OpenSea product chief accused of flipping NFTs with insider information
theverge.com
theverge.com
MtGox pumping and wash trading with Willy bot. Bitmex trading against and liquidating customers. Coinbase hiring Litecoin creator Charlie Lee and having him frequently wash trading 99% of LTC volume. Each of these has been _the_ preeminent exchange at some point in time, just as OpenSea is for NFT.
FTX was born from one of if not the largest crypto trader/market maker, and one of two known Tether customers (who apparently account for a large majority of Tethers). Alameda was the only/largest liquidity provider on FTX for some time. Binance has been similarly accused (without solid proof) of trading against customers. Of course they claim to have walls between these relationships. But then again, so did Mt Gox, Bitmex, Coinbase, OpenSea and loads of others that would take too long to mention.
Crypto is a casino where there are a handful of dealers that are running thousands of tables. They are all colluding. The grift is to exchange real fiat currency for chips at their casino.
It has been proven at a shocking number of blue chip institutions (dare I say a majority). Given our expected likelihood of uncovering these things, it seems highly probable that it’s happening everywhere.
In crypto, the game is not fair. The refs are players and there are no rules.
In crypto, the opposite is true. Because there are no penalties, otherwise malicious behavior is encouraged. First and foremost: exchanges trading against customers. This would never be allowed in a regulated market, just like we would never allow judges to wager on the cases over which they preside. It creates a horrible conflict of interest. But in crypto, conflicts of interest are the most successful business models (across a load of projects).
Crypto is mostly regulatory arbitrage. I’ll be the first to change my mind when the facts change, and maybe I’m just not as visionary as every other lambo hopeful. But as it stands today, this is the reality.
We may be saying the same thing: the difference is the regulation, not the moral character of participants.
Which can be used for good, of course - the standard example being things like "transferring money across immoral embargoes". But in this case, if the difference is regulation, then the question for ordinary folks who are not themselves trying to pull a scam is - would you rather work with dishonest con men who believe they will get in trouble with law enforcement if they actually con you, or with dishonest con men who believe they can get away with it?
Suppose I were to say "Elbonia is a dangerous lawless country, where corruption abounds and you're not safe on the streets," and you were to respond by saying "There's nothing inherent to Elbonia to create those conditions except the lack of laws against corruption or mugging. And corruption and mugging happen in the US, too, and you'd see more of it if there weren't any laws against it. There's nothing about the Elbonians as a people that makes them more inclined to crime."
I would respond by saying "Thank you for proving my point that Elbonia is a dangerous place."
What message do you think I'm trying to say? I'm certainly not claiming crypto is free of scams and self dealings.
In theory. In practice, it seems to have just moved the trust problem.
Open interest, volume and price data down to seconds is available via APIs in real-time, from which it is absolutely possible to build a model of positioning.
If you launch a new exchange, your biggest problem is lack of liquidity, meaning limit orders won’t fill ‘timely’ and market orders slip, which is very bad UX obviously.
That is why it is fairly obvious that one of the best market makers in the industry launched their own exchange; Alameda could provide excellent liquidity for FTX from day one.
I’ll say this as respectfully as I can: you’re wrong. Aside from algos, positions are the most closely guarded information in trading. If you know someone’s positions, you might be able to assess what their risk tolerance and stops would be, and you can exploit that.
If you’re a crypto exchange with huge highly leveraged perpetuals trading, you don’t have to guess where the stops are: you know exactly where those positions will be liquidated. Hell, you built the system to execute the liquidations.
So you just run an algo (you don’t even need funds/margin because hell you’re the exchange) to whipsaw people around and trigger this liquidations while you profit massively.
The biggest risk to established exchanges is ‘regulatory alienation’ — and having millions of USD in daily liquidations probably is not helpful here.
Won’t say these trades aren’t done (data needed to build positioning models is public), my only point here; v unlikely by exchange owners.
I've heard that there are a bunch of companies in the space paying their blockchain engineers minimum wage (when their salaries should have been at least 250k), and instead compensating them by letting them insider trade on their press releases. The reason the people in these cases rarely get fired when found out is that it's literally their compensation package.
In 2019-2020, the SEC cracked down on Initial Coin Offerings. They grandfathered in the early coins, and shut down some out and out scams. Then the SEC started sending out letters, "explain to us why your ICO isn't a security offering requiring registration as an IPO". Suddenly there was a huge drop in ICOs.
So then came NFTs, which looked like they were going to evade regulation. Then some of the NFT issuers started making NFTs which looked like IPOs. Selling land in virtual worlds that don't exist yet, for example. That's a no-no. That passes the Howey Test - value paid into a common enterprise, with the expectation of future gains, to be derived from the efforts of others. That's the definition of an investment in the US. If the value of an NFT depends on the future efforts of the organization involved with the NFT, it's a security.
That doesn't quite seem to be the case here, though. It's legal, and fairly common, for an art dealer to front-run artworks or have shill buyers. You're supposed to know what the art is worth.
