If the NFT market continues to be in a downturn, OpenSea will not be able to lead the wave of digital collectibles, and it will face a stagnant dilemma.

Author: Ben Weiss

Translation: DeepTechFlow

On a cloudy April afternoon, I attended the 7th NFT.NYC, which is a gathering place for all those who believe in APE JPEG and other NFTs, and the event, known as the "Super Bowl of NFTs," seemed a bit deserted.

"The people here are indeed fewer than last year," Ric Johnson politely told me as he was promoting an NFT that allows people to vote on whether Trump should go to jail. Attendee Big Mac, who only revealed his online alias (anonymity is highly valued in cryptocurrency culture), said that this conference was more like a "preseason" rather than the "Super Bowl" of NFTs. And Tom Smith, a booth staff member responsible for promoting personified cannabis plant NFTs, bluntly said, "It looks really lifeless here."

OpenSea, perhaps one of the most well-known companies in the industry, was one of the sponsors of this conference, but 33-year-old co-founder and current CEO Devin Finzer did not show up. OpenSea's co-founder Alex Atallah did appear at the first conference, but he did not want to talk about the technology that made him and Finzer paper billionaires twice. Instead, he mostly talked about AI.

Although the value of cryptocurrencies has rebounded, the storyline that was hyped during the last cryptocurrency frenzy—NFTs—has not yet recovered. According to data from CryptoSlam, the total monthly sales of this asset class exceeded $6 billion in January 2022. Now, as of July, this number has dropped to less than $430 million. NFTs are still holding on, but they are facing difficulties. "My mom thinks I'm a scammer," I heard one attendee say.

OpenSea, once the largest NFT marketplace, is now facing more challenges. This privately held startup, which grew out of the Y Combinator incubator, is now facing lawsuits from the Securities and Exchange Commission, "matters" not reported to the Federal Trade Commission, investigations from US and international tax authorities, intense market competition, allegations of gender discrimination, 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, we can see how this startup inspired by cat JPEGs has transformed into what former employees call a "lightweight" version of Meta, seemingly lost between big tech and crypto culture.

Finzer once described OpenSea as an entrance to a vast new internet. But now, as the NFT craze subsides, that statement seems somewhat shallow.

In 2017, the twenty-something Finzer teamed up with Stanford graduate Atallah to found a startup

Initially, they planned to encourage people to share Wi-Fi with strangers using cryptocurrency. In January 2018, they successfully entered the renowned Y Combinator incubator, which has nurtured tech giants like Airbnb.

At that time, blockchain technology (decentralized databases) was experiencing a new wave of enthusiasm, and developers were promoting a new way of permanently storing data. These tokens were "non-fungible," meaning they were unique and not interchangeable like Bitcoin. In other words, NFT holders could proudly claim to be the sole owner of a cartoon monkey because it was proven in an immutable database.

Supporters in the industry believed that these tokens could represent almost anything: property deeds, patents, contracts, and even rights to virtual real estate. But at the end of 2017, Dapper Labs introduced an app that was more user-friendly: CryptoKitties, a game where users could buy and sell cartoon cats on the Ethereum blockchain.

It wasn't just cartoon cats; JPEG-format digital assets were also popular in the so-called next-generation internet. For example, CryptoPunks, pixelated character images with Mohawk hairstyles and sunglasses; digital trading cards inspired by Pepe the Frog, a meme with a complex history; and EtherTulips, virtual tulips that could even battle each other.

Finzer and Atallah noticed this trend and decided to pivot. John Caraballo, a contract worker they hired, who was responsible for writing the initial code for the OpenSea website, told me, "They were very ambitious, building something very cutting-edge, unprecedented."

After graduating from Y Combinator, including a class that developed cannabis soda and VR psychotherapy projects, Finzer and Atallah announced that they had raised $2 million for their NFT marketplace and received support from well-known investors like Peter Thiel's Founders Fund.

