In April, on an overcast spring afternoon, I attended the seventh iteration of NFT.NYC, a haven for all believers in monkey JPEGs with a price tag and other NFTs. As rain pelted the Javits Center, the “Super Bowl of NFTs” felt abandoned. 

“The amount of people here is definitely reduced from last year,” Ric Johnson, who was promoting an NFT that let people vote on whether Donald Trump should go to prison, politely told me. Big Mac, an attendee who only gave me his online pseudonym (crypto has a strong culture of anonymity), said that instead of the NFT “Super Bowl,” the conference felt more like the “preseason.” And Tom Smith, who was manning a booth that hawked NFTs of anthropomorphized cannabis plants, was even more direct: “It seems really freakin’ dead.”

OpenSea, arguably the best-known company in the industry, was one of the conference’s sponsors, but Devin Finzer, the 33-year-old cofounder and current CEO, was nowhere to be seen. Alex Atallah, the cofounder of OpenSea who has since distanced himself from the startup, did appear on the main stage during one of the first sessions, only he didn’t want to talk about the very technology that made him and Finzer on-paper billionaires twice over. Instead, he mostly spoke about AI. 

Cryptocurrency values may be back up, but one hyped storyline from the last crypto craze hasn’t recovered: the NFT. In January 2022, the total monthly sales volume for the asset class peaked at more than $6 billion, per CryptoSlam. Now, it’s below $430 million as of July. NFTs are hanging on, but they’re in troubled waters. “My mom thinks I’m a scam artist,” I overheard one conference attendee say.

At OpenSea, once the largest marketplace for NFTs, more storms have gathered. One of the most valuable private startups to come out of the incubator Y Combinator is now facing pending litigation from the Securities and Exchange Commission, a previously unreported “matter” with the Federal Trade Commission, inbounds from US and international tax authorities, heightened competition, accusations of gender discrimination, and employee attrition. 

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, illustrate how a startup inspired by cat JPEGs has morphed into what one former staffer called a “lite” version of Meta that seems lost between the cultures of Big Tech and crypto.

Finzer once pitched OpenSea as a port of entry to a vast new internet. But now that the NFT high tide has receded, that pitch seems shallow.

In 2017, Finzer, then in his mid-20s, teamed up with Atallah, a Stanford graduate and another 20-something in the tech industry, to launch a startup. Originally, Finzer and Atallah planned to pay people to share their Wi-Fi with strangers with cryptocurrency, and in January 2018, they won entry into Y Combinator, the famed incubator that has produced tech behemoths like Airbnb.

That was also when blockchains, or decentralized databases that no one person controls, saw another wave of hype, and developers were popularizing a new way of permanently storing data onto said blockchains. These tokens were “non-fungible,” meaning they weren’t all the same, like a Bitcoin. In other words, NFT holders could brag they were the true owners of a single cartoon ape, according to an entry in an unchangeable database.

Industry boosters say the tokens can represent pretty much anything: housing deeds; patents; contracts; rights to virtual real estate. But in late 2017, a company called Dapper Labs popularized a use that appealed to the layperson: CryptoKitties, a game where users can buy and sell cartoons of cats on Ethereum, one of the most popular blockchains.

Cats weren’t the only JPEGs flying across what some proclaim is the next iteration of the internet. There were also CryptoPunks, pixelated pictures of characters wearing mohawks and sunglasses; digital trading cards inspired by Pepe the Frog, a meme with its own winding (and, at times, racist) history; and EtherTulips, or virtual tulips that, ahem, fight each other.

Finzer and Atallah noticed the hype and decided to pivot. “They were very ambitious,” John Caraballo, a contractor they hired for three months to write some of the initial code for OpenSea’s website, told me. “What they were building was very cutting edge, and nobody had done it before.”

In May, after they graduated from a Y Combinator class that included projects like weed-infused soda and VR-based psychotherapy, Finzer and Atallah announced $2 million in funds raised for their NFT marketplace — with backing from established investors like Peter Thiel’s Founders Fund.

“Entire economies will emerge that look very different than even our wildest imaginations — and we want to help enable them,” wrote Finzer in a blog post announcing the raise. “Things are just starting to get exciting…”

For almost three years, the NFT industry was not exciting. OpenSea only had a few hundred daily traders using its platform throughout 2020, per data from DappRadar, and less than 10 employees, according to a former employee.

(Joshua Galper, a spokesperson for OpenSea, said tens of thousands of people per week used OpenSea’s website in mid-2020.)

“Their whole life was OpenSea,” the same employee told me of other team members, including Finzer and Atallah. “It [was] really fun, but also very rigorous, very intense.”

Then, in March 2021, the NFT market heated up. Mike Winkelmann, the artist better known as Beeple, auctioned off an NFT worth $69 million, and OpenSea saw the value of NFTs sold on its platform more than triple from the month prior, per DappRadar.

OpenSea can take up to a 10 percent cut from every sale, and the increased revenue led to increased investor appetite. That same month, Finzer announced that OpenSea had raised $23 million at a $123 million valuation from funders, including venture capital titan Andreessen Horowitz. OpenSea was more relevant than ever, and the company started expanding. “It was just a lot of craziness,” one former employee told me. “And we were all wearing a lot of hats.”

The NFTs kept coming. After the mammoth sale of Beeple’s artwork, a company called Yuga Labs released Bored Ape Yacht Club, a collection of 10,000 cartoon apes whose holders were promised exclusive events, perks, and products. People were paying millions for the rights to say they were the true owners of, say, an ape with golden fur or one with heart-shaped sunglasses. “When I first saw Bored Apes, I was like, ‘What the fuck is that?’” said one former employee. “And then seeing how much people were paying for that — it was just insane.”

As more images of apes, punks, cats, and penguins changed hands, OpenSea collected more fees. Revenue skyrocketed from $9 million in the second quarter of 2021 to $167 million in Q3 and $186 million in Q4, according to an internal company document. “It was a really fun period,” said another employee. “The minute you put out a feature, so many people would talk about it.”

Suddenly, Finzer and Atallah’s marketplace was generating meaningful amounts of cash, and investors were frothing at the mouth. In July, the startup landed yet another funding round, drumming up $100 million at a $1.5 billion valuation. “The celebrities coming out of the woodwork, the cash grabs, [they were] just really exciting,” said one former employee. “People I haven’t talked to for years were emailing me… Everybody saw a chance to become filthy rich.”

But with more money came more problems. “Every stressful thing felt like the biggest deal in the world,” Finzer told employees in 2023 about the early days of the company.

In September 2021, OpenSea asked Nate Chastain, the startup’s head of product, to resign after some industry watchers discovered that he was trading NFTs with insider information. Chastain’s scheme was simple. Every few days, OpenSea would promote new collections on its homepage. Given that the marketplace was the de facto locale to buy and sell NFTs, the tokens inevitably jumped in price after they were featured on the site. Chastain knew which would be chosen, so shortly after the NFTs appeared on the homepage, he flipped them for profit. “That kind of attitude Nate embodied at the time was pretty prevalent in the space,” said one former employee.

