in the first quarter of 2023.

Finzer felt compelled to react. One former employee said Blur’s sudden rise “disrupted all of our product vision. It was a complete disaster.”

A current employee disputed that characterization. “As far as Blur showing up, it didn’t really disrupt my work,” they told me. “I continued to develop projects and work as usual.”

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

Galper confirmed that company executives had discussed issuing cryptocurrencies in the past, saying, “OpenSea has always been focused on the long term, not on short-term changes in the competitive landscape.”

But issuing tokens would be a risky move, as the U.S. Securities and Exchange Commission (SEC) has repeatedly claimed that the vast majority of cryptocurrencies are unregistered securities. After the FTX collapse in November 2022, the SEC launched a broad crackdown on the cryptocurrency industry, reaching settlements with or filing lawsuits against some of the industry's largest players, including cryptocurrency exchanges Coinbase and Binance.

After the NFT.NYC conference in May 2023, OpenSea conducted another round of smaller and undisclosed layoffs, according to former employees. "The running joke is that everyone is afraid of NFT.NYC because all the layoffs happened after it," said one former employee.

"There was a small reorganization at the company, which resulted in some team structure changes and several employees leaving as a result," Galper wrote.

In August, the trading platform announced that it would stop enforcing creator royalties, which frustrated some employees. Former employees said this triggered a wave of internal dissent. One employee added: “I think OpenSea still hasn’t really identified their target audience and acted accordingly. They’re just figuring it out.”

SEC Regulatory Storm

Amid the controversy surrounding OpenSea’s decision to eliminate royalties, Finzer and his partner, Yu-Chi Kuo, a former cryptocurrency hedge fund manager, left New York City for a “desert adventure” to attend Burning Man, according to Kuo’s Instagram post.

(Galper said it was Finzer’s first vacation in more than a year.)

As Finzer and Kuo reveled in the desert mud, the SEC took its first enforcement action against the NFT industry, saying that NFTs issued by Impact Theory, a media company created by the founder of Quest Nutritio, were unregistered securities. Just weeks later, the SEC charged Stoner Cats 2 LLC, the company behind Stoner Cats (an animated series backed by Mila Kunis and featuring Ashton Kutcher and Jane Fonda), with issuing NFTs that were unregistered securities. Impact Theory and Stoner Cats 2 agreed to cease and desist orders and paid legal penalties of $6.1 million and $1 million, respectively.

Some OpenSea employees were unaware that their company was in the middle of two separate regulatory “matters.” The SEC had issued third-party subpoenas, or mandatory requests for information, to OpenSea regarding other entities. In addition, the SEC had assigned a dedicated attorney to OpenSea’s “case” and was engaged in “custodial document production” with the agency, according to internal company documents.

The legal counsel described the back-and-forth as an “SEC matter” and laid out OpenSea’s defense in an internal document. These reasons include: NFTs are not securities, OpenSea is not a securities exchange or broker, and OpenSea is protected by the First Amendment of the Constitution and Section 230 of the Communications Standards Act, which stipulates that online operators are not responsible for third-party content on their platforms. SEC spokesman David Ausiello said: "The SEC does not comment on investigations that may or may not exist."

Cat and Mouse Game

OpenSea's spokesman Galper confirmed that OpenSea has received requests from the SEC since 2022. He said: "As part of our standard practice, we cooperate with regulators and law enforcement, and we are committed to complying with applicable laws and regulations."

While some employees are not aware of SEC affairs, a vocabulary guide guides employees to use appropriate terminology when talking to each other or publicly about NFTs and OpenSea. Rather than saying “buy, sell or pay on OpenSea,” legal counsel told employees to say “buy on the blockchain,” “buy using MoonPay,” or “buy using OpenSea.” “It’s important to make this distinction because it impacts our tax and legal obligations,” the guidance said.

Other terms employees should avoid using when talking about OpenSea include “exchange,” “broker,” “market,” “profit,” “share,” “stock,” “trade,” “trader” — words typically used to talk about securities and fall under the SEC’s jurisdiction.

There are also so-called “FTC matters,” in which OpenSea filed documents with regulators. The internal documents I obtained did not provide further details beyond mentioning the existence of such transactions, and the FTC did not respond to a request for comment.