In a blog post announcing the funding, Finzer wrote, "The future economy will surpass our wildest imaginations, and we hope to drive its development. Things are just starting to get exciting…"

For nearly three years, there hasn't been much exciting news in the NFT industry

According to DappRadar's data, during 2020, OpenSea's platform had only a few hundred active traders per day, and according to a former employee, the company had fewer than 10 employees.

(OpenSea spokesperson Joshua Galper stated that tens of thousands of people visited OpenSea's website every week in mid-2020.)

"Their lives revolved around OpenSea," the employee said, referring to team members including Finzer and Atallah. "It was an interesting and challenging time, very intense."

However, in March 2021, the NFT market suddenly heated up. Artist Mike Winkelmann, widely known as Beeple, auctioned an NFT for $69 million, and NFT sales on the OpenSea platform more than tripled from the previous month, according to DappRadar's data.

OpenSea charges up to 10% commission on each transaction, and as revenue increased, investor interest also surged. In the same month, Finzer announced that OpenSea had raised $23 million at a valuation of $1.23 billion from investors, including venture capital giant Andreessen Horowitz. OpenSea's influence soared, and the company began to expand. "It was really crazy at that time," a former employee recalled. "We all wore multiple hats."

The NFT craze continued. Following the massive sale of Beeple's artwork, a company called Yuga Labs launched the Bored Ape Yacht Club, a series of 10,000 cartoon apes that owners could enjoy exclusive events, privileges, and products. People were willing to spend millions of dollars just to own a monkey with golden fur or wearing heart-shaped sunglasses. "When I first saw the Bored Apes, I thought, 'What is this?'" a former employee said. "It's incredible to see the amounts people are willing to pay for it."

As more and more images of apes, punks, cats, and penguins were traded, OpenSea's fee income continued to increase. According to internal company documents, revenue surged from $9 million in the second quarter of 2021 to $167 million in the third quarter and $186 million in the fourth quarter. "It was an interesting period," another employee said. "Every time a new feature was launched, it sparked widespread discussion."

Suddenly, Finzer and Atallah's marketplace began to generate substantial income, and investors were exceptionally excited. In July, the startup raised another round of funding, raising $100 million at a valuation of $1.5 billion. "Celebrities were showing up, funds were pouring in, it was really exciting," a former employee said. "People I hadn't heard from in years were starting to email me… everyone saw the opportunity to get rich quickly."

However, with the increase in funding, OpenSea also faced more challenges

In 2023, Finzer recalled the early days of the company to employees, saying, "Every stressful thing felt like the most important thing in the world."

In September 2021, OpenSea asked its product lead, Nate Chastain, to resign because industry observers found that he was using insider information for NFT trading. Chastain's strategy was simple: OpenSea recommended new collections on its homepage every few days, and as the primary NFT trading platform, the prices of these tokens usually rose after being recommended. Chastain used this information to buy in advance and sell at a profit after the price rose. "At that time, Nate's actions were not uncommon in the industry," a former employee said.

Chastain was eventually sentenced to three months in prison, marking the Justice Department's first successful prosecution of NFT insider trading. However, this was just one of the problems OpenSea faced. Users were also dissatisfied with website malfunctions, poor or fraudulent NFT collections, and stolen NFTs. "The company faced more and more difficulties," a former employee recalled. Another former employee mentioned that users even jokingly referred to OpenSea as "BrokenSea."

Galper stated, "OpenSea strives to respond quickly to user needs and maintain close communication."

To address the surge in trading volume and other issues, Finzer and Atallah began to expand OpenSea's team and bring in talent with backgrounds in large tech companies or enterprises. According to several former employees, "the company did not promote talent from within," one employee said.

"They recruited many professionals from Amazon, Facebook, Google," another former employee described. "Like the White Walkers in 'Game of Thrones,' they came pouring in."

Most of OpenSea's 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, which was a significant expense, and not long after, Finzer and Atallah began to downsize.

