Why OpenSea’s NFT Marketplace Can’t Win

What is a real ape? On OpenSea, the internet’s most popular NFT marketplace, answering that…

What is a real ape? On OpenSea, the internet’s most popular NFT marketplace, answering that question incorrectly can be costly. Last year, Bored Apes—cartoon primates linked to unique cryptocurrency tokens—skyrocketed in popularity. Now the cheapest cost $309,000, and OpenSea is crawling with imitations and rip-offs. Two projects featuring flipped versions of original Bored Apes, called Phunky Apes Yacht Club (PAYC) and PHAYC, vied for the title of authentic knockoff of the coveted simians; other apes, of which there are many, were just straight-up copypastas.

In December OpenSea banned PAYC and PHAYC, a step that elicited grumbles from the crypto crowd whose splurge has fueled the recent NFT craze. The move went against OpenSea’s self-styled image as a champion of Web3, a decentralized version of the internet free from censorship or gatekeeping. A few days later, a blog post by former Signal CEO Moxie Marlinspike, whose experimental NFTs were removed by OpenSea, gave the impression that OpenSea risked becoming another traditional tech platform, the “How do you do, fellow kids?” to the edgy Web3 insurgency.

OpenSea is trapped between a rock and a hard place: Its phenomenal growth has brought it more revenue, partnerships with tech giants like Twitter, and funding, but also a cartload of headaches as the company struggles to keep up with emerging security incidents and endless copycat NFTs. If OpenSea gets around to handling those issues, it could face a scornful backlash from cryptocurrency hardliners, which has already resulted in the launch of a rival NFT marketplace overtly designed to poach its customers.

On the other hand, digital art creators, for whom the rise of NFTs has repeatedly been described as a boon, think that OpenSea does not go anywhere near far enough in banishing plagiarism and bad behavior. The person behind @NFTTheft, a Twitter account devoted to exposing plagiarism on OpenSea and other NFT stores, is scathing. “When I first heard the word ‘OpenSea,’ I thought that piracy was its goal from the start,” they say, requesting anonymity out of fear of harassment from plagiarists. “This is now the main place for piracy.”

One can pinpoint the exact decisions that made OpenSea a success story and a huge problem in the same breath. In December 2020, the company announced that everyone would be allowed to “mint” their NFTs on the platform free of charge; three months later, that was compounded by the announcement that NFT collections would no longer need OpenSea’s previous approval to be listed. That model was in stark contrast with that of highbrow NFT platforms like Nifty Gateway or Superrare—which featured highly curated art collections—and ended up making OpenSea the biggest NFT marketplace on the web. In August 2021, it reported a monthly transaction volume of $3.4 billion, equivalent to $85 million in revenue, as OpenSea extracts a 2.5 percent transaction fee. A venture capital bonanza followed from marquee players such as investment houses Andreessen Horowitz and Paradigm, and Hollywood actor Ashton Kutcher, giving the company a valuation of $13.3 billion. In January, Twitter announced that it would use OpenSea’s API to let people create hexagonal NFT-based profile pictures. (Twitter declined to comment on the wisdom of partnering with OpenSea in light of the recent incidents.)

Then, on January 26, OpenSea tried to curtail the amount of fake NFTs on the site. It announced that free, unlimited minting was coming to an end: Each user would be limited to up to five collections, each containing no more than 50 NFTs. Backlash ensued, and the decision was reversed within 24 hours. In a backpedaling Twitter thread, OpenSea stated that over 80 percent of NFTs minted that way consisted of “plagiarized works, fake collections, and spam.” One day later, another PR disaster. OpenSea users started complaining that bots were on the prowl to exploit an outdated listing mechanism that would allow them to snap up NFTs at below-market prices. The design flaw led OpenSea to issue “over 2K ETH [$6.2 million] in reimbursements to community members who were impacted,” according to company spokesperson Allie Mack. That came on top of reports of NFT thefts, market manipulation, and security vulnerabilities that dogged the platform throughout 2021.