There’s no question that OpenSea, now far and away the most dominant non-fungible token marketplace, has been a success for its investors. It was valued at over $13 billion earlier this month, cementing its status as a unicorn among unicorns. And last week, it was integrated directly into Twitter’s new NFT verification mechanism – a real coup for visibility among the non-tech crowd.
But it’s lonely at the top.
As the industry’s de facto one-stop shop for NFTs, OpenSea has also attracted most of the criticism. The question of whether it's been a success for its investors is probably less important, for the health of the space, than whether it's been a success for the creators it purports to serve. Events this week have precipitated something of an identity crisis: Does OpenSea want to be a marketplace, a hub for artists or an unregulated casino?
On Monday, traders started to notice valuable NFTs selling for well below their asking prices. The cheapest tokens in the Bored Ape Yacht Club NFT collection will run you around $200,000 – so why did one suddenly sell for just 0.77 ether (ETH), or less than $2,000, without the permission of its owner?
Yooo guys! Idk what just happened by why did my ape just sell for .77?????— TBALLER.eth (@T_BALLER6) January 24, 2022
Some news outlets and data providers characterized it as a “bug,” borrowing language from a blog post by the blockchain analytics firm Elliptic. But the reality isn’t quite so simple.
It has to do with the way OpenSea processes listings on the blockchain. To list an NFT for sale on OpenSea, you first need to “approve” the token for trading on its platform. This is an on-chain transaction, so you’ll need to pay gas fees (usually around $30 or so) to the network. Once you’ve “approved” the token, you pick your price and the NFT is listed for sale.
Now imagine that an hour later the market value of your NFT drops significantly. OpenSea lets you re-list the same NFT at a lower price without paying extra gas fees, but ends up creating a new listing instead of just lowering the price of the old one.
It’s the cost of working with data directly on the blockchain: an append-only distributed ledger that’s purposely resistant to change. OpenSea can’t change a listing on-chain, because what’s already happened on-chain can’t be changed. This sense of immutability is the basic fundament of blockchain tech.
If you list at 1 ETH, then drop it to 0.8 before making a sale at 0.6, you’ve still got two unfulfilled listings floating around, at 1 ETH and 0.8 ETH.
In the case of the Ape that sold for 0.77 ETH, its owner (someone called TBALLER) minted the token last year when the dollar value of the Bored Ape Yacht Club was essentially zero. He bounced it around between a few different wallets over the past nine months and listed it for 250 ETH about two weeks ago.
But a look at the token’s “Item History” on OpenSea shows there are plenty of other old, unfulfilled listings from around the time TBALLER minted the NFT. The listings may have expired, or TBALLER may have used the “lower price” button to create new ones – but the old ones are still there, even now.
And because canceling a listing is an on-chain transaction, you’ll need to pay gas fees for each cancellation (again, around $30 per transaction, plus or minus depending on network stress).
Crucially, these were TBALLER’s own listings. Buying an NFT with someone else’s uncanceled listings attached won’t make you vulnerable to this sort of sniping.
Still, it’s a miserable reality: If you’ve ever sold a token on OpenSea, odds are you’ve got a few uncanceled listings somewhere out there – listings that will almost certainly be an expensive hassle to cancel.
So, the 0.77 ETH sale wasn’t the result of a “bug,” really. It’s just the way the platform is built. OpenSea said as much in an email to CoinDesk earlier this week, characterizing the sale as “not an exploit or a bug,” but instead "an issue that arises because of the nature of the blockchain."
Not accidentally, the statement contains strong echoes of crypto’s overarching libertarian security philosophy. It’s not the code that’s wrong, suggests OpenSea, it’s you, the user, who failed to do your own research. After all, it’s already in OpenSea’s FAQ section.
On Wednesday, the company sent a short email to account holders looking to address the issue. The subject was “Clarification on Canceling Inactive Listings,” and the body of the email essentially just reminded users to cancel their old listings.
Of course, canceling an old listing is still an on-chain transaction, which means it’s appended to the very end of the blockchain. Scammers with their eye on new transactions might see that you’ve canceled an old listing and immediately begin digging into your other old listings, looking for a juicy one. Even worse, they might just pay an extra fee to frontrun your cancellation, executing a sale before you can even complete your transaction (frontrunning is a common issue on proof-of-work blockchains like Ethereum).
1/ WARNING: DO NOT CANCEL YOUR OS LISTINGS AS STATED IN THE EMAIL THAT OPENSEA JUST SENT OUT🚨🚨— dingaling (@dingalingts) January 27, 2022
Please FIRST transfer your NFT to a different address and cancel the listing/s on the original address BEFORE sending it back
OS just put everyone at even more risk than before🧵
OpenSea’s solution was just to give out refunds rather than implementing new guidelines or protections for customers. Per Bloomberg Thursday, OpenSea has already reimbursed users to the tune of $1.8 million.
OpenSea’s shared storefront
The company took a similarly reactive tack to a controversy around its smart contracts, which bubbled up later in the week.
OpenSea lets users mint their own NFTs through a shared smart contract called the Shared Storefront – essentially a template for assigning a token to a media file. Hardcore Ethereum developers tend to prefer writing their own contracts, which offers greater flexibility and control. But for newcomers, the Shared Storefront is a common go-to.
On Thursday, OpenSea suddenly decided to cap the number of NFTs users could create this way, citing user “feedback” about the site’s creator tools.
To address feedback we've received about our creator tools, we updated our collection storefront contract limits to only support the creation of up to 5 collections and 50 items per collection.— OpenSea Support (@opensea_support) January 27, 2022
Backlash was swift, and the company reversed the decision later in the day. It gave its reasons in a tweet thread:
“We originally built our shared storefront contract to make it easy for creators to onboard into the space. However, we've recently seen misuse of this feature increase exponentially. Over 80% of the items created with this tool were plagiarized works, fake collections and spam.”
It’s a casual way of copping to a mammoth screwup: “80% of the items created with this tool were plagiarized works, fake collections, and spam.”
The NFT space has always been rife with plagiarism and spam, and OpenSea has played a major role in unleashing these forces. It’s difficult to imagine that a cap on the Shared Storefront would somehow stem the tide – but it’s OpenSea’s sorry reaction, more than anything else, that should have users worried.
OpenSea and its investors don’t need to care about plagiarism because it actively helps their business model: the company takes a cut of each sale, and a sale’s a sale, legitimate or not.
Venture capitalists and entrepreneurs have worked to make “creators,” not traders, the face of the NFT movement. Ultimately, it’s creators’ work on the line.
Blaming users for plagiarism and blaming “the nature of the blockchain” for the uncanceled listings debacle, while saying nothing of poor communications and user experience (UX) design (there was no quick way to see uncanceled listings before this week), is a cheap way of avoiding responsibility.
These weren’t amateurs losing their NFTs – they were experienced traders, the kinds of people who use OpenSea every day.
The company is only just starting to accept some level of responsibility for the plagiarism and exploitation it helped enable. Reimbursements and apology letters are a temporary band-aid, not a real solution.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.