In May 2019, more than 1,000 nerds, coders, and crypto-curious collectors gathered over three nights in New York City at a festival dedicated to digital art. Called the Contemporary and Digital Art Fair (CADAF), it showcased works from 60 artists at Lightbox, a futuristic event space in the Garment District of Manhattan. The event catered to what was at the time an extremely niche community—people who were passionate about art attached to blockchains, the digital ledger technology that underpins cryptocurrencies.
For two crypto entrepreneurs, the stakes were particularly high. Devin Finzer and Alex Atallah had moved to New York the year before to grow their startup, OpenSea, a marketplace for blockchain-linked art, in–video game items, and collectibles. They had built the platform and secured seed funding, but customers were scarce: Their company was barely keeping the lights on.
But on the last night of the fair, in the gallery’s stark white basement, the two founders caught a pivotal break. The twins Cameron and Tyler Winklevoss, early Bitcoin investors and crypto entrepreneurs, bought a blockchain-backed, pixelated portrait called a CryptoPunk—using OpenSea. The sale didn’t involve a headline-grabbing amount of money, but the moment sent a message to the pioneers in this budding digital art world: OpenSea was a place where they could do business.
Today, the wider world knows blockchain-linked artworks as NFTs (non-fungible tokens), and OpenSea is the world’s biggest marketplace for those buzzy assets. NFTs track the ownership and provenance of digital items—anything from visual artworks to music clips to a selfie with your pet turtle. OpenSea processed just over $5 billion in NFT transactions in January alone, collecting a 2.5% fee on every deal. Thanks to its latest funding round, led by investment firms Paradigm and Coatue, the platform is valued at $13.3 billion, reportedly turning its founders into the NFT industry’s first on-paper billionaires (though OpenSea won’t confirm that).
Sasha Maslov, Institute
It’s hard to overstate how quickly this happened. As recently as January 2021, only about 7,000 users conducted transactions on OpenSea, according to crypto-tracking platform Dune Analytics; this January, almost 550,000 did. That growth has been turbocharged by headline-making milestones like the artist Beeple’s $69 million sale of an artwork at Christie’s in March 2021. Hype-beasty projects like the Bored Ape Yacht Club (BAYC) have drawn in celebrity buyers. At this point, everyone and their grandpa has gained at least some awareness of NFTs—and many want to buy in.
As the wave crested, OpenSea was ready to ride it. Finzer and Atallah made the platform appealingly easy to use, and they proved early on at events like CADAF that their site could help artists monetize their work without a middleman.
As the founders quickly learned, however, they weren’t prepared for everything. After new users flocked to the platform, widespread fraud followed. Beginning last fall, complaints about thefts, plagiarism, and tech breakdowns became increasingly common. OpenSea has been scrambling to address them, even as it confronts a downturn in NFT trading and in the wider crypto market.
OpenSea’s staff consisted of “maybe seven people” when the big user influx came, Finzer, OpenSea’s CEO, explains to Fortune. “We definitely didn’t expect things to grow so rapidly within such a short period of time. We more expected things to gradually ramp up.”
The company certainly didn’t prepare to become an internet powerhouse. For a long time, OpenSea seemed like it might not amount to much—a passion project run by two tech nerds, described by those who knew them pre-boom as earnest, curious newcomers to the art world. But today, the center of the Venn diagram that includes people who care about both digital art and the blockchain has expanded exponentially. OpenSea has become the financial hub for NFT fervor—the locus of massive expectations, with billions of dollars at stake.
As they shore up weak spots and decide how to keep scaling, the founders face a challenge that’s both strategic and philosophical. They built OpenSea on the principles of so-called Web3—the decentralized, blockchain-based internet where no single person or entity is supposed to control the platforms they build. It’s a world with an everyone-for-themselves ethos, one that values free expression and trade, but at the expense of safety nets. (If people lose their private keys to the digital wallet that holds their NFTs, for instance, no company can step in to retrieve them.) But OpenSea’s role in the NFT boom has pressured it to make moves associated with Web2, the familiar world of giants like Facebook, Google, and Amazon, in which users expect the customer service, accountability, and liability that traditional companies provide.