Chastain was eventually sentenced to three months in prison — the first time the Department of Justice successfully prosecuted someone for NFT insider trading. However, insider trading was only one of OpenSea’s issues. Users were also angry about website outages, NFT collections that were either spam or deliberately fraudulent, and stolen NFTs. “It was like a blood orgy,” a former employee told me about the company’s growing difficulties. Another former staffer said that users joked that OpenSea should instead be called “BrokenSea.”

“OpenSea strives to be responsive and tuned in to users,” Galper said.

To combat the sudden flood in volume and other issues, Finzer and Atallah needed to build out OpenSea’s staff and started bringing in those with Big Tech or corporate pedigrees, according to multiple former employees. “There was no promotion from within,” said one.

“They hired these fucking animals, these reptiles from like Amazon, Facebook, Google,” said another former employee. “The white walkers came in through the fucking door like in Game of Thrones.”

Much of the current leadership team arrived in the latter half of 2021 and the first half of 2022, including COO Shiva Rajaraman and CTO Nadav Hollander. At its height, OpenSea had around 300 staffers — a significant expense that, just a few months later, Finzer and Atallah would reduce.

“Our priority has always been to hire the best talent wherever we find it, whether from Big Tech, smaller companies, or crypto natives,” wrote Galper.

For the moment, though, the money kept coming. OpenSea’s revenue reached an all-time high of $265 million in Q1 of 2022. And the two cofounders closed their largest funding round to date: $300 million from blue-chip venture capital firms that valued OpenSea at a whopping $13.3 billion. Finzer and Atallah each owned 19 percent of OpenSea as of late 2021, according to Forbes. On paper, they were billionaires. (Galper said the cofounders’ reported stakes in OpenSea were false. Forbes, though, hasn’t issued a correction regarding the cofounders’ ownership percentages.)

The company’s investors included not only venture capitalists who specialized in crypto but also a who’s who of Silicon Valley and beyond. There was Shark Tank king Mark Cuban, basketball star Kevin Durant, actor Ashton Kutcher, and DJ 3LAU, all of whom were publicly disclosed as investors. According to an internal company document, OpenSea’s cap table also included James Musk; Jawed Karim, cofounder of YouTube; Scott Belsky, the chief strategy officer of Adobe; and Charlie Songhurst, the former head of strategy at Microsoft.

Quietly, Finzer, Atallah, and a handful of early employees were able to cash out some of their equity in the mammoth fundraise, according to a source familiar with the deal.

Galper confirmed to me that some employees were able to sell their shares “in connection with the Series C financing,” but he didn’t specify the size of Finzer’s and Atallah’s winnings. 

“The team and investors felt it was the right thing to do to provide some liquidity to those who’d worked so hard to get the company to that milestone,” Galper added.

Five former employees told me that the cofounders never disclosed the secondary share buybacks to the entire staff. “It surprises me a little because they seemed very transparent about other decisions,” said one person, who added that they were otherwise nonplussed about the news.

And those whose shares vested after the Series C were subsequently blocked from selling their equity, said two former employees. (“The company doesn’t recall any employees requesting to sell to a specified investor after the Series C,” Galper said.)

“The big story will be the secondary sales,” said one former staffer. “The rest is way less funny.”

OpenSea looked like it was becoming mainstream, but the fires wouldn’t go out. Shortly after Hollander, OpenSea’s current CTO, joined the company, his team found a serious vulnerability in the company’s code that would allow an attacker to receive money for an NFT without sending it to the victim. No exploit happened, “but it was one of the scariest things,” Finzer later told employees in 2023.

In March 2022, just as Finzer celebrated OpenSea’s inclusion on Time magazine’s list of the 100 most influential companies of the year, the NFT boom was sputtering. Total sales volume across the market plummeted from approximately $6 billion in January 2022 to just above $1 billion in June, per CryptoSlam. OpenSea’s quarterly revenue decreased as well, dropping to $171 million in the second quarter.

Even worse, up until the first half of 2022, OpenSea kept most of its cash reserves in Ether, the second largest cryptocurrency by market capitalization, according to former employees who were in the all-hands meeting where Finzer briefed them on the company’s finances. Rather than convert the crypto funds into less volatile assets, Finzer said that OpenSea wanted to put its money where its mouth was and support the crypto industry. The only problem? By June 2022, Ether’s price had dropped almost 80 percent in value from November 2021.

Subtracting the money lost from the price decline and other debts, OpenSea had a net loss of $170.7 million in the second quarter of 2022, even though the startup still raked in $171 million in revenue. (Galper disputed this figure but would not provide financials.) “I was like, ‘What the fuck, you’re not somebody’s personal investor. Why are we gambling on this when we have so much more upside?’” one former employee thought after Finzer announced the financial mishap.

Despite the financial struggles, OpenSea showed up in force that summer at the 2022 incarnation of NFT.NYC. “Did I hear that OpenSea took over a whole hotel in Midtown?” Jodee Rich, cofounder of the conference, asked him at a talkback at Radio City Music Hall. “Sounds about right,” Finzer responded, smiling.

That same week, while much of the OpenSea staff was in the city, Finzer held a companywide meeting to assuage any concerns about the business’s future, according to two former staffers. The takeaway, both former employees said, was clear: don’t worry.

Less than one month later, OpenSea laid off 20 percent of its staff.

Around the same time, Atallah said that he would be stepping back from OpenSea but remain on the board. It was unclear to former employees why Atallah decided to leave. “Devin and Alex, they always had a weird vibe, and I don’t think they were really good together,” said one person. “I’d heard that they didn’t quite see eye to eye on a lot of things,” said another.

One OpenSea investor, who asked to remain anonymous, said that Atallah told him he left on good terms. “I think he’s one of those guys that loves the early days,” said the investor. “As soon as it started to scale and it was getting a little bit more corporate in nature, I think he was like, ‘I want to go do my next thing.’”

Atallah, in a statement, disputed any intimations of conflict between him and Finzer and echoed the investor’s take: “I have always loved early stage stuff, and eventually decided I wanted to explore my own thing again.”

But when Atallah left to do his next thing, Finzer stayed on and led a startup that seemed to be on vastly different footing than it had been just a few months ago. In the third quarter of 2022, revenue free-falled to just $32 million, and OpenSea ran at a deficit of more than $27 million. “Morale just got really weird really quickly,” said one former employee.

In October, yet another thorn in OpenSea’s side presented itself: a new NFT marketplace called Blur. OpenSea used to have a virtual hold on billions of dollars in NFT trading volume. It would soon have to fight for scraps.

Founded by the pseudonymous coder “Pacman,” who would eventually reveal himself to be Tieshun Roquerre, a 20-something MIT dropout and Y Combinator alum, Blur doubled down on a financialized conception of NFTs: assets that traders swap back and forth in search of profit. 

Many professional traders wanted to maximize profit, and the royalty fees offered by markets like OpenSea cut into their bottom line. Blur privileged traders over creators and did not give artists a percentage take every time their works sold on its platform. Add in a promised cryptocurrency it said it would distribute to its power users — essentially free money — and NFT flippers flocked to the new marketplace.  