Galper wrote, "Our top priority has always been to find and hire the best talent, whether they come from large tech companies, small enterprises, or experts in the cryptocurrency field."

However, funds continued to flow in. OpenSea's revenue reached a record $265 million in the first quarter of 2022. The two co-founders also completed their largest funding round ever: raising $3 billion from top venture capital firms, bringing OpenSea's valuation to a staggering $13.3 billion. According to Forbes' report, as of the end of 2021, Finzer and Atallah each held 19% of OpenSea, making them billionaires on paper. (Galper stated that the reports on the co-founders' ownership percentages in OpenSea are not accurate. However, Forbes has not issued a correction.)

OpenSea's investors are not limited to cryptocurrency-focused venture capital but also include celebrities from Silicon Valley and other regions. The public list of investors includes "Shark Tank" star Mark Cuban, basketball star Kevin Durant, actor Ashton Kutcher, and DJ 3LAU. According to internal company documents, OpenSea's shareholders also include James Musk, YouTube co-founder Jawed Karim, Adobe Chief Strategy Officer Scott Belsky, and former Microsoft strategy executive Charlie Songhurst.

According to a source familiar with the transactions, Finzer, Atallah, and a few early employees quietly cashed out a portion of their equity in this large-scale financing round.

Galper confirmed to me that some employees did sell their shares in the Series C financing, but he did not specify the earnings of Finzer and Atallah.

"The team and investors believe it is appropriate to provide some liquidity to those who have worked hard to achieve this milestone for the company," Galper added.

Five former employees told me that the co-founders did not publicly disclose the news of the secondary stock buyback to all employees. "It surprised me a bit because they have been transparent in other decisions," one person said, but also mentioned that there was not much reaction to this news.

Two former employees mentioned that employees whose stock options vested after the Series C financing were prohibited from selling their shares. ("The company does not recall any employees requesting to sell shares to designated investors after the Series C financing," Galper said.)

"The biggest news is undoubtedly the transactions in the secondary market," a former employee said, "the others are not so eye-catching."

OpenSea seems to be heading towards the mainstream, but problems continue to arise

Shortly after the current CTO Hollander joined the company, his team discovered a serious vulnerability in the company's code that could allow attackers to receive payment without delivering NFTs. Although no attack occurred, Finzer told employees in 2023, "This is one of the most concerning things."

In March 2022, just as Finzer was celebrating OpenSea being named one of Time magazine's 100 most influential companies of the year, the NFT craze began to wane. According to CryptoSlam data, the total market sales plummeted from around $6 billion in January 2022 to just over $1 billion in June. OpenSea's quarterly revenue also declined, dropping to $171 million in the second quarter.

More unfavorably, until the first half of 2022, most of OpenSea's cash reserves existed in the form of the second-largest cryptocurrency, Ether. During a company-wide meeting, Finzer explained the company's financial situation to employees, stating that OpenSea hoped to support the cryptocurrency industry through practical actions rather than converting these crypto funds into more stable assets. However, the problem was that by June 2022, the price of Ether had dropped by nearly 80% since November 2021.

After accounting for the price drop and other debt losses, OpenSea's net loss in the second quarter of 2022 reached $170.7 million, despite the company still achieving $171 million in revenue. (Galper disputed this data but did not provide specific financial information.) "At that time, I thought, 'You're not someone's private investor. Why take risks with so many opportunities?'" a former employee thought after Finzer announced the financial mistake.

Despite facing financial challenges, OpenSea remained active at the NFT.NYC event in the summer of 2022. During an event at Radio City Music Hall, conference co-founder Jodee Rich asked, "I heard OpenSea took over an entire hotel in Midtown?" Finzer smiled and replied, "Sounds about right."

During the same week, many OpenSea employees were in the city, and Finzer held a company-wide meeting to alleviate everyone's concerns about the company's future. According to two former employees, the main message of the meeting was: don't worry.

However, less than a month later, OpenSea laid off 20% of its employees.

