Magic Eden’s Solana NFT trading throne is difficult to guarantee under the custody crisis?

With the rise of Magic Eden, members of the Solana NFT community are increasingly concerned that the platform has become too centralized in its evolution. 

Written by Andrew Hayward

In the Solana NFT space, there is no bigger player than Magic Eden. Launched last fall, the market typically accounts for 90% or more of all transactions on Solana. It was valued at $1.6 billion in its latest VC funding round in June.

Magic Eden's Solana NFT trading throne is difficult to guarantee under the custody crisis?

But with the rise of Magic Eden, members of the Solana NFT community, including creators and collectors, are increasingly concerned that the platform has become too centralized in its evolution. They noted that recent updates restricting access to third-party aggregators and tools, as well as the way Magic Eden hosts users’ NFTs, could leave users’ assets vulnerable. Marty, founder of Zion Labs, which makes the Solana NFT tool, told Decrypt: “People should be aware that hackers can get Magic Eden’s keys and ‘rug’ each of their NFTs. If it’s decentralized, the code is open source. , this will not happen.”

In a reply to Decrypt, Magic Eden did not specifically mention the risks of an escrow-based transaction model, but it said it believes the alternatives are less secure for users at the moment. The market plans to adopt an unmanaged system in the future, but “the technology is not secure enough”.

Magic Eden NFT hosting model questioned

The debate over Magic Eden keeping user-listed NFT assets in escrow wallets is heating up. Magic Eden hosts all listed assets, rather than allowing them to stay in the user’s own wallet, the user’s NFTs are kept in the escrow wallet through the market smart contract. This approach was common in the early days of the Solana NFT market, but later entrants into the Solana ecosystem, such as OpenSea and Hyperspace, did not take this approach.

Last Wednesday, OpenSea launched a topic on Twitter “against Solana’s market hosting NFT” . Although Magic Eden was not directly named, the goal was obvious. OpenSea tweeted at the time: “We believe that a marketplace for NFTs that host users limits choice and utility, and compromises security.”

Metaplex’s auction protocol enables Solana to conduct NFT transactions without the need for a marketplace to escrow assets. An unnamed Metaplex source confirmed to Decrypt that Magic Eden’s marketplace contract is based on an earlier version of the auction house, a permissionless peer-to-peer trading system. However, Magic Eden made significant changes to the contract code and the launch platform contract for the Mint tool based on Metaplex’s Candy Machine. Magic Eden also isolates them from the rest of the community. “They are closed-source and licensed derivatives of open-source technologies provided by Metaplex,” the source said .

This method increases the potential risk for NFT traders. Closed source software cannot be audited by the community, or benefit from bug bounty programs. Not even Metaplex knows what’s in Magic Eden’s market contract code. What happens if Magic Eden’s escrow wallet is stolen? Or, what would happen if Magic Eden suddenly went down, as some other crypto companies have in the recent market crash in recent months? As of last week, “centralized” custodial wallets held around 180,000 NFTs, Metaplex sources said.

In response to Decrypt’s question, Magic Eden co-founder and CTO Sidney Zhang said the market plans to transition to an uncustodial model at some point, but in his team’s opinion, current solutions are not secure enough. He wrote: “We are actively exploring an uncustodial model and plan to move to an uncustodial model, but we believe that the smart contracts currently used in other markets that implement the uncustodial model are not secure. Such a transition would bring many security concerns. , we want to exercise caution to ensure our users do not inadvertently lose assets by not having up-to-date listings.”

Several recent adjustments to Magic Eden

In addition to the hosting model, Magic Eden is seeing a lot of new changes: increasing scrutiny of the way its platform operates, and the way third-party apps are built on top of it.

Last week, as user “Pland” went viral on Twitter about Magic Eden’s escrow model: Magic Eden “is no longer a permissionless Dapp” due to recent smart contract changes, most users didn’t notice, but it did have a great impact on the ecosystem. Smart contracts hold the code that powers Dapps and NFT assets. Developers who spoke with Decrypt said the contract change made it necessary for Magic Eden to sign every transaction that occurred on its marketplace, unlike before. As a result, some third-party apps that aggregated multiple marketplace listings, as well as so-called “sniper bot” tools that could be used to buy specific NFTs, were compromised.

Magic Eden acknowledged the contract change to Decrypt, explaining that transactions now require two signatures: one from the end user and another from an API key provided by Magic Eden. API keys are used to authenticate developers and third-party programs that wish to access an application or service. Ethereum-centric marketplaces like OpenSea also have API systems.