Selling NFTs in bulk, though, might start to look like a security for regulation purposes. Selling fractional shares in NFTs definitely is. The SEC is working on a guidance memo. If you're starting up an NFT, you definitely need some time with a securities lawyer. Remember, the whole point of most NFTs is to try to evade securities regulation. That comes with serious legal risks.
I think the meaningful bit is whether or not an NFT is a baseball card, or ownership of... Some yet to be generated value, somehow derived from a baseball card.
The latter is obviously a security, the former is, to my layman eyes, probably not.
Continuing on this train of thought, it should be worth noting that useless things (Ownership of a baseball cards) are not regulated, but useful things (Ownership of a stake in the value generated by a baseball card) are regulated.
It makes sense, in a perverse way - if someone wants to spend their money on a useless thing, that's on them. If someone wants to spend their money on a useful thing, then, well, the buyer should expect some assurance that they are not being completely lied to and swindled. (Which is why the SEC regulates securities markets, and not art auctions.)
I think it's not, and I wager this is what's attractive about crypto for these people. All the old tricks are new again, because crypto kinda works like how currencies, exchanges etc work, but the regulation is few and far between yet.
This made my chuckle. The article that it links to was aptly titled "This $1.5 million ‘women-led’ NFT project was actually run by Russian dudes" [0]
Since so much is driven by identity, is there a service where you can rent out front people to "lead" the team that check the right boxes? Kind of like the those ghost board members that sit on thousands of board of directors on Cayman Islands shell corps and just do what management says?
[0] https://www.inputmag.com/culture/fame-lady-squad-nft-women-m...
Like much of modern crypto-centric products, this is a solution in search of a problem. People are accustomed to going in headfirst without knowing who is behind these projects. It's 'decentralized' and features 'smart contracts' for 'trustless commerce'. What more do you need?
Yes, it's called stock photography. Buy a couple of pictures of smiling people from a peddler of it, and stick them on your website's 'About Us' section.
It's sad to see these fantastic technologies falling into darkness. Same can be said about the majority of the internet and its phenomenon to be honest.
It creates a scarcity in an internet full of abundance. You can copy/paste a JPEG or MP3 a million times (hello piracy), but you can't own an NFT or coin you don't actually own. Sure, you can copy/paste the underlying JPEG, but thats not the same. There will only be 1 blockchain owner.
This unique property of scarcity is a valuable property for financial products, in an obvious way. The issue is that an abundance of a scarce product is ripe for fraud. Oh, and of course there is no answer for the on-chain to in-IRL conversion for things like ownership.
Outside of money you don't need scarcity
Blockchains created scarcity. Not bitcoin. Bitcoin uses a blockchain to enforce its particular scarcity. Blockchains enable auditable history, meaning that we can have "only one" true owner (per chain) and one true chain - that's good for money, yes.
> Outside of money you don't need scarcity
Yet people seem to love it. I personally have no interest in NFTs but I understand that people like collecting, and its a way to collect that's verifiably true (presumably, it'd be humorous to find the exchanges were just CRUD app with sql ledgers).
In the end, this is a less interesting beany babies.
Who gives a shit about anything? Luxury goods have value from name only? Who cares about baseball cards or stamps? They're so easy to print on a inkjet that anyone can have any card they want?
This is just another example of "not made for you" collectors. Its scarce because the creator said so, and because its auditable without trust.
It's crazy that a company like OpenSea, that is a massive success story in the space, can't keep an employee happy enough to wait for his riches to come.
There are so many fascinating and brilliant things happening in crypto but they get overshadowed by grifters like this.
https://twitter.com/BoredPimp/status/1437989964680032264
If NFTs were useful, they'd be securities, and would be regulated by the SEC.
The entire point of NFTs is that they are naked, useless, purely speculative instruments. It's a big blackjack table, except unlike in Vegas, the house has an edge.
Do people promise there is? NFTs essentially seem like digital collectible cards. It seems stupid to me, but so does collecting little pieces of cardboard with pictures printed on them.
Either the actual art exists off-chain somewhere and there’s just a hash of it onchain, which the “owner” controls with the private key of the transaction or contract the hash is in. But the art can still be copy-pasted all over the Internet and the only way to prevent rando’s from using it for free is with traditional copyright law, so it’s not actually decentralized.
Or the art itself is onchain but it’s just some avatar manually drawn in Microsoft Paint (cryptopunks I’m looking at you) and not pseudo-randomly procedurally generated in the smart contract or anything technologically novel and notable like that.
The concept of NFTs is interesting and may lead to something truly cool someday, but most of the implementations right now are trash.
Disclaimer - I haven't reviewed all the NFT implementations, there are too many. But if there are any that are fully on-chain, decentralized, have zero off-chain dependencies, and are artistically and/or technologically novel, then please let me know!
[1] https://www.theatlantic.com/business/archive/2015/10/draftki...
Bad look for OpenSeas and unethical? Sure.