Department of Justice cracks down on NFT insider trading

Hi frens, welcome back to another episode of don’t get caught doing shady shit. Also congrats to Johnny Depp for winning his defamation case, now go find a woman that won't shit in your bed.

Estimated read time: 5 minutes

Market sentiment analysis: By the numbers it looks like there is an uptick in NFT volumes, as well as sentiment on NFT Twitter. In the last 24 hours there has been a 9.5% increase in Opensea volume, as well as a 5% increase in users. The BAYC floor is up to 97 eth and the MAYC is hovering over 19 eth, which is above the lows of 80 and 16 respectively that occurred in the past week. This coincided with the stabilization of Bitcoin and Ethereum.

Here's what is on the docket today:

• Nate Chastain: The Opensea Saga

• Winners and losers of the day

• Flippers corner - what high ROI wallets are buying

The DOJ arrests Nate Chastain, former Opensea employee for insider trading

Opensea issues

Well, this will be a landmark case in the history of NFTs, for multiple reasons. If you don’t know the history of Nate Chastain and his involvement with Opensea, his subsequent firing, and recent charges then strap in.

Nate was the Head of Product at Opensea from Jan 2021-Sep 2021 (9 months). A short lived stint, we've had hangovers that last longer. He endeared himself to the NFT community while there, by getting different collections verified, and addressing community concerns in a very open and proactive way,

However, some uncomfortable facts soon came to light, and ‘Naughty Nate’ was born (you're welcome). As he was accused of ‘front running’ projects listed on Opensea…..or as some (the DOJ) may call it - insider trading.

Some twitter sleuths found different transactions around Nate’s main wallet, which linked to other anonymous wallets. Using etherscan these ‘detectives’ with too much time on their hands (kidding, we are grateful) found a paper trail leading to some questionable transactions.

Here is a good thread on some of the transactions that were noted by Twitter user @0xZuwu. Which essentially confirms that Nate, or wallets linked to his main one, were purchasing NFTs before they were listed on the Opensea homepage, typically causing prices to rise, and then selling them for a profit.

Well, all this negative attention caused Nate to either resign, or be ‘let go’ from Opensea. With the platform confirming that an employee used insider information to profit. And they would be undergoing a 3rd party review of their inner workings.

We thought this would be the end of Naughty Nate saga……..it’s not.

DOJ Arrest and Charges

It was reported that Nate was arrested and charged with wire fraud and money laundering in connection with a scheme to commit insider trading in NFTs.

Here is a snippet from the press release of the DOJ:

U.S. prosecutors in Manhattan are accusing Nate of buying 45 NFTs on 11 separate occasions based on confidential information that these tokens would soon be listed on Opensea’s homepage. These events occurred between June and September 2021.

"NFTs might be new, but this type of criminal scheme is not. Today's charges demonstrate the commitment of this office to stamping out insider trading - whether it occurs on the stock market or the blockchain." - U.S. Attorney Damian Williams

This news has created waves in the mecca of NFTs - Twitter. With speculation about how this will affect not only Nate, but NFTs as a whole.

Implications: Are NFTs now securities?

This marks a turning point in NFTs. Inside traders, scammers, pump & dumpers, front-runners, and rug pullers should be having night terrors after this news.

Some argue that this is the best thing for the NFT space, and that regulation is needed for the space to thrive, and that this will weed out many felonious actors.

Others point out that this could be the gateway for NFTs to be treated as securities. As of now there has been no guidance from the SEC on if NFTs are considered securities, many consider them digital collectibles (or art). Can insider trading be done with Pokémon cards, sneakers, or physical art? And if so, should the government be able to come after you?

The charges of wire fraud and money laundering make it appear that perhaps Nate tried to avoid paying taxes too? And that this was the easiest path towards pressing charges for the SEC. This is speculation on our part.

What is interesting is that insider trading can be a securities related charge OR a descriptor for a scheme where someone trades non-securities assets based on material non-public information. In Nate’s case this could mean the latter, whereby NFTs aren’t considered a security, instead his specific actions violated financial laws.

The implications of this case could be enormous for the NFT space, and could perhaps draw all sorts of collectibles into the conversation of being securities if the SEC goes that route. Let’s see how this plays out.

Winners and Losers

The projects that have stood out to us the most in the past 24 hours, the good, and bad.

Winner: Goblintown.wtf - Floor Price Up 74% in the last 24 hours

Goblintown.wtf just keeps on climbing. This project was a free to mint less than 2 weeks ago, and is up around 1500% in the past week! Why? We have no idea. Here’s the founders doing a Twitter space about the project though. Worth a watch for the thorough technical analysis and roadmap breakdown (haha).

Loser: Rare Land NFT - Floor Price down 54% in the last 24 hours

A metaverse land drop (?) that will turn into avatars, AR avatars, VR rooms with more to be revealed over time. Sounds like when you go to a restaurant that has 200 items on the menu and they all taste like garbage.

Flippers Corner

We've been tracking high ROI wallets, here’s what they have been purchasing recently. We do not recommend buying these projects, DYOR, as you could likely be someone’s exit liquidity.

Zombiestown.wtf

Another addition to the somethingtown.wtf ecosystem. 0.035 ETH Floor

Baby Goblinz

This is getting ridiculous, lol. Of course Goblinz need babies!. 0.03 ETH Floor, 1700 + sales in the past 24 hours

Headlines of the day

• Solana blockchain suffers new network outage

• Goblintown Is a $37M NFT Collection That No One Can Explain

• Prada launches new fashion NFT, P2E games witness growth in India

• Apple's upcoming developer conference sparks rumors of NFT trading cards

Disclaimer: Nothing in this article/newsletter should be considered financial advice. The purpose is to inform readers of the current trends and news in the web3 space. We encourage every reader to do their own research and not act upon information put forth by Decentra Daily.