In the Solana NFT space, there is no bigger player than Magic Eden. The marketplace, which launched last fall, typically accounts for 90 percent or more of all Solana transactions. It was valued at $1.6 billion in its latest round of venture capital funding in June of this year.

But with the rise of Magic Eden, members of the Solana NFT community - both creators and collectors - are increasingly concerned that the platform is becoming too centralized in its development. They point to recent updates that restrict access to third-party aggregators and tools, as well as the way Magic Eden hosts users' NFTs, potentially leaving users' assets vulnerable to attack. Marty, founder of Zion Labs, which makes the Solana NFT tool, told Decrypt: "People should be aware that hackers can get the keys to Magic Eden and 'rug' each of their NFTs. if it's decentralized and the code is open source, this won't be a problem. If the code was open source, this wouldn't have happened."

In its response to Decrypt, Magic Eden did not specifically mention the risks of the escrow-based transaction model, but it said it believes the alternative is currently less secure for users. The marketplace plans to adopt a no-escrow system in the future, but "the technology is not secure enough."

Magic Eden NFT Escrow Model Questioned

The debate is heating up over Magic Eden's practice of keeping users' listed NFT assets in an escrow wallet. instead of allowing them to remain in users' own wallets, Magic Eden escrows all live assets, and users' NFTs are kept in the escrow wallet via marketplace smart contracts. This approach was common in the early days of the Solana NFT market, but later entrants to the Solana ecosystem, such as OpenSea and Hyperspace, did not take this approach.

Last Wednesday, OpenSea tweeted "No to Solana Marketplace hosted NFTs" without directly naming Magic Eden, but the goal was clear. marketplace would limit choice and utility and jeopardize security."

Metaplex's auction agreement enables Solana to trade NFTs without the need for a marketplace to host the assets. A Metaplex source, who wished to remain anonymous, confirmed to Decrypt that Magic Eden's marketplace contract is based on an earlier version of the auction house, a license-free peer-to-peer trading system. However, Magic Eden has made significant changes to that contract code, as well as to the launch platform contract based on Metaplex's Candy Machine's Mint tool. magic Eden has also isolated them from the rest of the community. The source said, "They are closed source and licensed derivatives of the open source technology provided by Metaplex."

This approach increases the potential risk for NFT traders. Closed-source software cannot be audited by the community or benefit from a vulnerability reward program. Not even Metaplex knows what's in Magic Eden's marketplace contract code. What would happen if Magic Eden's hosted wallet was stolen? Or what would happen if Magic Eden suddenly went down, as some other crypto companies have done in recent months during the recent market crash, Metaplex sources said, adding that as of last week, the "centralized" hosted wallet held about 180,000 NFTs.

In response to a question from Decrypt, 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 view, the current solution is not secure enough. We are actively exploring the unhosted model and plan to move to it, but we believe that the smart contracts that other markets currently use to implement the unhosted model are not secure," he wrote. This shift raises many security issues and we want to proceed with caution to ensure that our users do not inadvertently lose assets by not having a timely updated list."

Magic Eden's many recent tweaks

In addition to its hosting model, Magic Eden has seen many new changes: increasing scrutiny, review of the way its platform operates, and the way third-party applications are built on top of it.

Last week, as the topic of Magic Eden's hosting model went viral on Twitter thanks to user "Pland": Magic Eden is "no longer a license-free Dapp" due to recent smart contract changes. Most users don't notice, but it does have a big impact on the ecosystem. Smart contracts hold the code that powers Dapp and NFT assets. Developers who spoke with Decrypt said that the contract change makes it mandatory for Magic Eden to sign every transaction that occurs on its marketplace, unlike before. As a result, a number of third-party applications that aggregate multiple marketplace listings and so-called "sniper bots" that can be used to buy specific NFTs have been 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. the API key is used to authenticate developers and third-party programs that wish to access the application or service. Ether-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 site and reduce bot behavior that could compromise user listings and transactions. We are very open to ecosystem participation in our API program." Solana Labs has recently made some changes in an attempt to improve the stability of the network.