So far, OpenSea’s embrace of both webs has left many people wanting, as the company figures out how to bridge those universes. “We have a lot of responsibility to our users,” Finzer says, “and we’re always balancing.”
Finzer and Atallah have backgrounds that check the boxes for conventional Silicon Valley success: computer science degrees from prestigious colleges (Finzer graduated from Brown in 2013, Atallah from Stanford in 2014), hard-to-get internships at tech monoliths (Google for Finzer, Apple for Atallah). They met soon after graduation, through a mutual friend. By 2017, each already had founder experience—Finzer had just sold Claimdog, a service that helped users find out whether businesses owed them money, and Atallah was winding down a company. They were ready to explore new ideas together.
At a burrito place in San Francisco, the two discussed their mutual interest in cryptocurrency—a topic of fast-growing fascination, as the price of Bitcoin soared from around $800 to a high of nearly $20,000 over the course of 2017. The duo started attending blockchain meetups and experimented with a project using Wi-Fi routers for cryptocurrency mining.
In December 2017, a new blockchain project dramatically shifted their focus. Called CryptoKitties, it involved wobbly-eyed cartoon cats attached to NFTs on the Ethereum blockchain. Collectors could “breed” the cats to create new ones and trade them with one another.
Though cartoon collectibles and blockchains seem inseparable now, CryptoKitties were a groundbreaking idea. Few people had thought about blockchains as anything other than a vehicle for financial activity—using them to play a whimsical game felt genuinely exciting. What’s more, the cross-eyed cats showed that you could get a mass audience interested in a crypto product—generating so much enthusiasm that they temporarily overwhelmed the Ethereum network. Finzer and Atallah realized that a marketplace for such products could fill an unmet need.
The “OpenSea” name came early, Finzer recalls. Because the tokens that back CryptoKitties exist on the Ethereum blockchain, the founders thought about calling the marketplace “etherBay”—like eBay. “We riffed on ‘bay’ as this ocean term,” Finzer says, before arriving at OpenSea. That name illustrated the openness promised by Web3—a foil to the walled gardens of Google, Facebook, and Amazon. It also made sense for a platform that aimed to aggregate NFTs from all over the web. “OpenSea is sort of the water between different countries, where one ship would come and trade with another ship,” Finzer explains.
In early 2018, OpenSea received an initial $120,000 in funding from Y Combinator, followed by a $2 million seed round from venture funds and angel investors. The site was up and running by that summer, but by then, the crypto climate had turned wintry; as currencies’ values plummeted, investor and consumer interest waned. The founders stayed committed, however, and their modest funding helped them make a fateful move: In July 2018, they relocated from San Francisco to New York City.
Despite excitement around projects like CryptoKitties, the blockchain art world was tiny at the time. “It’s so hard for people to get in a mindset of what it was like,” says Jason Bailey, an early enthusiast and CEO of ClubNFT, which helps users back up and store NFT art. “No one really saw each other too much as competition, because what we were doing was still seen as pretty absurd.” CADAF, the 2019 art fair, captured some of that whimsy: A bench near the entrance of the venue recorded abstract images of the rear ends of everyone who sat there, encoding them into an immutable “Buttchain.”
The OpenSea duo landed in the middle of that absurdity in New York, meeting artists and mingling at conferences that brought the community together. Among the people they socialized with over beers were curator-entrepreneurs Elena Zavelev and Andrea Steuer, the founders of CADAF. (Today, the “C” stands for “crypto.”) “They were curious about the art, even though they didn’t come from the art world,” Steuer recalls. “They were always very fun.”