Blur quickly ate into OpenSea’s market share. By February 2023, on the strength of the promised launch of its cryptocurrency, it had surpassed OpenSea and almost tripled the monthly trading volume of Finzer’s startup, according to DappRadar. Meanwhile, OpenSea’s quarterly revenue continued to decrease, dropping to $23 million in the fourth quarter of 2022 and then $19 million in the first quarter of 2023.

Finzer felt like he had to react. Blur’s sudden emergence “destabilized any sort of product vision we had,” said one former employee. “It was kind of a dumpster fire.”

A current employee pushed back against that characterization. “It never really disrupted my work, per se,” they told me, in reference to Blur’s arrival. “I was continuing to build stuff and go about my normal business.”

OpenSea quickly abandoned its mission to bring NFTs to the masses and instead decided to cater to speculators, multiple former employees told me. Finzer even spoke with crypto founders and lawyers about the prospect of the company launching its own cryptocurrency, according to a source familiar with the matter.

“OpenSea has always focused on the long term instead of episodic developments across the competitive landscape,” said Galper, who confirmed that the company’s executives discussed launching a cryptocurrency in the past. 

But a token launch would have been risky, as the Securities and Exchange Commission has repeatedly argued that the vast majority of cryptocurrencies are unregistered securities. After the fall of FTX in November 2022, the SEC initiated a broad campaign against crypto and reached settlements with or sued some of the largest players in the industry, including the crypto exchanges Coinbase and Binance.

Then, after NFT.NYC in May 2023, OpenSea had another round of smaller, unpublicized layoffs, according to former employees. “The running joke just kind of became that everyone’s scared of NFT.NYC because all of the layoffs came right after it,” said one former staffer. 

Galper wrote that “the company went through a small reorganization that led to changes in the structures of some teams and, consequently, the departures of several employees.”

In August, the marketplace announced that it would stop enforcing creator royalties, much to some employees’ dismay. This led to a bout of internal dissent, said former staffers. “I still don’t think OpenSea has really identified their audience and gone after it,” added one person. “They just kind of keep shooting in the dark.”

Amid the uproar over OpenSea’s decision to do away with royalties, Finzer and Yu-Chi Kuo, his partner and a former crypto hedge fund manager, left New York City for a “desert adventure,” per Kuo’s Instagram, and headed to Burning Man. 

(This was the first vacation Finzer had taken in over a year, Galper said.) 

While Finzer and Kuo were partying in the desert mud, the SEC took its first enforcement action against the NFT industry and said NFTs issued by Impact Theory, a media company created by the founders of Quest Nutrition, were unregistered securities. Just a few weeks later, the SEC charged Stoner Cats 2, the company behind a Mila Kunis-backed animated series that features Ashton Kutcher and Jane Fonda, with issuing NFTs that the agency argued were unregistered securities. Impact Theory and Stoner Cats 2 agreed to cease-and-desist orders and paid $6.1 million and $1 million, respectively, in legal penalties.

Unbeknownst to some employees at OpenSea, their company was also in the midst of two separate regulatory “matters.” The SEC had issued OpenSea third-party subpoenas, or mandatory information requests, in regards to other entities. In addition, OpenSea also had a line attorney from the agency assigned to its “case” and was engaged in “custodial document production” with the agency, per internal company documents.

Legal counsel described the back-and-forth as the “SEC matter” and, in an internal document, spelled out OpenSea’s defenses. These included arguments that NFTs are not securities, that OpenSea is not a securities exchange or broker, and that OpenSea is protected by both the First Amendment and Section 230 of the Communications Decency Act, which stipulates that online operators are not responsible for third-party content on their platforms. “The SEC does not comment on the existence or nonexistence of a possible investigation,” said David Ausiello, an agency spokesperson.

Galper, OpenSea’s spokesperson, confirmed that OpenSea has received requests from the SEC since 2022. “We cooperate with regulators and law enforcement as part of our standard practice, and we are committed to complying with applicable laws and regulations,” he said.

While some staff weren’t aware of the SEC matter, a vocabulary guide instructed employees on appropriate terminology when either talking to each other or the public about NFTs and OpenSea. Instead of saying “buy, sell, or pay on OpenSea,” legal counsel told employees to say “purchase on the blockchain,” “purchase using MoonPay” (a crypto payments company), or “buy using OpenSea.” The guide said, “This distinction is very important to keep clear, as it impacts our tax and legal obligations.”

Other terms employees should avoid when talking about OpenSea were “exchange,” “broker,” “marketplace,” “profit,” “shares,” “stocks,” “trading,” “trade,” “traders” — words used when talking about securities, the domain of the SEC.

There was also the “FTC matter,” in which OpenSea submitted documents to the regulator. Internal documents I obtained did not provide more detail other than the existence of the back-and-forth, and the FTC did not respond to a request for comment.

Galper confirmed that OpenSea received document requests from the FTC and said its last submission to the agency was in August 2023. He declined to say why the FTC and SEC were asking for documents from OpenSea and didn’t comment when asked if OpenSea has received the formal communication called a Wells notice from the SEC that indicates a business or individual is subject to pending litigation.

One day after I told OpenSea we were planning to publish this story, Finzer announced on X that his startup had received a Wells notice. “We’re shocked the SEC would make such a sweeping move against creators and artists. But we’re ready to stand up and fight,” he wrote.

“Usually, when an agency requests documents from a business, it’s because they think something is wrong,” Christopher Odinet, a professor at Texas A&M University who’s researched legal issues surrounding cryptocurrencies, told me. 

Christa Laser, a professor at Cleveland State University who’s also researched crypto’s intersection with the law, said that, while the FTC’s information requests may stem from suspicions surrounding OpenSea itself, its interest in the NFT marketplace may simply be an attempt for the regulator to better understand an emerging market.

“The FTC is more likely to do document requests not pursuant to investigations than the SEC,” she said.

And there were ongoing inbounds from various tax authorities both domestically and internationally. The Australian Taxation Office (ATO), for example, was in a back-and-forth with OpenSea over whether the startup was required to pay taxes not only on the fees the marketplace takes for every NFT sale on its platform but also on the full price of the NFT, according to internal documents.

In early October, OpenSea’s legal team flew to Australia to make the case that their platform should be immune from the harder tax hit, according to company documents. If the ATO does not decide in OpenSea’s favor, Finzer’s startup would be on the hook for approximately $130 million, per numbers discussed internally in August 2023. And that’s not to mention inquiries from tax agencies in Washington state, India, and Taiwan.

The ATO declined to comment on OpenSea, citing confidentiality and privacy laws. Washington state declined to comment for similar reasons. The tax agencies for India and Taiwan did not respond to requests for comment.

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

“We’re definitely of great interest to policymakers, regulators,” said OpenSea’s former general counsel, Gina Moon, in an all-hands meeting, according to a document I obtained, “and, eventually, the court and public will see what we say.”

On Halloween, as OpenSea’s quarterly revenue reached lows not seen since the beginning of the NFT boom, Finzer and his partner attended Heidi Klum’s annual Halloween party at the nightclub Marquee in New York City. Finzer dressed as an “AI hacker,” per Kuo’s Instagram, and wore glasses and a hoodie emblazoned with OpenAI’s logo and carried a keyboard. With a bloodied knife and mechanical-looking prosthetics, his partner dressed as his “AI girlfriend.”