Around that time, Atallah announced that he would step back from the day-to-day operations of OpenSea but would continue to serve as a board member. Former employees were puzzled by the reasons for Atallah's departure. "There was always some subtle tension between Devin and Alex, I don't think they got along very well," one employee said. "I heard they disagreed on many things," another employee added.

An anonymous OpenSea investor revealed that Atallah told him he was leaving amicably. "I think Atallah is the kind of person who enjoys the early stages of startups," the investor said. "As the company grows in scale and becomes more corporate, I think he just felt, 'I want to pursue the next goal.'"

In a statement, Atallah denied any conflict with Finzer and agreed with the investor's view: "I have always been passionate about the early stages of startups and ultimately decided to explore a new direction."

However, as Atallah left to pursue new ventures, Finzer chose to stay and continue leading a company that seemed to be in a completely different situation than a few months before. By the third quarter of 2022, OpenSea's revenue plummeted to just $32 million, with a deficit of over $27 million. "The morale of the employees quickly became low," a former employee said.

In October, OpenSea faced a new challenge: a new NFT marketplace called Blur emerged. OpenSea had once dominated the multi-billion-dollar NFT trading market, but now it had to fiercely compete for market share.

The founder of Blur was a programmer using the pseudonym "Pacman"

He later revealed himself to be Tieshun Roquerre, a 20-something MIT dropout and Y Combinator alumnus. Blur emphasized the financialization of NFTs, treating them as assets that traders could profit from through buying and selling.

Many professional traders wanted to maximize their profits, and the royalties charged in markets like OpenSea reduced their earnings. Blur focused more on the interests of traders rather than art creators and did not give artists a share of the sales on the platform. In addition, it promised to distribute cryptocurrency to active users—essentially "free money"—which attracted a large number of NFT speculators to this new market.

Blur quickly eroded OpenSea's market share. According to DappRadar data, by February 2023, with the promise of its upcoming cryptocurrency, Blur's trading volume surpassed OpenSea, nearly tripling the monthly trading volume of the company founded by Finzer. Meanwhile, OpenSea's quarterly revenue continued to decline, dropping to $23 million in the fourth quarter of 2022 and $19 million in the first quarter of 2023.

Finzer felt the need to take action. A former employee said, "Blur's rapid rise 'disrupted all of our product plans.'" "It was like a chaotic disaster."

A current employee had a different view. "Strictly speaking, Blur's arrival didn't really affect my work," they told me. "I continued to develop projects and conduct business as usual."

Several former employees revealed that OpenSea quickly abandoned its mission to popularize NFTs and instead catered to speculators. According to an insider, Finzer even discussed the possibility of the company launching its own cryptocurrency with founders and lawyers in the cryptocurrency field.

Galper stated, "OpenSea has always focused on long-term development rather than pursuing short-term achievements in a competitive environment." He confirmed that company executives had discussed plans to issue a cryptocurrency.

However, launching a token carries risks, as the U.S. Securities and Exchange Commission (SEC) has repeatedly emphasized that most cryptocurrencies are unregistered securities. Since the collapse of FTX in November 2022, the SEC has launched extensive crackdowns on cryptocurrencies and reached settlements or filed lawsuits with some industry giants, including Coinbase and Binance.

According to former employees, after the NFT.NYC event in May 2023, OpenSea conducted another round of small-scale, undisclosed layoffs. "People joked that everyone was afraid of NFT.NYC because layoffs always happened after the event," a former employee said.

Galper wrote, "The company underwent a small-scale reorganization, which led to changes in some team structures, resulting in several employees leaving."

In August, OpenSea announced that it would stop enforcing creator royalties, which disappointed some employees. Former employees said this sparked internal dissent. "I feel like OpenSea hasn't really defined their target audience and hasn't developed the market in a targeted way," one former employee added. "They're just groping forward in the dark."