Finzer and Atallah also came across as capable and thoughtful, and that helped them earn their opportunity at CADAF. At the time, OpenSea was one of the only platforms offering a “fulfillment layer,” or buying tool, for NFTs. CADAF’s founders chose OpenSea to handle transactions for the fair, primarily because they liked the guys—even though the platform was not particularly intuitive yet. Steuer recalls Atallah painstakingly walking the Winklevosses through the process, but the deal got done.
CADAF also marked a major shift in focus for OpenSea. While it was, and remains, a marketplace for many kinds of NFTs, Finzer and Atallah realized that their blockchain-based platform had unique potential to accommodate artists, since it could publicly track provenance (any given piece’s sales history—an important element in the fine-art world). There was a lot they didn’t know. Steuer remembers sitting at the bar at Lightbox with Atallah, helping him upload artworks to the platform, and explaining that a single work could have multiple editions. “It was the first time that they were selling art,” she notes. But the founders recognized how scarcity and prestige could open new opportunities for their marketplace. “We always thought the first use cases for NFTs would be in the gaming industry,” Finzer recalls. Encountering the possibilities in art, he says, “was an interesting surprise.”
Riches didn’t immediately follow the revelation. In the first half of 2020, OpenSea hosted about $1 million worth of transactions a month—promising, but hardly eBay territory. Bailey remembers trying to book a hotel room with Atallah that March in Austin, where the two were scheduled to speak on a panel together at South by Southwest. “We were trying to figure out how to split a room at an Airbnb to get the cost down to, like, 50 bucks each,” he says, “because OpenSea had, like, no money.”
In the spring of 2021, two NFT projects changed that. Bored Ape Yacht Club, a collection of 10,000 cartoon simian characters, launched in April, followed shortly by Meebits—20,000 pixelated 3D figures generated algorithmically, by CryptoPunks creators Larva Labs. The OpenSea founders worked closely on the latter: One person involved with the launch recalls that Atallah personally reviewed the Meebits contracts—the blockchain coding underpinning the NFTs—to make sure everything would go smoothly.
Though a generous gesture, the assistance was very much in OpenSea’s best interest. The launches happened not long after Beeple’s huge Christie’s sale, as the NFT market began truly heating up. For the first six months of 2021, total NFT sales volume soared to $2.5 billion, up from just $13.7 million in the year-earlier period. Curious buyers flocked to OpenSea—partly because big-name projects like Meebits were there.
But users also came because, compared with other marketplaces, OpenSea’s interface required minimal blockchain know-how. New users no longer needed to submit NFT collections for approval before selling. And its “lazy minting” tool, released in December 2020, allowed people to create NFTs without paying “gas fees,” the cost of the energy it takes to execute a blockchain transaction, which can reach hundreds of dollars.
“OpenSea is a fantastic tool,” says NFT collector Elsie (a pseudonym she uses online), who describes herself as a “grandmother in the space” at 51 years old. Elsie describes OpenSea as especially useful post-purchasing, because the site aggregates any NFTs a collector buys, anywhere on the web, displaying them together on that collector’s personal OpenSea page—like their own private gallery.
The platform quickly became, for many, the express lane down the NFT rabbit hole. It was a virtual ecosystem where explorers could find a collection of freshly minted fart noises next to works by traditional-art giants like Damien Hirst and splashy digital names like Beeple and XCOPY. Anyone could check out Paris Hilton’s collection, or DJ Steve Aoki’s, or turn a photo of their dog into an NFT and try to sell it. And some people did get rich, like those lucky enough to obtain Bored Apes soon after they debuted. (Fortune also got in on the act: In August, Fortune Media worked with OpenSea to auction off a collection of NFTs based on the cover art of a crypto-themed magazine issue; the sale raised $1.3 million, half of which went to journalism-oriented nonprofits.)
More VC money followed the trend. In July, VC giant Andreessen Horowitz led a $100 million Series B funding round for OpenSea, joined by talent agency CAA, Ashton Kutcher, and Kevin Durant, valuing the company at $1.5 billion. Crypto-investing kingmaker Katie Haun, then a partner at Andreessen, joined OpenSea’s board.