(Galper, OpenSea’s spokesperson, pushed back, arguing that Finzer’s costume was makeshift, that he only showed up for the photo opp, and that after he walked down the orange carpet, he rushed home to take work calls to continue to plan out a big change for his startup.)

Three days later, and one day after Sam Bankman-Fried, the former CEO of FTX, was found guilty of fraud, OpenSea announced widespread layoffs that led to the departures of more than 100 employees, approximately 56 percent of staff. On X, Finzer said that he was “reorienting the team around ‘OpenSea 2.0,’” a strategy and product change about which he provided few public details. “It’s a huge gamble, and it’s pretty intense,” he later told employees.

Ex-employees received four months of cash severance and six months of health insurance coverage, among other benefits, according to a memo Finzer sent to employees.

Finzer invited the remaining staff to an off-site to discuss the company’s new direction. “The real goal of these changes is moving from a position where we’re following to where we’re leading,” he said during an all-hands meeting at a Hollywood mansion once owned by Katy Perry and Russell Brand, according to a document I obtained. 

According to Lorens Huculak, a member of the executive team, during the all-hands meeting, OpenSea planned to “become the portal to Web3,” in reference to the idea that the future of the internet will be based on the blockchain. The startup planned to rewrite much of its code and allow users to more easily track crypto transactions across the platform without venturing to other websites. “We’ll become an aggregator, not only of chains, but also protocols, marketplaces, all kinds of liquidity, including tokens,” said Huculak.

The product revamp also includes features that make OpenSea better able to compete with Blur, according to a source familiar with the new product. “It’s simply a reskin of OpenSea Pro,” they said, referencing the arm of OpenSea’s platform that caters to NFT flippers. However, a current employee pushed back against that description and said there’s more to the relaunch than upgrades for traders and added capabilities to track transactions. That same employee, however, declined to provide any more details about the relaunch.

“Our plans around 2.0 are confidential,” Galper said in a statement.

Evidently, the new product vision and drastic layoffs didn’t initially inspire employees or investors. Shortly after the pivot, The Information reported that Coatue Management, one of OpenSea’s largest backers, effectively cut the startup’s valuation to only $1.4 billion in Q2 2023, a precipitous drop from its $13.3 billion sticker price less than two years earlier.

Then, multiple members of OpenSea’s executive team left after the layoffs, including the general counsel, the vice president of operations, the head of HR, and the head of communications. OpenSea offered remaining employees a 20 percent cash bonus on top of their existing salaries to keep them on board, according to internal company communications. (“We paid people to leave if they didn’t want to stay at OpenSea, and those who believe in the future of the company made the choice to stay to help us build,” Galper said.)

Amid the departures, executives worried that none of the remaining engineers or product managers were women, especially since some who had left the company complained of gender discrimination, according to internal documents. (OpenSea had previously hired an outside investigator to examine one of these complaints, and the investigator deemed it to be unfounded.)

“If we receive an employee complaint, we take it seriously and investigate promptly,” Galper said in a statement. “No claim of gender discrimination has ever been substantiated, nor have we ever had any litigation, arbitration, or mediation on the topic.” 

However, since the initial shock of the layoffs, morale has picked back up, according to three current employees. “There’s just so much less, like, bullshit, like Slack messages and meetings,” said one. “I was pleasantly surprised by how quickly people got back in the saddle,” said another.

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

Magic Eden, an OpenSea competitor, was hosting what it called a “Degen Yacht Party” on a floating casino turned party boat. As it rained, I waited in line to board the yacht and struck up a conversation with James Woods, a collector whose T-shirt bore the image of an NFT he owned: a pink dog with black sunglasses, a sailor hat, and a tan hoodie. “At any NFT-related events or any significant events in my life, I try to dress up like this,” said Woods, also wearing sunglasses, a sailor hat, and a hoodie. He even wore the getup to a first date at a casino: “It went great.”

Eventually, we walked on board. There were ice sculptures, DJs, free food (akin to the spread at a bar mitzvah, one attendee told me), free alcohol, an elevator embossed in gold paint, and energy drinks. I spoke with a man who goes by “Breads,” another named “Toast” (the two had a heartfelt reunion), someone who said “Cyber Frogs” changed his life, and a woman carrying a stuffed animal called “Chonky.”

Most people I chatted with spoke ill of OpenSea. I was, after all, in enemy territory. “Instead of doubling down and supporting the creators who put them in the position to be the best marketplace in the market,” said Woods, in reference to OpenSea’s decision to not enforce royalty fees, “they instead turned their backs on all of us.”

The yacht swayed back and forth in the rain, but we never left the pier. The storm was too intense. Eventually, on the third floor, I chatted with Zhuoxun Yin, cofounder and COO of Magic Eden. Like OpenSea, Magic Eden is backed by serious venture capital firms and has a billion-dollar-plus valuation, as of its last funding round. “It’s not the kind of industry where you can sit back and just count your chickens,” Yin, who goes by Z, told me. “Everything is moving so fast.”

While Blur stole hardcore NFT traders away from OpenSea, Magic Eden appeared to be eating into OpenSea’s popularity with creators. In February, Yuga Labs, the company behind Bored Ape Yacht Club and other blue-chip NFT collections, launched a competing marketplace with Magic Eden. And in April, Yin’s company surpassed both OpenSea and Blur in monthly NFT trading volume, according to DappRadar.

Despite the market turbulence, the majority of people I spoke to who had a financial interest in the NFT industry were sanguine about its future. “If the take is OpenSea is dying and therefore NFTs are dead, that’s the wrong take,” TJ Fuller, cofounder of Forgotten Runes, a fantasy franchise that lets fans own characters as NFTs, told me. He believes that the technology is still innovative: “Where we trade [NFTs] doesn’t matter.”

The majority of former OpenSea employees I spoke with also saw future use cases for the tokens: ticketing for live events or video game items users can more definitively say they own. But, added some, the current culture of speculation for speculation’s sake isn’t scalable beyond crypto diehards. “I think it’s kind of garbage the way it is now,” said one former staffer. “I don’t think selling JPEGs is worth it.”

Near the end of the yacht party, I walked down to the dance floor, pushed past a man thrashing on a flute as if he were a member of Metallica, and said goodbye to Woods, the man in the sailor hat. When asked for his closing thoughts on NFTs, he said, “Buy them as collectible items. Don’t expect to make money off of them.”

For OpenSea, perhaps that’s good advice. It was losing about $30 million in the first three quarters of 2023, according to an internal document I obtained. (It, however, projected that the November layoffs would reduce the company’s overhead in 2024.) And in June, the trading volume on its platform reached lows not previously seen since before the NFT boom in early 2021, per DappRadar. 

OpenSea still has plenty of runway. It had $438 million in cash and $45 million in crypto reserves as of November 2023, according to an internal document, and it’s coasting on that capital as it hopes a “2.0” pivot will help it navigate choppy seas.

Finzer once said he wanted his startup to build an ocean, not an aquarium. 

But if the NFT market continues to decline, OpenSea won’t lead to an ocean of digital collectibles. It will be dead in the water.