After OpenSea's controversial decision to cancel royalties, Finzer and his partner, former crypto hedge fund manager Yu-Chi Kuo, left New York City to attend "Burning Man" for the first time in over a year, as reflected on Kuo's Instagram. (Galper stated that this was Finzer's first vacation in over a year.)

While Finzer and Kuo were enjoying parties in the desert, the SEC conducted its first enforcement action against the NFT industry, stating that NFTs issued by Impact Theory, a media company created by the founder of Quest Nutrition, were unregistered securities. Just a few weeks later, the SEC also charged Stoner Cats 2, the company responsible for an animated series supported by Mila Kunis and involving Ashton Kutcher and Jane Fonda, for issuing NFTs considered unregistered securities. Impact Theory and Stoner Cats 2 agreed to cease and desist orders and paid legal fines of $6.1 million and $1 million, respectively.

Some OpenSea employees were unaware that the company was involved in two separate regulatory "matters." The SEC had issued a third-party subpoena to OpenSea, requesting information related to other entities. Additionally, according to internal documents, OpenSea had an SEC-appointed lawyer handling its "case" and engaging in "document production" with the agency.

Legal counsel referred to these negotiations as "SEC matters" and detailed OpenSea's defense in an internal document. The reasons included arguments that NFTs are not securities, OpenSea is not a securities exchange or broker, and OpenSea is protected by the First Amendment and Section 230 of the Communications Decency Act, which states that online platforms are not responsible for third-party content. SEC spokesperson David Ausiello stated, "The SEC does not comment on the existence or non-existence of investigations."

OpenSea spokesperson Galper confirmed that OpenSea had been receiving information requests from the SEC since 2022. He stated, "Working with regulatory and enforcement agencies is our standard process, and we are committed to complying with applicable laws and regulations."

Although some employees were unaware of the SEC's matters, a vocabulary guide instructed employees to use appropriate terms when discussing NFTs and OpenSea with others or the public. Legal counsel advised employees to avoid using phrases like "buying, selling, or paying on OpenSea" and instead use "purchasing on the blockchain," "purchasing through MoonPay" (a crypto payment company), or "purchasing through OpenSea." The guide emphasized the importance of this distinction as it would affect tax and legal responsibilities.

Employees were also advised to avoid using terms like "exchange," "broker," "market," "profit," "shares," "stocks," "trading," and "traders" when discussing OpenSea, as these terms are typically associated with securities and fall within the SEC's regulatory scope.

Additionally, there was an "FTC matter," and OpenSea had submitted documents to the regulatory agency. The internal documents I obtained only showed the existence of this correspondence and did not provide further details, and the FTC did not comment on it.

Galper confirmed that OpenSea had received document requests from the FTC and stated that the last time they submitted documents to the agency was in August 2023. He declined to comment on why the FTC and SEC were requesting documents from OpenSea and did not comment on whether OpenSea had received a Wells notice from the SEC (indicating potential litigation against a company or individual).

The day after I informed OpenSea that we planned to publish this report, Finzer announced on X that his startup had received a Wells notice. He wrote, "We are shocked by the SEC's broad action against creators and artists. But we are prepared to stand up and fight."

Christopher Odinet, a professor at Texas A&M University specializing in cryptocurrency law, told me, "Typically, when an agency requests documents from a company, it's because they suspect there are issues."

Christa Laser, a professor at Cleveland State University who researches the intersection of cryptocurrency and law, stated that the FTC's request for information from OpenSea could be due to suspicion about the company itself, but it could also be to better understand this emerging market. "The FTC is more likely than the SEC to make non-investigation-based document requests," she said.

Meanwhile, OpenSea continued to deal with ongoing inquiries from tax authorities both domestically and internationally. For example, the Australian Taxation Office (ATO) was in discussions with OpenSea regarding whether the company needed to pay taxes on the fees collected for each NFT sale on the platform and the full price of NFTs.