It wasn’t long, though, before the treasure attracted pirates.
The @NFTtheft collective, which tracks complaints about NFT skulduggery from artists on Twitter, noticed a big uptick in plagiarism reports involving OpenSea in November, collective member Bor says. (Bor works under a pseudonym to avoid harassment.) Artists began discovering that works indistinguishable from theirs were being sold as NFTs by OpenSea users. By December, Bor says, his team had identified “hundreds of accounts” belonging to thieves and plagiarists on OpenSea, each trying to sell “thousands” of stolen art pieces.
NFT plagiarism isn’t unique to OpenSea. NFTs can verify that a piece of digital art is authentic and belongs to you, and can track its chain of ownership. But the blockchain can’t verify that the JPEG connected to an NFT isn’t a copy, and a buyer might be unable to tell the difference. With digital art, copying is basically theft; a unique, distinctive work can be devalued by an onslaught of clones.
The features that make OpenSea so easy to use—its lack of screening and lazy-minting tool—fueled the plagiarism fire. This February, OpenSea tweeted that more than 80% of the NFTs it removed from the platform for violations, including plagiarism and spam, were created with its lazy-minting tool. But when it announced that it planned to curb those problems by limiting how many NFTs each user could create, it faced a huge backlash, and immediately reversed itself—leaving the caveat emptor regime in place.
Plagiarism wasn’t the site’s only problem. In September, then head of product Nate Chastain was accused of insider trading; he’d allegedly used information about which NFTs would appear on OpenSea’s homepage to buy art that he knew would get prime placement. OpenSea asked for, and received, Chastain’s resignation; Chastain did not respond to a request for comment from Fortune.
Courtesy of CADAF
A few months later, bots capitalized on users’ inactive listings through a loophole that allowed hackers to deceptively buy NFTs that were no longer for sale, at far-under-market prices. One user, Timothy McKimmy, has sued OpenSea, alleging that its failure to fix that known vulnerability resulted in a hacker “buying” his not-for-sale Bored Ape at a lowball price and reselling it for six figures. One of his lawyers says McKimmy sent multiple requests to customer support, only to receive a form response “more than a month later.” In a February blog post, Finzer attributed the issue to the Ethereum blockchain, and wrote that OpenSea had upgraded its smart contracts to counteract it. Still, the suit echoes a common complaint from users—OpenSea’s customer service was next to nonexistent when they needed it.
Today, OpenSea is scrambling to shore up that support—without raising barriers to entry for users. As its founders wanted, OpenSea remains, well, open, to pretty much anyone, a nod to Web3’s ethos. Finzer calls Web3 “the next evolution of the internet, [which] over time was consolidated and controlled” by Big Tech. “Web3 represented a new, open data model,” he says; strict policing of the site would violate that spirit.
The lack of gatekeeping, on the other hand, can diminish OpenSea’s appeal to fine artists and their collectors. Several who spoke with Fortune are gravitating to curated marketplaces where users must jump through more hoops or get invited to sell their work, including KnownOrigin, Nifty Gateway (owned by the Winklevosses, OpenSea’s early customers), Snark.art, and Foundation.
“It’s not made for fine art,” artist Brendan Dawes says of OpenSea. He prefers to sell his art on SuperRare because “it’s about one-of-ones, it’s not collectibles,” he says. Dawes also has a bone to pick with OpenSea. Earlier this year he auctioned one of his works there to raise money for Ukraine. OpenSea continued to accept bids after the auction was closed, says Dawes, putting him in a “difficult position, because obviously they’d outbid the person who, to my mind, had won.” (He says he and the bidders worked it out among themselves.)
Ultimately, OpenSea “isn’t the coolest brand,” acknowledges Bailey. “It’s almost like—Alex will hate me for this—but it’s almost like Walmart.”
Of course, cool or not, Walmart had $573 billion in revenue last year.