In April, on an overcast spring afternoon, I attended the seventh iteration of NFT.NYC, a haven for all believers in monkey JPEGs with a price tag and other NFTs. As rain pelted the Javits Center, the “Super Bowl of NFTs” felt abandoned. 

“The amount of people here is definitely reduced from last year,” Ric Johnson, who was promoting an NFT that let people vote on whether Donald Trump should go to prison, politely told me. Big Mac, an attendee who only gave me his online pseudonym (crypto has a strong culture of anonymity), said that instead of the NFT “Super Bowl,” the conference felt more like the “preseason.” And Tom Smith, who was manning a booth that hawked NFTs of anthropomorphized cannabis plants, was even more direct: “It seems really freakin’ dead.”

OpenSea, arguably the best-known company in the industry, was one of the conference’s sponsors, but Devin Finzer, the 33-year-old cofounder and current CEO, was nowhere to be seen. Alex Atallah, the cofounder of OpenSea who has since distanced himself from the startup, did appear on the main stage during one of the first sessions, only he didn’t want to talk about the very technology that made him and Finzer on-paper billionaires twice over. Instead, he mostly spoke about AI. 

Cryptocurrency values may be back up, but one hyped storyline from the last crypto craze hasn’t recovered: the NFT. In January 2022, the total monthly sales volume for the asset class peaked at more than $6 billion, per CryptoSlam. Now, it’s below $430 million as of July. NFTs are hanging on, but they’re in troubled waters. “My mom thinks I’m a scam artist,” I overheard one conference attendee say.

At OpenSea, once the largest marketplace for NFTs, more storms have gathered. One of the most valuable private startups to come out of the incubator Y Combinator is now facing pending litigation from the Securities and Exchange Commission, a previously unreported “matter” with the Federal Trade Commission, inbounds from US and international tax authorities, heightened competition, accusations of gender discrimination, and employee attrition. 

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, illustrate how a startup inspired by cat JPEGs has morphed into what one former staffer called a “lite” version of Meta that seems lost between the cultures of Big Tech and crypto.

Finzer once pitched OpenSea as a port of entry to a vast new internet. But now that the NFT high tide has receded, that pitch seems shallow.

In 2017, Finzer, then in his mid-20s, teamed up with Atallah, a Stanford graduate and another 20-something in the tech industry, to launch a startup. Originally, Finzer and Atallah planned to pay people to share their Wi-Fi with strangers with cryptocurrency, and in January 2018, they won entry into Y Combinator, the famed incubator that has produced tech behemoths like Airbnb.

That was also when blockchains, or decentralized databases that no one person controls, saw another wave of hype, and developers were popularizing a new way of permanently storing data onto said blockchains. These tokens were “non-fungible,” meaning they weren’t all the same, like a Bitcoin. In other words, NFT holders could brag they were the true owners of a single cartoon ape, according to an entry in an unchangeable database.

Industry boosters say the tokens can represent pretty much anything: housing deeds; patents; contracts; rights to virtual real estate. But in late 2017, a company called Dapper Labs popularized a use that appealed to the layperson: CryptoKitties, a game where users can buy and sell cartoons of cats on Ethereum, one of the most popular blockchains.

Cats weren’t the only JPEGs flying across what some proclaim is the next iteration of the internet. There were also CryptoPunks, pixelated pictures of characters wearing mohawks and sunglasses; digital trading cards inspired by Pepe the Frog, a meme with its own winding (and, at times, racist) history; and EtherTulips, or virtual tulips that, ahem, fight each other.

Finzer and Atallah noticed the hype and decided to pivot. “They were very ambitious,” John Caraballo, a contractor they hired for three months to write some of the initial code for OpenSea’s website, told me. “What they were building was very cutting edge, and nobody had done it before.”

In May, after they graduated from a Y Combinator class that included projects like weed-infused soda and VR-based psychotherapy, Finzer and Atallah announced $2 million in funds raised for their NFT marketplace — with backing from established investors like Peter Thiel’s Founders Fund.

“Entire economies will emerge that look very different than even our wildest imaginations — and we want to help enable them,” wrote Finzer in a blog post announcing the raise. “Things are just starting to get exciting…”

For almost three years, the NFT industry was not exciting. OpenSea only had a few hundred daily traders using its platform throughout 2020, per data from DappRadar, and less than 10 employees, according to a former employee.

(Joshua Galper, a spokesperson for OpenSea, said tens of thousands of people per week used OpenSea’s website in mid-2020.)

“Their whole life was OpenSea,” the same employee told me of other team members, including Finzer and Atallah. “It [was] really fun, but also very rigorous, very intense.”

Then, in March 2021, the NFT market heated up. Mike Winkelmann, the artist better known as Beeple, auctioned off an NFT worth $69 million, and OpenSea saw the value of NFTs sold on its platform more than triple from the month prior, per DappRadar.

OpenSea can take up to a 10 percent cut from every sale, and the increased revenue led to increased investor appetite. That same month, Finzer announced that OpenSea had raised $23 million at a $123 million valuation from funders, including venture capital titan Andreessen Horowitz. OpenSea was more relevant than ever, and the company started expanding. “It was just a lot of craziness,” one former employee told me. “And we were all wearing a lot of hats.”

The NFTs kept coming. After the mammoth sale of Beeple’s artwork, a company called Yuga Labs released Bored Ape Yacht Club, a collection of 10,000 cartoon apes whose holders were promised exclusive events, perks, and products. People were paying millions for the rights to say they were the true owners of, say, an ape with golden fur or one with heart-shaped sunglasses. “When I first saw Bored Apes, I was like, ‘What the fuck is that?’” said one former employee. “And then seeing how much people were paying for that — it was just insane.”

As more images of apes, punks, cats, and penguins changed hands, OpenSea collected more fees. Revenue skyrocketed from $9 million in the second quarter of 2021 to $167 million in Q3 and $186 million in Q4, according to an internal company document. “It was a really fun period,” said another employee. “The minute you put out a feature, so many people would talk about it.”

Suddenly, Finzer and Atallah’s marketplace was generating meaningful amounts of cash, and investors were frothing at the mouth. In July, the startup landed yet another funding round, drumming up $100 million at a $1.5 billion valuation. “The celebrities coming out of the woodwork, the cash grabs, [they were] just really exciting,” said one former employee. “People I haven’t talked to for years were emailing me… Everybody saw a chance to become filthy rich.”

But with more money came more problems. “Every stressful thing felt like the biggest deal in the world,” Finzer told employees in 2023 about the early days of the company.

In September 2021, OpenSea asked Nate Chastain, the startup’s head of product, to resign after some industry watchers discovered that he was trading NFTs with insider information. Chastain’s scheme was simple. Every few days, OpenSea would promote new collections on its homepage. Given that the marketplace was the de facto locale to buy and sell NFTs, the tokens inevitably jumped in price after they were featured on the site. Chastain knew which would be chosen, so shortly after the NFTs appeared on the homepage, he flipped them for profit. “That kind of attitude Nate embodied at the time was pretty prevalent in the space,” said one former employee.