Galper confirmed that OpenSea received the FTC’s document request and said its last filing with the agency was in August 2023. He declined to say why the FTC and SEC were asking OpenSea for documents, and did not comment when asked whether OpenSea had received a Wells notice, a formal notice from the SEC indicating that a company or person is facing an upcoming lawsuit.

The day after I told OpenSea that we planned to publish this story, Finzer announced on Platform X that his startup had received a Wells notice.“We are shocked that the SEC would take such a sweeping action against creators and artists. But we are ready to fight,” he wrote.

Christopher Odinet, a professor at Texas A&M University who has studied the legal issues surrounding cryptocurrency, told me that “usually when an agency asks for documents from a company, it’s because they think something is wrong.”

Christa Laser, a professor at Cleveland State University who has also studied the intersection of cryptocurrency and the law, said that while the FTC’s information request may stem from suspicion of OpenSea itself, its interest in the NFT market may simply be an attempt by regulators to better understand an emerging market.

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

At the same time, various tax authorities at home and abroad are constantly inquiring OpenSea. For example, according to internal documents, there have been repeated communications between the Australian Taxation Office (ATO) and OpenSea on whether the startup needs to pay taxes on the fees charged 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 harsher tax crackdowns. If the Australian Taxation Office (ATO) does not make a decision in favor of OpenSea, Finzer's startup will need to bear about $130 million in taxes based on figures discussed internally in August 2023. 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.

Galper, the OpenSea spokesman, declined to comment on the company's communications with tax authorities.

According to a document obtained by me, Gina Moon, former general counsel of OpenSea, said at a general meeting: "We have indeed aroused a lot of interest from policymakers and regulators, and ultimately, the courts and the public will see what we have to say."

Will OpenSea 2.0 come as expected?

On Halloween, when OpenSea's quarterly revenue fell to its lowest level since the NFT boom, Finzer and his partner attended Heidi Klum's annual Halloween party at Marquee nightclub in New York City. According to Kuo’s Instagram, Finzer was dressed as an “AI hacker,” wearing glasses, a hoodie with the OpenAI logo, and holding a keyboard. His partner was dressed as his “AI girlfriend,” complete with a bloodstained knife and mechanical-looking prosthetic limbs.

(Galper, the OpenSea spokesman, countered that Finzer’s outfit was improvised and that he only showed up for the photo shoot, and after walking the orange carpet, he hurried home to take a work call and continue planning a major change for his startup.

Three days later, the day after former FTX CEO Sam Bankman-Fried was convicted of fraud, OpenSea announced massive layoffs that resulted in the departure of more than 100 employees, or about 56% of the total workforce. Finzer said at X that he was “realigning the team around ‘OpenSea 2.0,’” a strategic and product change for which he did not provide many details publicly.

“This is a huge bet, and it’s pretty aggressive,” he later told employees.

Departing employees received four months of cash severance and six months of health insurance, among other benefits, according to a memo Finzer sent to employees.

Finzer invited remaining employees to an off-site meeting to discuss the company’s new direction. “The real goal of these changes is to move from a follower position to a leader position,” he said during an all-hands meeting at a Hollywood mansion that once belonged to Katy Perry and Russell Brand, according to a document I obtained.

OpenSea plans to “become the gateway to Web3,” a reference to the idea that the future internet will be based on blockchains, according to executive team member Lorens Huculak at the all-hands meeting. The startup plans to rewrite much of its code to make it easier for users to track crypto transactions on the platform without having to visit other websites. “We’re going to be an aggregator, not just of chains, but protocols, markets, all kinds of liquidity, including tokens,” Huculak said.

According to a source familiar with the new product, the product revamp also includes features that make OpenSea more competitive with Blur. “This is just a repackaging of OpenSea Pro,” they said, referring to the section of the OpenSea platform dedicated to NFT speculators. However, a current employee refuted this characterization, saying the relaunch was about more than just upgrading and adding features to track transactions for traders. The employee declined to provide further details about the relaunch, though.

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

Apparently, the new product vision and massive layoffs didn’t initially inspire employees or investors. Shortly after the transformation, The Information reported that Coatue Management, one of OpenSea’s largest backers, actually cut the startup’s valuation to just $1.4 billion in the second quarter of 2023, a sharp drop from $13.3 billion less than two years ago.

Successfully, several OpenSea executives left following the layoffs, including the general counsel, vice president of operations, head of human resources, and head of communications. According to internal company communications, OpenSea offered remaining employees a cash bonus of 20% of their existing salary to retain them.