According to company documents, in early October, OpenSea's legal team traveled to Australia to argue for their platform to be exempt from higher taxes. If the ATO's decision is unfavorable to OpenSea, based on internal discussions in August 2023, Finzer's startup could face approximately $130 million in taxes. Additionally, tax authorities in Washington state, India, and Taiwan were also making related inquiries.

The ATO declined to comment on OpenSea for reasons of confidentiality and privacy. Washington state also declined to comment for similar reasons. Tax authorities in India and Taiwan did not respond.

OpenSea spokesperson Galper declined to comment on the company's communications with tax authorities.

According to a document I obtained, OpenSea's former general counsel, Gina Moon, stated at a company-wide meeting, "We are indeed under intense scrutiny from policymakers and regulators, and ultimately, the courts and the public will see our response."

On Halloween, OpenSea's quarterly revenue dropped to its lowest point since the early days of the NFT craze. On that day, Finzer and his partner attended Heidi Klum's annual Halloween party at Marquee nightclub in New York City.

According to Kuo's Instagram post, Finzer dressed as an "AI hacker," wearing glasses, a hoodie with the OpenAI logo, and carrying a keyboard. His partner dressed as his "AI girlfriend," with a blood-stained knife and a mechanical-style prosthetic limb.

OpenSea spokesperson Galper stated that Finzer's costume was put together last minute, and he only went to take photos. After walking the orange carpet, he hurried home to take work calls and continue planning a major overhaul for the company.

Three days later, the day after FTX's former CEO Sam Bankman-Fried was convicted of fraud, OpenSea announced a large-scale layoff, resulting in over 100 employees leaving, accounting for approximately 56% of the total workforce. On the social media platform X, Finzer stated that he was reorganizing the team around "OpenSea 2.0," a strategic and product transformation, but he did not disclose many details. He later told employees, "This is a huge gamble and quite intense."

According to a memo sent by Finzer to departing employees, they would receive four months of cash severance and benefits such as six months of health insurance.

Finzer invited the remaining employees to an external meeting to discuss the company's new direction. According to a document I obtained, he stated at a company-wide meeting held in a Hollywood mansion that once belonged to Katy Perry and Russell Brand: "The true goal of these changes is to transform us from followers to leaders."

According to a speech by executive team member Lorens Huculak at the company-wide meeting, OpenSea plans to "become the gateway to Web3," which means the future internet will be built on the blockchain. The startup plans to rewrite most of its code to allow users to track crypto transactions more easily on the platform without needing to visit other websites. Huculak stated: "We will become an aggregator, aggregating not only chains but also protocols, markets, various liquidity, and tokens."

According to sources, the product revamp also includes new features to better compete with Pionex. They stated: "This is just a rebranding of OpenSea Pro." This refers to the part of the OpenSea platform specifically designed for NFT speculators. However, a current employee refuted this, stating that the relaunch is not just an upgrade for traders and additional trading tracking features. However, the employee declined to disclose further details about the relaunch.

Galper stated in a statement: "The plans for 2.0 are confidential."

Apparently, the new product vision and large-scale layoffs initially did not inspire employees or investors. Shortly after the strategic adjustment, one of OpenSea's major supporters, Coatue Management, reportedly reduced the valuation of the startup by 90% in the second quarter of 2023, lowering it to just $1.4 billion, a significant decrease from the valuation of $13.3 billion less than two years ago.

Subsequently, several members of OpenSea's executive team resigned after the layoffs, including the general counsel, vice president of operations, HR director, and communications director. According to internal communications, OpenSea offered an additional 20% cash bonus to retain existing employees. (Galper stated: "If they don't want to stay at OpenSea, we pay them to leave, and those who believe in the future of the company choose to stay and help us build.")

Amid the wave of resignations, management was concerned about the lack of women among the remaining engineers and product managers, especially as some departing employees had complained about gender discrimination, as shown in internal documents. (OpenSea had previously hired an external investigator to look into one of the complaints, and the investigation found the complaint to be unsubstantiated.)