Chastain was eventually sentenced to three months in prison — the first time the Department of Justice successfully prosecuted someone for NFT insider trading. However, insider trading was only one of OpenSea’s issues. Users were also angry about website outages, NFT collections that were either spam or deliberately fraudulent, and stolen NFTs. “It was like a blood orgy,” a former employee told me about the company’s growing difficulties. Another former staffer said that users joked that OpenSea should instead be called “BrokenSea.”

“OpenSea strives to be responsive and tuned in to users,” Galper said.

To combat the sudden flood in volume and other issues, Finzer and Atallah needed to build out OpenSea’s staff and started bringing in those with Big Tech or corporate pedigrees, according to multiple former employees. “There was no promotion from within,” said one.

“They hired these fucking animals, these reptiles from like Amazon, Facebook, Google,” said another former employee. “The white walkers came in through the fucking door like in Game of Thrones.”

Much of the current leadership team arrived in the latter half of 2021 and the first half of 2022, including COO Shiva Rajaraman and CTO Nadav Hollander. At its height, OpenSea had around 300 staffers — a significant expense that, just a few months later, Finzer and Atallah would reduce.

“Our priority has always been to hire the best talent wherever we find it, whether from Big Tech, smaller companies, or crypto natives,” wrote Galper.

For the moment, though, the money kept coming. OpenSea’s revenue reached an all-time high of $265 million in Q1 of 2022. And the two cofounders closed their largest funding round to date: $300 million from blue-chip venture capital firms that valued OpenSea at a whopping $13.3 billion. Finzer and Atallah each owned 19 percent of OpenSea as of late 2021, according to Forbes. On paper, they were billionaires. (Galper said the cofounders’ reported stakes in OpenSea were false. Forbes, though, hasn’t issued a correction regarding the cofounders’ ownership percentages.)

The company’s investors included not only venture capitalists who specialized in crypto but also a who’s who of Silicon Valley and beyond. There was Shark Tank king Mark Cuban, basketball star Kevin Durant, actor Ashton Kutcher, and DJ 3LAU, all of whom were publicly disclosed as investors. According to an internal company document, OpenSea’s cap table also included James Musk; Jawed Karim, cofounder of YouTube; Scott Belsky, the chief strategy officer of Adobe; and Charlie Songhurst, the former head of strategy at Microsoft.

Quietly, Finzer, Atallah, and a handful of early employees were able to cash out some of their equity in the mammoth fundraise, according to a source familiar with the deal.

Galper confirmed to me that some employees were able to sell their shares “in connection with the Series C financing,” but he didn’t specify the size of Finzer’s and Atallah’s winnings. 

“The team and investors felt it was the right thing to do to provide some liquidity to those who’d worked so hard to get the company to that milestone,” Galper added.

Five former employees told me that the cofounders never disclosed the secondary share buybacks to the entire staff. “It surprises me a little because they seemed very transparent about other decisions,” said one person, who added that they were otherwise nonplussed about the news.

And those whose shares vested after the Series C were subsequently blocked from selling their equity, said two former employees. (“The company doesn’t recall any employees requesting to sell to a specified investor after the Series C,” Galper said.)

“The big story will be the secondary sales,” said one former staffer. “The rest is way less funny.”

OpenSea looked like it was becoming mainstream, but the fires wouldn’t go out. Shortly after Hollander, OpenSea’s current CTO, joined the company, his team found a serious vulnerability in the company’s code that would allow an attacker to receive money for an NFT without sending it to the victim. No exploit happened, “but it was one of the scariest things,” Finzer later told employees in 2023.

In March 2022, just as Finzer celebrated OpenSea’s inclusion on Time magazine’s list of the 100 most influential companies of the year, the NFT boom was sputtering. Total sales volume across the market plummeted from approximately $6 billion in January 2022 to just above $1 billion in June, per CryptoSlam. OpenSea’s quarterly revenue decreased as well, dropping to $171 million in the second quarter.

Even worse, up until the first half of 2022, OpenSea kept most of its cash reserves in Ether, the second largest cryptocurrency by market capitalization, according to former employees who were in the all-hands meeting where Finzer briefed them on the company’s finances. Rather than convert the crypto funds into less volatile assets, Finzer said that OpenSea wanted to put its money where its mouth was and support the crypto industry. The only problem? By June 2022, Ether’s price had dropped almost 80 percent in value from November 2021.

Subtracting the money lost from the price decline and other debts, OpenSea had a net loss of $170.7 million in the second quarter of 2022, even though the startup still raked in $171 million in revenue. (Galper disputed this figure but would not provide financials.) “I was like, ‘What the fuck, you’re not somebody’s personal investor. Why are we gambling on this when we have so much more upside?’” one former employee thought after Finzer announced the financial mishap.

Despite the financial struggles, OpenSea showed up in force that summer at the 2022 incarnation of NFT.NYC. “Did I hear that OpenSea took over a whole hotel in Midtown?” Jodee Rich, cofounder of the conference, asked him at a talkback at Radio City Music Hall. “Sounds about right,” Finzer responded, smiling.

That same week, while much of the OpenSea staff was in the city, Finzer held a companywide meeting to assuage any concerns about the business’s future, according to two former staffers. The takeaway, both former employees said, was clear: don’t worry.

Less than one month later, OpenSea laid off 20 percent of its staff.

Around the same time, Atallah said that he would be stepping back from OpenSea but remain on the board. It was unclear to former employees why Atallah decided to leave. “Devin and Alex, they always had a weird vibe, and I don’t think they were really good together,” said one person. “I’d heard that they didn’t quite see eye to eye on a lot of things,” said another.

One OpenSea investor, who asked to remain anonymous, said that Atallah told him he left on good terms. “I think he’s one of those guys that loves the early days,” said the investor. “As soon as it started to scale and it was getting a little bit more corporate in nature, I think he was like, ‘I want to go do my next thing.’”

Atallah, in a statement, disputed any intimations of conflict between him and Finzer and echoed the investor’s take: “I have always loved early stage stuff, and eventually decided I wanted to explore my own thing again.”

But when Atallah left to do his next thing, Finzer stayed on and led a startup that seemed to be on vastly different footing than it had been just a few months ago. In the third quarter of 2022, revenue free-falled to just $32 million, and OpenSea ran at a deficit of more than $27 million. “Morale just got really weird really quickly,” said one former employee.

In October, yet another thorn in OpenSea’s side presented itself: a new NFT marketplace called Blur. OpenSea used to have a virtual hold on billions of dollars in NFT trading volume. It would soon have to fight for scraps.

Founded by the pseudonymous coder “Pacman,” who would eventually reveal himself to be Tieshun Roquerre, a 20-something MIT dropout and Y Combinator alum, Blur doubled down on a financialized conception of NFTs: assets that traders swap back and forth in search of profit. 

Many professional traders wanted to maximize profit, and the royalty fees offered by markets like OpenSea cut into their bottom line. Blur privileged traders over creators and did not give artists a percentage take every time their works sold on its platform. Add in a promised cryptocurrency it said it would distribute to its power users — essentially free money — and NFT flippers flocked to the new marketplace.  