In March, Larva Labs sold its CryptoPunks and Meebits collections to Yuga Labs, the company behind Bored Ape Yacht Club. Larva’s projects had grown from experimental digital art into something unwieldy, a mini-industry that its creators hadn’t anticipated having to deal with, and frankly didn’t want to. A Larva Labs blog post about the acquisition explained, “Our personalities and skill sets aren’t well suited to community management, public relations, and the day-to-day management that these kinds of projects require and deserve.”
OpenSea’s founders face the challenge of proving that they are well suited to those things. Finzer, as CEO, now carries the heavier load; in January, Atallah, who had been CTO since OpenSea launched, relinquished that job and took on a new position overseeing “Web3 and NFT ecosystem development efforts,” the company announced at the time. Many in the NFT community empathize with the duo: Bailey suggests that they’ve faced “tall poppy syndrome,” in which people pile criticism on to those who have achieved great success.
Getting to ask the founders about the experience directly wasn’t easy. After a slew of press about OpenSea’s myriad problems, they weren’t clamoring for media attention. Following much back-and-forth, I got 20 minutes on video with Finzer in late March. (OpenSea did not make Atallah available to interview.) Appearing on Zoom from his New York City apartment (background blurred), in a blue T-shirt, Finzer embodies his tech CEO role—personable in a vaguely bro-ish way, and seemingly careful to stick to predetermined talking points.
After discussing OpenSea’s origins, we get into the company’s growing pains. Finzer acknowledges being slow to address the issues that came with fast growth. “As a CEO, I had to let certain things maybe fall apart while building out the rest of the team,” he says. That team is coming together: In October, OpenSea brought on a customer-support lead, Anne Fauvre-Willis, who Finzer says has reduced OpenSea’s response time to “less than 24 hours,” helming a team of roughly 200, most of whom started in early 2022. In December, OpenSea hired Shiva Rajaraman as VP of product, who had previously held product roles at Apple and Spotify—companies that have proved they can make tech work seamlessly at scale.
Finzer tells me that he and his team “don’t want [OpenSea] to be a fully centralized custodial marketplace … but we do want to provide the best-in-class customer support and user experience,” all while “preserving the magic of Web3.”
It’s unclear exactly how OpenSea can have it both ways. Some of the plans Finzer describes, like OpenSea’s increased emphasis on combating fraud, require Web2-style, centralized control. Finzer also says OpenSea’s focus on “inclusivity” will soon mean letting users buy NFTs with credit or debit cards instead of crypto—another Web2-catering move. Still, while those changes may annoy crypto purists, they’re necessary to reach the internet-using majority.
In the first few months of this year, NFT trading declined sharply. Volume on OpenSea in March was more than 50% lower, by dollar value, than in January, according to Dune Analytics. Measurements of NFT trading vary widely from source to source: Data from Nonfungible.com, a tracking platform that excludes certain kinds of automated trading and “wash trading,” suggests that overall NFT sales plunged even more sharply from January through March, by almost two-thirds.
Whatever its degree, some see this as a correction after outsize hype. Some early adopters think that would probably be a good thing. “I do kind of hope the market crashes,” says Bailey of ClubNFT, describing the discomfort he’s felt watching “vultures in suits” monetize the digital-art world. After a crash, he hopes the community will “get back to just being a bunch of nerds.”
OpenSea, meanwhile, is counting on further growth. Finzer signs off from our interview to catch a flight to San Francisco. OpenSea’s team is gathering there for its first leadership offsite, where the founders can bond with the new leads who have come aboard to navigate the tide of demand.
I’d planned on asking Finzer if he thinks that demand will fade with the NFT market’s slump, but his dogged optimism makes the question feel moot. After all, he says, “it’s still really early days for the space.”
CLARIFICATION: This article has been updated to more accurately reflect OpenSea’s January 2022 trading volume.
A version of this article appears in the April/May 2022 issue of Fortune with the headline, “OpenSea: Learning to sail in rough waters.”