NFT made it, and NFT also made it fail. The rise and fall of the company in the eyes of 18 OpenSea internal employees

Original title: The rise and fall of NFTs made and unmade OpenSea

Original author: Ben Weiss, theverge

Original translation: 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" had a sense of being abandoned.

"The turnout this year is definitely lower than last year," Ric Johnson, who is promoting an NFT that lets people vote on whether Donald Trump should go to jail, told me politely.

One attendee, who only gave me his screen name, Big Mac (crypto has a strong culture of anonymity), said the conference felt more like a preseason game than the Super Bowl of NFTs.

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

OpenSea, one of the industry’s most well-known companies, was one of the sponsors of the conference, 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 figure had fallen to below $430 million. NFTs are holding on, but they’re struggling.

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

At OpenSea, once the largest marketplace for NFTs, more storms are gathering. 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” with the Federal Trade Commission (FTC), attention from U.S. and international tax agencies, intensifying 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 crypto culture.

Out of the incubator

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

In 2017, Finzer, then in his 20s, teamed up with Atallah, a Stanford graduate and tech industry practitioner, 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 were admitted to Y Combinator, a famous incubator that has spawned tech giants such as Airbnb.

It was also around that time that blockchain, a decentralized database controlled by no one, saw another wave of enthusiasm, with developers promoting a new way to store data permanently on the blockchain. The new approach claims that these tokens are "non-fungible," meaning that they are not all the same like Bitcoin. In other words, NFT holders can show off that they are the real owner of a cartoon ape, which 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 regular folks: CryptoKitties, a game where users could buy and sell cartoon cats on Ethereum, one of the most popular blockchains.

On the platform that some heralded as the next generation of the internet, it wasn’t just JPEGs of cats that circulated. There were 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, “battled” 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 economies that are completely different from 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 only a few hundred traders per day, according to DappRadar. At the time, the company had fewer than 10 employees, one former employee said.

(Tens of thousands of people were using OpenSea’s site each week in mid-2020, according to Joshua Galper, an OpenSea spokesman.)

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

When the wind blows, it moves

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 the OpenSea platform more than tripled from the month before, according to DappRadar.

OpenSea can take up to 10% commission from each transaction, and the increase in revenue has attracted the interest of investors. In the same month, Finzer announced that OpenSea raised $23 million from investors including venture capital giant Andreessen Horowitz, valuing the company at $123 million. OpenSea is more eye-catching than ever, and the company began to expand.

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

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

“When I first saw the Bored Ape, I thought, ‘What the fuck is this?’ ” one former employee said, “and then seeing the prices people were paying for it—it was crazy.”

As more and more images of apes, punks, cats, and penguins changed hands, OpenSea’s commissions grew. Revenue soared from $9 million in the second quarter of 2021 to $167 million in the third and $186 million in the fourth, 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 financing, raising $100 million at a valuation of $1.5 billion.

“Celebrities popping up, all kinds of money grabs, (these) are really exciting,” said a former employee. “People who hadn’t been in touch in years were sending me emails... Everyone saw an opportunity to get rich.”

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

But with the increase in funds came 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 chief Nate Chastain to resign after some industry insiders discovered that he was trading NFTs using insider information. Chastain’s method was simple. Every few days, OpenSea would promote a new series of NFTs on its homepage. Given that the platform is the de facto main place to buy and sell NFTs, the price of these tokens would rise after being recommended on the website. Chastain knew which ones would be chosen, so he would resell them for profit shortly after the NFTs appeared on the homepage. "What Nate did was quite 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 fraudulent NFT collections, and stolen NFTs. “It was like a bloody orgy,” one former employee told me, describing the public good’s dire plight. Another former employee said users joked that OpenSea should be renamed “BrokenSea.”

“OpenSea struggled to stay responsive and focused on its users,” Galper said.

To handle the sudden surge in trading volume and other issues, Finzer and Atallah needed to expand OpenSea’s staff and start bringing in talent from big tech companies or with corporate backgrounds, according to multiple former employees.

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

“They hired these damn beasts, these ‘crawlers’ from companies like Amazon, Facebook, Google,” said another former employee. “It was like Game of Thrones, with the White Walkers coming through the door.”

Most of the current leadership team joined in the second half of 2021 and the first half of 2022, including COO Shiva Rajaraman and CTO Nadav Hollander. At its peak, OpenSea had about 300 employees—a considerable expense that Finzer and Atallah cut just a few months later.

“Our priority has always been to find the best talent anywhere, whether from big tech companies, small companies, or native to the cryptocurrency industry,” Galper wrote.

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

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

According to a source familiar with the transaction, Finzer, Atallah and a few early employees quietly cashed out part of their equity in this huge round of financing.

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 the entire staff. “That was a little surprising to me, because they seemed to be transparent about other decisions,” said two former employees. Those who received shares after the Series C round were subsequently prohibited from selling their equity. (“The company doesn’t recall any employee asking to sell shares to specific investors after the Series C round,” Galper said.) “The biggest news will be these secondary market share sales,” said one former employee. “The rest is less interesting.” Peak downhill OpenSea looked like it was going mainstream, but troubles kept coming. Shortly after Hollander, OpenSea’s current chief technology officer, joined the company, his team discovered a serious vulnerability in the company’s code that could have allowed 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 cap, 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 falling prices and other debts, its net loss reached $170.7 million.

(Galper disputed that number but didn’t provide financials.)

“I was like, ‘What the hell, you’re not somebody’s individual investor. Why take that risk when we have so much upside?’ ” one former employee thought after Finzer announced the financial misstep.