Blur quickly ate into OpenSea’s market share. By February 2023, on the strength of the promised launch of its cryptocurrency, it had surpassed OpenSea and almost tripled the monthly trading volume of Finzer’s startup, according to DappRadar. Meanwhile, OpenSea’s quarterly revenue continued to decrease, dropping to $23 million in the fourth quarter of 2022 and then $19 million in the first quarter of 2023.

Finzer felt like he had to react. Blur’s sudden emergence “destabilized any sort of product vision we had,” said one former employee. “It was kind of a dumpster fire.”

A current employee pushed back against that characterization. “It never really disrupted my work, per se,” they told me, in reference to Blur’s arrival. “I was continuing to build stuff and go about my normal business.”

OpenSea quickly abandoned its mission to bring NFTs to the masses and instead decided to cater to speculators, multiple former employees told me. Finzer even spoke with crypto founders and lawyers about the prospect of the company launching its own cryptocurrency, according to a source familiar with the matter.

“OpenSea has always focused on the long term instead of episodic developments across the competitive landscape,” said Galper, who confirmed that the company’s executives discussed launching a cryptocurrency in the past. 

But a token launch would have been risky, as the Securities and Exchange Commission has repeatedly argued that the vast majority of cryptocurrencies are unregistered securities. After the fall of FTX in November 2022, the SEC initiated a broad campaign against crypto and reached settlements with or sued some of the largest players in the industry, including the crypto exchanges Coinbase and Binance.

Then, after NFT.NYC in May 2023, OpenSea had another round of smaller, unpublicized layoffs, according to former employees. “The running joke just kind of became that everyone’s scared of NFT.NYC because all of the layoffs came right after it,” said one former staffer. 

Galper wrote that “the company went through a small reorganization that led to changes in the structures of some teams and, consequently, the departures of several employees.”

In August, the marketplace announced that it would stop enforcing creator royalties, much to some employees’ dismay. This led to a bout of internal dissent, said former staffers. “I still don’t think OpenSea has really identified their audience and gone after it,” added one person. “They just kind of keep shooting in the dark.”

Amid the uproar over OpenSea’s decision to do away with royalties, Finzer and Yu-Chi Kuo, his partner and a former crypto hedge fund manager, left New York City for a “desert adventure,” per Kuo’s Instagram, and headed to Burning Man. 

(This was the first vacation Finzer had taken in over a year, Galper said.) 

While Finzer and Kuo were partying in the desert mud, the SEC took its first enforcement action against the NFT industry and said NFTs issued by Impact Theory, a media company created by the founders of Quest Nutrition, were unregistered securities. Just a few weeks later, the SEC charged Stoner Cats 2, the company behind a Mila Kunis-backed animated series that features Ashton Kutcher and Jane Fonda, with issuing NFTs that the agency argued were unregistered securities. Impact Theory and Stoner Cats 2 agreed to cease-and-desist orders and paid $6.1 million and $1 million, respectively, in legal penalties.

Unbeknownst to some employees at OpenSea, their company was also in the midst of two separate regulatory “matters.” The SEC had issued OpenSea third-party subpoenas, or mandatory information requests, in regards to other entities. In addition, OpenSea also had a line attorney from the agency assigned to its “case” and was engaged in “custodial document production” with the agency, per internal company documents.

Legal counsel described the back-and-forth as the “SEC matter” and, in an internal document, spelled out OpenSea’s defenses. These included arguments that NFTs are not securities, that OpenSea is not a securities exchange or broker, and that OpenSea is protected by both the First Amendment and Section 230 of the Communications Decency Act, which stipulates that online operators are not responsible for third-party content on their platforms. “The SEC does not comment on the existence or nonexistence of a possible investigation,” said David Ausiello, an agency spokesperson.

Galper, OpenSea’s spokesperson, confirmed that OpenSea has received requests from the SEC since 2022. “We cooperate with regulators and law enforcement as part of our standard practice, and we are committed to complying with applicable laws and regulations,” he said.

While some staff weren’t aware of the SEC matter, a vocabulary guide instructed employees on appropriate terminology when either talking to each other or the public about NFTs and OpenSea. Instead of saying “buy, sell, or pay on OpenSea,” legal counsel told employees to say “purchase on the blockchain,” “purchase using MoonPay” (a crypto payments company), or “buy using OpenSea.” The guide said, “This distinction is very important to keep clear, as it impacts our tax and legal obligations.”

Other terms employees should avoid when talking about OpenSea were “exchange,” “broker,” “marketplace,” “profit,” “shares,” “stocks,” “trading,” “trade,” “traders” — words used when talking about securities, the domain of the SEC.

There was also the “FTC matter,” in which OpenSea submitted documents to the regulator. Internal documents I obtained did not provide more detail other than the existence of the back-and-forth, and the FTC did not respond to a request for comment.

Galper confirmed that OpenSea received document requests from the FTC and said its last submission to the agency was in August 2023. He declined to say why the FTC and SEC were asking for documents from OpenSea and didn’t comment when asked if OpenSea has received the formal communication called a Wells notice from the SEC that indicates a business or individual is subject to pending litigation.

One day after I told OpenSea we were planning to publish this story, Finzer announced on X that his startup had received a Wells notice. “We’re shocked the SEC would make such a sweeping move against creators and artists. But we’re ready to stand up and fight,” he wrote.

“Usually, when an agency requests documents from a business, it’s because they think something is wrong,” Christopher Odinet, a professor at Texas A&M University who’s researched legal issues surrounding cryptocurrencies, told me. 

Christa Laser, a professor at Cleveland State University who’s also researched crypto’s intersection with the law, said that, while the FTC’s information requests may stem from suspicions surrounding OpenSea itself, its interest in the NFT marketplace may simply be an attempt for the regulator to better understand an emerging market.

“The FTC is more likely to do document requests not pursuant to investigations than the SEC,” she said.

And there were ongoing inbounds from various tax authorities both domestically and internationally. The Australian Taxation Office (ATO), for example, was in a back-and-forth with OpenSea over whether the startup was required to pay taxes not only on the fees the marketplace takes for every NFT sale on its platform but also on the full price of the NFT, according to internal documents.

In early October, OpenSea’s legal team flew to Australia to make the case that their platform should be immune from the harder tax hit, according to company documents. If the ATO does not decide in OpenSea’s favor, Finzer’s startup would be on the hook for approximately $130 million, per numbers discussed internally in August 2023. And that’s not to mention inquiries from tax agencies in Washington state, India, and Taiwan.

The ATO declined to comment on OpenSea, citing confidentiality and privacy laws. Washington state declined to comment for similar reasons. The tax agencies for India and Taiwan did not respond to requests for comment.

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

“We’re definitely of great interest to policymakers, regulators,” said OpenSea’s former general counsel, Gina Moon, in an all-hands meeting, according to a document I obtained, “and, eventually, the court and public will see what we say.”

On Halloween, as OpenSea’s quarterly revenue reached lows not seen since the beginning of the NFT boom, Finzer and his partner attended Heidi Klum’s annual Halloween party at the nightclub Marquee in New York City. Finzer dressed as an “AI hacker,” per Kuo’s Instagram, and wore glasses and a hoodie emblazoned with OpenAI’s logo and carried a keyboard. With a bloodied knife and mechanical-looking prosthetics, his partner dressed as his “AI girlfriend.”

