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Why OpenSea's NFT Marketplace Can’t Win | WIRED

Why OpenSea’s NFT Marketplace Can’t Win | WIRED

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

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 OpenSea users started complaining that bots were on the prowl to exploit an outdated listing mechanism that would allow them to snap up NFTs at below-market prices.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

Mack, the OpenSea spokesperson, says that the company’s “policies prohibit plagiarism and copyminting, which we regularly enforce in various ways, including delisting and in some instances, banning accounts,” and that OpenSea is developing technology—including automated moderation, image recognition, and enhanced search tools—to better address the problem. Mack says that the company is aiming to respond to customer reports in less than 72 hours on average (rather than the week artists claim it takes to get a response) and is planning to have a team of “nearly 200 people” in customer support by the end of the year, having already added more than 100 in the past two months.

It’s debatable whether that will be enough to win over @NFTTheft and other digital artists, as well as the advocates of decentralization and cryptocurrency, many of whom are avid NFT buyers. Centralized content moderation is kryptonite for the crypto crowd—a mark of the Big Tech companies that, in the Web3 narrative, are supposedly destined for the dustbin of history. And OpenSea’s Web3 credentials have already been called into question: The company’s closed-source technology, its decision to raise funds from VCs rather than by selling a token to its supporters, and rumors of an imminent IPO—later quashed—earned it hostility in some quarters. That culminated, on January 10, in the launch of rival NFT marketplace LooksRare. LooksRare adopted a more decentralized architecture, redistributing the ether cryptocurrency from its 2 percent transaction fees to users who had bought its $LOOKS tokens; crucially, LooksRare doled out free $LOOKS tokens to users with a significant history of trading on OpenSea, in a bid to lure them away from the platform—a move cryptocurrency media dubbed a “vampire attack.”

“LooksRare was made to create an NFT marketplace that’s by NFT people, for NFT people,” says a LooksRare spokesperson going by the name Slug, relaying comments from several members of the all-pseudonymous management team. “$LOOKS stakers earn platform fees, whereas the platform fees from most other markets we’re aware of go to a central entity. When you compare the models, which approach is more vampiric?” LooksRare’s trading volume has zoomed past OpenSea’s, but researchers have pointed out that most of it came from “wash trading”—that is, from accounts buying their own NFTs in order to inflate prices.

Jamie Burke, the founder and CEO of London-based VC firm Outlier Ventures, says that the showdown between OpenSea and LooksRare is healthy for both the companies and the NFT industry at large. “I think having competition makes people stay innovative,” he says. “Intellectually, I’m interested in seeing how these two different models compete, seeing them duke it out and see the pros and cons.” As things stand, Burke says, “OpenSea is the standard” for NFT companies. And the work with Twitter on NFT profile pictures demonstrates that it is opening up its API to partners, which Burke sees as positive.

That will still not sort out OpenSea’s unresolved oscillation between Web3 libertarianism and Web2 responsibility. The incentives, the cryptocurrency expert with knowledge of OpenSea’s operations says, are diabolically aligned: Going for a curated, sanitized model would cost OpenSea a big slice of the NFT crowd that longs for a Wild West ecosystem, but staying on the current light-touch course would bring about an endless string of PR crises. “They’re going to want to keep the ‘anything goes’ environment while doing just enough moderation to look like they’re making a sufficient best effort,” the anonymous cryptocurrency expert says. “They want it to be ‘anything goes’ but they need to do just a little bit of work to get the heat off their backs all the time.”

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