Zhou said Magic Eden has made more than 300 API keys available to developers, including aggregators like Tensor and NFT Soloist, as well as wallet app developers like Exodus and Slope. He also noted that developers of the Solana wallet Phantom have asked Magic Eden to have an API to verify that transactions are coming from their servers. "We believe in supporting a formal developer ecosystem to achieve our goal of a safe and secure marketplace," Zhou added, "and we keep an open mind to develop the API based on the needs of our partner developers."

Magic Eden's Mandatory "Anti-Insideration Initiative"

However, some developers in the Solana space see the shift as a rejection of decentralization principles. a representative from Hyperspace, the NFT marketplace aggregator, told Decrypt, "We're surprised they did this because it's completely centralized and doesn't benefit the end user. Because it increases the dependency on their servers, which leads to an increase in transaction failure rates."

Before the contract change, Magic Eden contacted Hyperspace and threatened to "shut down Hyperspace if they didn't change their platform to serve them," the person, who asked not to be named, said, adding that Magic Eden allegedly wanted Hyperspace allegedly wanted to provide Magic Eden with "exclusive uptime information and to operate only through their API.

A Magic Eden representative denied threatening them in the discussion: "We encourage our partners to integrate with Magic Eden as deeply as possible in order to provide the fullest possible technical and operational support. Unfortunately, Hyperspace is not interested in such a partnership and has been hostile."

Hyperspace says it found a solution to the Magic Eden API and continues to offer aggregated lists, but other aggregators, such as CoralCube, apparently lost functionality as a result. "Since then, they have been trying and actively working on ways to stop us," a Hyperspace representative claimed.

"CoralCube used to have a migrate list button, but Magic Eden recently moved to Web2's centralized platform. Items cannot be removed without Magic Eden's centralized signature. That's why we removed the migration button and now NFT is stuck in Magic Eden's hosting."

Some of Solana's builders told Decrypt that they believe Magic Eden's move was intentional to exclude the NFT aggregators that have gained attention in recent months. Hyperspace has been speaking out against this strictly anti-competitive behavior because it violates the principles of the open web.

Magic Eden's new features have come under intense fire

In addition, Magic Eden has come under fire for implementing new features that appear to have been inspired by external Solana applications. Last week, Magic Eden's go-live feature, which allows projects to create user permission lists before NFT deletes them, was resisted for being very similar to Blocksmith Labs' Mercurytool.

Anonymous NFT collector Topo Gigio told Decrypt about Magic Eden's new addition: "It seems like an unwarranted attempt to exclude anyone who could do better." Meanwhile, Zion Labs' Marty claims, "Magic Eden is 'using venture capital as a weapon' to rapidly expand 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 primarily on user requests. He claimed that the extensions on the platform are for NFT collectors and rejected the debate about centralization, saying, "This conversation is not about centralization and decentralization, it never has been. Collaborative tools have existed since our inception, based on Magic Eden's evolving market experience, and we don't intend to change that."

For some players in the Web3 space, the overall conversation around Magic Eden has been largely about centralization versus decentralization, including how key players in the space should approach issues such as asset escrow, open source code, and composability of blockchain assets and protocols. Between continuing to use third-party escrow and API-centric changes, Magic Eden's decision recently hasn't been for everyone. But Magic Eden remains the best choice for Solana collectors to buy and sell NFTs.

Criticism of Magic Eden is growing, but it remains to be seen whether many NFT projects will choose to distribute elsewhere, and whether prominent collectors will choose to take a public stand and exit the Magic Eden market. The NFT collector tweeted that he was giving up liquidity and claimed he would no longer use the market, noting that Magic Eden's escrow policies and contracts had changed. "All the liquidity is at Magic Eden and my exit is irrelevant to them," he told Decrypt, "I'm happy to move my high value assets elsewhere, even if the volume is smaller."