Galper stated in a statement: "If we receive employee complaints, we take them seriously and conduct investigations promptly. To date, no allegations of gender discrimination have been substantiated, and we have not been involved in litigation, arbitration, or mediation on this issue."

However, according to three current employees, morale has gradually recovered after the initial shock of the layoffs. One employee said, "There are a lot fewer meaningless things now, like Slack messages and meetings." Another employee said, "I'm pleasantly surprised at how quickly everyone has bounced back to work."

On the same day I visited NFT.NYC, I went to a pier on the Hudson River.

OpenSea's competitor, Magic Eden, hosted an event called the "Degen Yacht Party" on a party boat converted from a floating casino. While waiting in line to board during the rain, I spoke with a collector named James Woods. The image of the NFTs he owned was printed on his T-shirt: a pink dog wearing black sunglasses, a sailor hat, and a brown hoodie. Woods said, "I try to dress like this for any NFT-related event or important event in my life." He even wore this outfit on his first date at a casino: "It worked well."

Eventually, we boarded the yacht. The boat had ice sculptures, a DJ, free food (described by one participant as similar to a bar mitzvah meal), free alcoholic drinks, a gold-plated elevator, and energy drinks. I spoke with someone called "Breads," another person called "Toast" (who warmly reunited), someone whose life was changed by "Cyber Frogs," and a lady with a plush toy named "Chonky."

Most of the people I spoke to at the event expressed dissatisfaction with OpenSea. After all, I was at a competitor's event. Woods mentioned OpenSea's decision to no longer enforce royalties, saying, "They stopped supporting the creators that made them market leaders and betrayed us."

The yacht gently swayed in the rain, but due to the storm being too intense, we never left the dock. Finally, on the third deck, I spoke with Zhuoxun Yin, the co-founder and COO of Magic Eden. Similar to OpenSea, Magic Eden also received support from well-known venture capital firms and was valued at over a billion dollars in a recent funding round. Yin told me, "This industry is not one where you can sit back and relax; everything is changing rapidly."

While Blur attracted many core NFT traders from OpenSea, Magic Eden seems to be winning favor with creators. In February of this year, Yuga Labs, the company behind the Bored Ape Yacht Club, partnered with Magic Eden to launch a competing marketplace. According to DappRadar's data, in April, Yin's company surpassed OpenSea and Blur in monthly NFT trading volume.

Despite market fluctuations, most of the people I spoke to who have investments in the NFT industry remain optimistic about its future. TJ Fuller, co-founder of Forgotten Runes, told me, "If you think OpenSea's decline means the end of NFTs, you're wrong." He believes the technology is still innovative: "Where we trade NFTs doesn't matter."

When I spoke with most former OpenSea employees, they also saw future applications for tokens, such as tickets for live events or items in video games that users can more explicitly claim ownership of. However, some pointed out that the current culture of purely speculative trading cannot expand beyond cryptocurrency enthusiasts. "I think there are some problems with the current model," a former employee said. "I don't think just selling JPEGs is worth it."

As the yacht party neared its end, I made my way to the dance floor, squeezing past someone playing the flute wildly like a member of Metallica, to bid farewell to Woods, who was wearing a sailor hat. When I asked him for his final thoughts on NFTs, he replied, "Buy them as collectibles. Don't expect to make money from them."

For OpenSea, this may be good advice. According to an internal document I obtained, the company had a loss of approximately $30 million in the first three quarters of 2023. (However, they expect the November layoffs to reduce the company's operating costs in 2024.) According to DappRadar's data, the platform's trading volume reached a low point not seen since before the NFT craze began in early 2021 in June.

OpenSea still has ample reserves of funds. According to an internal document, as of November 2023, the company had $438 million in cash and $45 million in cryptocurrency reserves, relying on this capital to weather market fluctuations through the "2.0" transformation.

Finzer once said that he hoped his startup could create an ocean, not just an aquarium.

However, if the NFT market continues to decline, OpenSea will not be able to lead the wave of digital collectibles and will face stagnation.

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