Zhuojie Zhou, co-founder and chief engineering officer of Magic Eden, told Decrypt: ” This change was introduced to maintain the reliability of the core website and reduce bot behavior that could compromise user listings and transactions. We very much welcome the ecosystem to participate in our API. program.” Solana Labs has recently made some changes in an attempt to improve the stability of the network.

Magic Eden has already provided more than 300 API keys to developers, including aggregators like Tensor and NFT Soloist, as well as wallet app developers like Exodus and Slope, Zhou said. He also noted that the developers of Solana wallet Phantom asked Magic Eden to have an API to verify that transactions came from its servers. “We believe in supporting a formal developer ecosystem to achieve the goal of a safe and secure marketplace,” Zhou added. “We remain open to developing APIs based on the needs of cooperating developers.”

Magic Eden’s mandatory “anti-involution operation”

However, some developers in the Solana space see this shift as a rejection of the principle of decentralization. A representative for NFT market aggregator Hyperspace told Decrypt: “We’re surprised they did this because it’s completely centralized and doesn’t benefit end users. Because it increases the reliance on their servers, which leads to transaction failure rates. increase.”

The person, who asked not to be named, said that before the contract change, Magic Eden contacted Hyperspace and threatened “to shut down Hyperspace if Hyperspace’s platforms are not changed to serve them.” Magic Eden allegedly wanted Hyperspace Provide Magic Eden with “exclusive launch information and only do it through their API.

A Magic Eden representative denied threatening them in the discussions: “We encourage our partners to integrate as deeply as possible with Magic Eden in order to provide the fullest possible technical and operational support. Unfortunately, Hyperspace is not comfortable with such a partnership. interest, and has been in a state of hostility.”

Hyperspace said it found a solution to the Magic Eden API and continued to provide aggregated lists, but other aggregators such as CoralCube apparently lost functionality as a result. “Since then, they have been trying and actively researching how to stop us,” a Hyperspace representative claimed.

“CoralCube used to have a migration list button, but Magic Eden recently moved to a centralized platform for Web2. Without Magic Eden centrally signed, items cannot be deleted. That’s why we removed the migration button, and now NFTs are stuck in Magic Eden’s escrow.”

Some of Solana’s builders told Decrypt that they believe Magic Eden’s move is intentional to exclude NFT aggregators that have gained traction in recent months. It finally gives Magic Eden control over who can get on its upline and benefit from its liquidity. Hyperspace has been speaking out against this strictly anti-competitive behavior as it violates the principles of the open web.

Magic Eden’s new features come under fire

Additionally, Magic Eden has come under fire for seemingly being inspired by an external Solana app when implementing new features. Last week, Magic Eden’s go-live feature, which allows projects to create user-approved lists before NFTs are deleted, faced resistance for its resemblance to Blocksmith Labs’ Mercurytool.

Anonymous NFT collector Topo Gigio told Decrypt about the new additions to Magic Eden: “It seems like an involuntary attempt to exclude anyone who can do better.” Meanwhile, Zion Labs’ Marty claimed: “Magic Eden Is ‘using venture capital as a weapon’ and rapidly expanding into an all-in-one Solana NFT resource.”

Magic Eden’s Zhou responded that Magic Eden is a “user-first company” that adds features based on user requests. He claimed that the extended functionality on the platform was for NFT collectors and rejected the centralization debate. “This conversation is not about centralization and decentralization, and never has been,” Zhou said. “Cooperation tools have existed based on Magic Eden’s growing market experience since our inception, and we do not intend to change that approach.”

For some players in the Web3 space, the overall conversation around Magic Eden is mostly about centralization vs. decentralization, including how major players in the space should approach things like asset custody, open source, and blockchain assets and protocols composability and other issues. Between the continued use of third-party hosting and API-centric changes, Magic Eden’s decision hasn’t been for everyone lately. But Magic Eden is still the best option for Solana collectors to buy and sell NFTs.

Criticisms of Magic Eden are mounting, but it remains to be seen whether many NFT projects will choose to issue elsewhere, and whether prominent collectors will choose to take a public stand and withdraw from the Magic Eden market. Topo Gigio is one of them. The NFT collector tweeted that he would be giving up liquidity and claimed he would no longer use the market, noting changes to Magic Eden’s custody policy and contracts. “All the liquidity is in Magic Eden, and my exit doesn’t matter to them,” he told Decrypt. “I’d be happy to move my high-value assets elsewhere, even with smaller volumes.”

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