The arrest heard 'round the crypto world

Hey everyone, and welcome back to Chain Reaction.

Last week, we discussed $4.5 billion in new crypto funds from a16z. This week, we're talking about the arrest that has everyone in the NFT space sweating bullets.

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crimes of the future

The crypto space has been moving so quickly over the past couple years that builders have generally seemed to believe existing rules didn’t apply to them. Well, after years of snails’ pace legal action, it seems U.S. prosecutors are starting to feel it’s time to challenge that perception.

This week, the U.S. Attorney’s Office in the Southern District of New York arrested and filed charges against a former OpenSea executive who used his position to front-run NFT projects that were going to be listed on the home page of the marketplace. Members of the community discovered his actions by tracking his activity on public blockchains.

I would’ve loved to rant on this during the podcast, but news broke while we were recording, so I’ll leave you with some thoughts here.

The arrest was pretty much a massive shock to people in the NFT space who generally believed that Nate Chastain had acted unethically but that it couldn't be "insider trading" because NFTs weren't securities. This is a framing that was held by many, including Chastain's boss at OpenSea who fired him.

"I do think there was a misframing of it as insider trading. We don't view NFTs as financial assets, so that does not apply. That's a very specific term for a very specific thing," OpenSea Devin Finzer told Decrypt in September.

There are an awful lot of people taking a very close reading of the SDNY press release, which states it specifically charged Chastain "with wire fraud and money laundering in connection with a scheme to commit insider trading in Non-Fungible Tokens." They notably describe NFTs as "digital assets" later in the release. Also, it's worth reiterating that this is the DOJ -- not the SEC -- charging him, though it is the Office’s Securities and Commodities Fraud Task Force handling this case.