There is no denying how big Magic Eden is, especially in the Solana NFT space. The marketplace has gone on to command upwards of 90% of all trading volume on Solana, to think that it was launched only last fall. It has grown to epic proportions that its valuation has reached $1.6 billion as of its latest venture capital funding round two months ago.
However, despite its meteoric rise, many members of Solana’s NFT community—builders and collectors alike—are expressing concern about the platform’s current state. According to them, Magic Eden has become too “centralized” on its climb.
Magic Eden Rivals’ Rants
Rivals of Magic Eden who are vocally criticizing how the platform currently operates have singled out recent changes that have limited third-party tools and aggregators’ access to the platform. They also called out Magic Eden’s way of managing its custody of users’ NFTs, claiming the method could potentially lay the assets bare to attack. The platform currently uses an escrow-based trading model.
“People should be 100% aware that a hacker could get the keys to Magic Eden and ‘rug’ [every one] of their NFTs,” said Marty, the pseudonymous founder of Zion Labs, which makes Solana NFT tools. “This wouldn’t happen if it was decentralized and if their code was open-source.”
Magic Eden’s use of the escrow-based trading model is not new, but it has been picking up steam lately after its rivals pointed out the potential risks. With the said model, custody of all listed assets remains with Magic Eden instead of allowing these to stay in the users’ own wallets. Moreover, user NFTs are held in an escrow wallet through the marketplace smart contract.
The platform has defended its current trading model, saying it believes the alternative to the current one it is using is “less safe for users.” It also said that while it could eventually transition to an escrow-less system in the future, it believes the technology is not secure enough yet.
Magic Eden has stuck to this practice since the early days of the Solana NFT marketplace, even while its recent entrants—OpenSea and HyperSpace—go by the usual approach, that is, when a user lists a Solana NFT for sale on those marketplaces, the NFT remains in the user’s wallet.
Magic Eden on the Offensive
On July 21, OpenSea took to Twitter to throw shade at Magic Eden. They tweeted something about stopping by at a “marketplace that doesn’t take custody of [users’] NFTs,” to which Magic Eden went on the offensive and replied that OpenSea should try it so it won’t get sued.
Then again, last Wednesday, OpenSea tweeted about “Solana marketplaces taking custody of NFTs.” And while it didn’t directly name Magic Eden, there was no denying what the tweet was about.
“We believe marketplaces that custody your NFTs limit choice and utility and compromise security,” OpenSea tweeted at the time. There has been an ongoing battle between the two marketplaces over this point. Magic Eden has not held back with its retorts, even tweeting one about a user suing OpenSea over an inadvertent Ethereum NFT sale because of a user interface loophole.
Potential Risks for Traders
Ideally, Solana uses Metaplex’s Auction House protocol that allows NFT trading where a marketplace doesn’t need to take custody of an asset. Incidentally, Metaplex is an open-source protocol allowing for the creation and minting of NFTs using a consistent format across wallets and applications.
A Metaplex insider who wants to remain anonymous intimated that Magic Eden’s marketplace contract is based on an old version of Auction House, one that is designed as a permissionless, peer-to-peer trading system. Magic Eden also made several changes to the contract code and closed it to the rest of the community.
According to the source, “They’re closed-source and permissioned derivatives of open-source tech that was provided by Metaplex.”
What Magic Eden did adds potential risk for NFT traders since the community has no way of auditing closed-source software or benefiting from bug bounty programs. No one knows what is in Magic Eden’s current marketplace contract code, not even Metaplex.
Moreover, no one can tell what will happen to the ~180,000 NFTs in Magic Eden’s “centralized” escrow wallet should it becomes compromised or if the platform suddenly succumbs to the market crash and closes.
When contacted for comment, Magic Eden’s co-founder and Chief Technical Officer Sidney Zhang said there are plans to transition to a custody-free model. Still, it will not happen any time soon because, in his team’s opinion, current solutions aren’t yet adequately secure.
“We are actively exploring [escrow-less] models and plan to move to an [escrow-less] model, but we believe the current smart contracts to implement [escrow-less] mode that other marketplaces use are unsafe,” he wrote. “There are many security implications of this transition, and we want to do it carefully to ensure that our users do not get their assets inadvertently lost through stale listings.”
It seems Magic Eden’s decisions of late aren’t sitting right with almost everyone. Nevertheless, the platform remains in a place of power since it’s still the primary place where Solana collectors buy and sell their assets.
While criticisms are thrown left and right at Magic Eden, it remains to be seen whether new NFT projects will stop coming to the marketplace and launch elsewhere or if notable collectors will withdraw from the platform altogether.
Get more news updates
Get more NFT news updates at Omnimint News. For more information on Omnimint, and details on how to join our community, please follow our Twitter, or subscribe to our Telegram channel for more updates, and please feel free to submit your article.