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

“I heard OpenSea took out 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’s always been a weird vibe between Devin and Alex, and I don’t think they get along very well together,” said one employee.

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

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

But while Atallah left to pursue his next project, Finzer chose to stay 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,” one former employee said.

Back in the Dark

In October, a new thorn in OpenSea’s side emerged: a new NFT 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 margins. Blur prioritizes the perks of traders over creators, not giving 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 with nearly three times the monthly trading volume of Finzer’s startup, thanks to the promise of an upcoming cryptocurrency offering, DappRadar reported. 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 “destroyed all of our product vision. It was a 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 work on projects and work as normal.”

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, who confirmed that company executives had discussed issuing cryptocurrencies in the past, said, “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 Securities and Exchange Commission 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.

The NFT.NYC conference in May 2023 was followed by another round of smaller, undisclosed layoffs at OpenSea, according to former employees. “The running joke was that everyone was afraid of NFT.NYC because all the layoffs happened after it,” one former employee said.

“There was a small reorganization at the company that resulted in some team structure changes, and as a result, several employees left,” 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 were partying in the desert mud, the SEC took its first enforcement action against the NFT industry, alleging 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 OpenSea third-party subpoenas, or mandatory requests for information, related to 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.

Legal counsel described the back-and-forth as an "SEC matter" and laid out OpenSea's defense in an internal document. Those arguments included that NFTs are not securities, that OpenSea is not a securities exchange or broker, and that OpenSea is protected by the First Amendment and Section 230 of the Communications Decency Act, which holds online operators 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 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 were unaware of the SEC's affairs, a vocabulary guide guided employees to use appropriate terminology when talking to each other or publicly about NFTs and OpenSea. Legal counsel told employees not to say "buy, sell or pay on OpenSea", but to say "buy on the blockchain", "buy using MoonPay (a cryptocurrency payment company)" or "buy using OpenSea". The guide said: "It is very important to make a clear distinction because it affects our tax and legal obligations."

Other terms employees should avoid using when talking about OpenSea include “exchange,” “broker,” “market,” “profit,” “share,” “stock,” “trade,” “trader” — words commonly 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 more details than mentioning the existence of such transactions, and the FTC did not respond to a request for comment.

Galper confirmed that OpenSea received a document request from the FTC and said it last filed documents with the agency in August 2023. He declined to say why the FTC and SEC requested documents from OpenSea 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 imminent lawsuit.

The day after I told OpenSea we planned to publish this story, Finzer announced on the X platform 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 business, 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.

“The FTC is more likely to make non-investigatory document requests than the SEC, rather than investigations,” she said.

Meanwhile, various tax authorities at home and abroad are also constantly inquiring at 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.

In early October, according to company documents, 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, according to 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 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.

“We do have a lot of interest from policymakers and regulators, and ultimately, the courts and the public will see what we have to say,” Gina Moon, former general counsel at OpenSea, said at a general meeting, according to a document I obtained.

Will OpenSea 2.0 arrive 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 dressed up as an “AI hacker,” wearing glasses, a hoodie with the OpenAI logo, and holding a keyboard. His partner dressed up as his “AI girlfriend,” complete with a blood-stained knife and mechanical-looking prosthetic limbs.

(OpenSea’s spokesman Galper countered that Finzer’s outfit was improvised and that he showed up only for the photo ops, then hurried home after walking the orange carpet 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 at one 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,” referring to the idea that the future internet will be based on blockchain, according to executive team member Lorens Huculak during an 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 of not only chains, but protocols, markets, all kinds of liquidity, including tokens,” Huculak said.

The product revamp also includes features that make OpenSea more competitive with Blur, according to a source familiar with the new product. “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 that characterization, saying the relaunch was about more than just upgrading and adding features for traders to track transactions. 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 did not initially motivate employees or investors. Shortly after the transformation, The Information reported that Coatue Management, one of OpenSea’s largest backers, actually reduced 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.

Several executives from OpenSea subsequently left after 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 paid people who didn’t want to stay at OpenSea to leave, and those who believed in the company’s future chose to stay and help us build,” Galper said.)

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

(OpenSea previously hired an outside investigator to look into one of the complaints, which the investigator found 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 gender discrimination have not been substantiated, and we have never engaged 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 boat, I chatted with James Woods, a collector whose T-shirt featured 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 a first date at a casino: “It worked out great.”

Eventually, we boarded the boat. 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,” and another named “Toast” (the two had an enthusiastic reunion), a man who said “Cyber Frogs” had changed his life, and a woman who hugged a stuffed animal named “Chonky.”

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

The yacht rocked from side to side in the rain, but we never left the dock. The storm was too strong. Finally, on the third floor, I chat with Yin Zhuoxun, co-founder and COO of Magic Eden. Like OpenSea, Magic Eden is backed by prominent venture capital firms and is valued at over $1 billion, according to its most recent funding round. “This is not an industry where you can sit back and count chickens,” Yin, who goes by the handle Z, tells me. “Everything is changing very quickly.”

While Blur has snatched hardcore NFT traders away from OpenSea, Magic Eden appears to be cannibalizing 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 both OpenSea and Blur in monthly NFT trading volume, according to DappRadar.

Despite the market volatility, most people I spoke to with a financial interest in the NFT industry are 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. He believes 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 cryptocurrency 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 member of Metallica, 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 lows not seen before the NFT craze in early 2021, according to DappRadar.

OpenSea still has plenty of money. It has $438 million in cash and $45 million in cryptocurrency reserves as of November 2023, according to an internal document, and is relying on those funds, hoping that the "2.0" transformation can help it weather the storm.

Finzer once said that he wanted his startup to 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.

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