(Galper, OpenSea’s spokesperson, pushed back, arguing that Finzer’s costume was makeshift, that he only showed up for the photo opp, and that after he walked down the orange carpet, he rushed home to take work calls to continue to plan out a big change for his startup.)

Three days later, and one day after Sam Bankman-Fried, the former CEO of FTX, was found guilty of fraud, OpenSea announced widespread layoffs that led to the departures of more than 100 employees, approximately 56 percent of staff. On X, Finzer said that he was “reorienting the team around ‘OpenSea 2.0,’” a strategy and product change about which he provided few public details. “It’s a huge gamble, and it’s pretty intense,” he later told employees.

Ex-employees received four months of cash severance and six months of health insurance coverage, among other benefits, according to a memo Finzer sent to employees.

Finzer invited the remaining staff to an off-site to discuss the company’s new direction. “The real goal of these changes is moving from a position where we’re following to where we’re leading,” he said during an all-hands meeting at a Hollywood mansion once owned by Katy Perry and Russell Brand, according to a document I obtained. 

According to Lorens Huculak, a member of the executive team, during the all-hands meeting, OpenSea planned to “become the portal to Web3,” in reference to the idea that the future of the internet will be based on the blockchain. The startup planned to rewrite much of its code and allow users to more easily track crypto transactions across the platform without venturing to other websites. “We’ll become an aggregator, not only of chains, but also protocols, marketplaces, all kinds of liquidity, including tokens,” said Huculak.

The product revamp also includes features that make OpenSea better able to compete with Blur, according to a source familiar with the new product. “It’s simply a reskin of OpenSea Pro,” they said, referencing the arm of OpenSea’s platform that caters to NFT flippers. However, a current employee pushed back against that description and said there’s more to the relaunch than upgrades for traders and added capabilities to track transactions. That same employee, however, declined to provide any more details about the relaunch.

“Our plans around 2.0 are confidential,” Galper said in a statement.

Evidently, the new product vision and drastic layoffs didn’t initially inspire employees or investors. Shortly after the pivot, The Information reported that Coatue Management, one of OpenSea’s largest backers, effectively cut the startup’s valuation to only $1.4 billion in Q2 2023, a precipitous drop from its $13.3 billion sticker price less than two years earlier.

Then, multiple members of OpenSea’s executive team left after the layoffs, including the general counsel, the vice president of operations, the head of HR, and the head of communications. OpenSea offered remaining employees a 20 percent cash bonus on top of their existing salaries to keep them on board, according to internal company communications. (“We paid people to leave if they didn’t want to stay at OpenSea, and those who believe in the future of the company made the choice to stay to help us build,” Galper said.)

Amid the departures, executives worried that none of the remaining engineers or product managers were women, especially since some who had left the company complained of gender discrimination, according to internal documents. (OpenSea had previously hired an outside investigator to examine one of these complaints, and the investigator deemed it to be unfounded.)

“If we receive an employee complaint, we take it seriously and investigate promptly,” Galper said in a statement. “No claim of gender discrimination has ever been substantiated, nor have we ever had any litigation, arbitration, or mediation on the topic.” 

However, since the initial shock of the layoffs, morale has picked back up, according to three current employees. “There’s just so much less, like, bullshit, like Slack messages and meetings,” said one. “I was pleasantly surprised by how quickly people got back in the saddle,” said another.

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

Magic Eden, an OpenSea competitor, was hosting what it called a “Degen Yacht Party” on a floating casino turned party boat. As it rained, I waited in line to board the yacht and struck up a conversation with James Woods, a collector whose T-shirt bore the image of an NFT he owned: a pink dog with black sunglasses, a sailor hat, and a tan hoodie. “At any NFT-related events or any significant events in my life, I try to dress up like this,” said Woods, also wearing sunglasses, a sailor hat, and a hoodie. He even wore the getup to a first date at a casino: “It went great.”

Eventually, we walked on board. There were ice sculptures, DJs, free food (akin to the spread at a bar mitzvah, one attendee told me), free alcohol, an elevator embossed in gold paint, and energy drinks. I spoke with a man who goes by “Breads,” another named “Toast” (the two had a heartfelt reunion), someone who said “Cyber Frogs” changed his life, and a woman carrying a stuffed animal called “Chonky.”

Most people I chatted with spoke ill of OpenSea. I was, after all, in enemy territory. “Instead of doubling down and supporting the creators who put them in the position to be the best marketplace in the market,” said Woods, in reference to OpenSea’s decision to not enforce royalty fees, “they instead turned their backs on all of us.”

The yacht swayed back and forth in the rain, but we never left the pier. The storm was too intense. Eventually, on the third floor, I chatted with Zhuoxun Yin, cofounder and COO of Magic Eden. Like OpenSea, Magic Eden is backed by serious venture capital firms and has a billion-dollar-plus valuation, as of its last funding round. “It’s not the kind of industry where you can sit back and just count your chickens,” Yin, who goes by Z, told me. “Everything is moving so fast.”

While Blur stole hardcore NFT traders away from OpenSea, Magic Eden appeared to be eating into OpenSea’s popularity with creators. In February, Yuga Labs, the company behind Bored Ape Yacht Club and other blue-chip NFT collections, launched a competing marketplace with Magic Eden. And in April, Yin’s company surpassed both OpenSea and Blur in monthly NFT trading volume, according to DappRadar.

Despite the market turbulence, the majority of people I spoke to who had a financial interest in the NFT industry were sanguine about its future. “If the take is OpenSea is dying and therefore NFTs are dead, that’s the wrong take,” TJ Fuller, cofounder of Forgotten Runes, a fantasy franchise that lets fans own characters as NFTs, told me. He believes that the technology is still innovative: “Where we trade [NFTs] doesn’t matter.”

The majority of former OpenSea employees I spoke with also saw future use cases for the tokens: ticketing for live events or video game items users can more definitively say they own. But, added some, the current culture of speculation for speculation’s sake isn’t scalable beyond crypto diehards. “I think it’s kind of garbage the way it is now,” said one former staffer. “I don’t think selling JPEGs is worth it.”

Near the end of the yacht party, I walked down to the dance floor, pushed past a man thrashing on a flute as if he were a member of Metallica, and said goodbye to Woods, the man in the sailor hat. When asked for his closing thoughts on NFTs, he said, “Buy them as collectible items. Don’t expect to make money off of them.”

For OpenSea, perhaps that’s good advice. It was losing about $30 million in the first three quarters of 2023, according to an internal document I obtained. (It, however, projected that the November layoffs would reduce the company’s overhead in 2024.) And in June, the trading volume on its platform reached lows not previously seen since before the NFT boom in early 2021, per DappRadar. 

OpenSea still has plenty of runway. It had $438 million in cash and $45 million in crypto reserves as of November 2023, according to an internal document, and it’s coasting on that capital as it hopes a “2.0” pivot will help it navigate choppy seas.

Finzer once said he wanted his startup to build an ocean, not an aquarium. 

But if the NFT market continues to decline, OpenSea won’t lead to an ocean of digital collectibles. It will be dead in the water.