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

Amid the wave of departures, executives were concerned that there were no women among the remaining engineers or product managers, especially because some who left the company complained about gender discrimination, according to internal documents.

(OpenSea had previously hired an outside investigator to look into one of the complaints, who found it to be without merit.)

“If we receive an employee complaint, we take it seriously and investigate it promptly,” Galper said in a statement. “Any allegations of sex discrimination have not been substantiated, and we have never been involved in any litigation, arbitration, or mediation on the subject.”

“There’s a lot less bullshit now, like Slack messages and meetings,” one said. “I was pleasantly surprised how quickly people got back on track,” said another.

NFTs Won’t Die With OpenSea

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

OpenSea’s competitor, Magic Eden, was hosting what it called the “Degen Yacht Party” on a floating casino converted into a party boat. Waiting in line in the rain to board the ship, I chatted with James Woods, a collector wearing a T-shirt with an image of an NFT he owns: a pink dog wearing black sunglasses, a sailor hat, and a brown hoodie. “I try to dress like this for any NFT-related event or important event in my life,” said Woods, who also wore sunglasses, a sailor hat, and a hoodie. He even dressed like this for his first date at a casino: “It worked out great.”

Eventually, we boarded the ship. There were ice sculptures, a DJ, free food (like a buffet at a bar mitzvah, one attendee told me), free booze, a gold-plated elevator, and energy drinks. I talked to a guy who called himself “Breads,” another named “Toast” (the two had an enthusiastic reunion), a man who said “Cyber ​​Frogs” changed his life, and a woman holding a stuffed animal named “Chonky.”

Most of the people I chatted with had a bad opinion of OpenSea. After all, I was on enemy territory. “Instead of doubling down on the creators who made them the best trading platform on the market,” Woods said, referring to OpenSea’s decision not to enforce royalty fees, “they betrayed all of us.”

The yacht swayed from side to side in the rain, but we never left the dock. The storm was too fierce. Finally, on the third floor, I chatted with Yin Zhuoxun, the co-founder and COO of Magic Eden. Like OpenSea, Magic Eden is backed by well-known venture capital firms and, according to a recent funding round, is valued at more than $1 billion. “This is not an industry where you can sit down and count chickens,” Yin, who goes by the nickname Z, told me. “Everything is changing very quickly.”

While Blur has snatched hardcore NFT traders from OpenSea, Magic Eden appears to be eating into OpenSea’s popularity among creators. In February, Yuga Labs, the company behind Bored Ape Yacht Club and other blue-chip NFT collections, launched a competing marketplace alongside Magic Eden. In April, Yin’s company surpassed OpenSea and Blur in monthly NFT trading volume, according to data from DappRadar.

Despite the market turmoil, most people I spoke to with a financial interest in the NFT industry were optimistic about its future.

“If anyone thinks OpenSea is declining and therefore NFTs are dead, that’s wrong,” TJ Fuller, co-founder of Forgotten Runes, a fantasy project that lets fans own characters as NFTs, told me, arguing that the technology is still innovative: “It doesn’t matter where we trade NFTs.”

Most of the former OpenSea employees I spoke to also saw future use cases for these tokens: tickets to live events or users in video games who could more definitively say they own an item. But some added that the current culture of speculation for speculation’s sake doesn’t scale beyond crypto enthusiasts. “I think the way it’s done right now is kind of broken,” one former employee said. “I don’t think selling JPEGs is worth it.”

Towards the end of the yacht party, I walked off the dance floor, pushed past a man playing a flute like a Metallica member, and said goodbye to Woods, who was wearing a sailor hat. Asked for his final thoughts on NFTs, he said, “Buy them as collectibles. Don’t expect to make money from them.”

That may be good advice for OpenSea. According to an internal document I obtained, the company lost about $30 million in the first three quarters of 2023. (It expects layoffs in November to reduce the company’s expenses in 2024, however.) In June, trading volume on its platform fell to a low not seen before the NFT craze in early 2021, according to DappRadar.

OpenSea is still well funded. According to an internal document, as of November 2023, it has $438 million in cash and $45 million in cryptocurrency reserves, and is relying on these funds, hoping that the "2.0" transformation can help it tide over the difficulties.

Finzer once said that he hopes his startup can 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.