Confronting OpenSea, the growth path of Magic Eden as a crypto unicorn

Author: BlockBeats

This is one of the fastest-growing stories in Web3 projects over the past year. In just nine months, it has grown from zero to a crypto unicorn backed by star investors like Sequoia, Paradigm, and Lightspeed Venture Partners.

This is a leading NFT marketplace that holds over 90% of the share in the Solana ecosystem, and it has begun to directly compete with the dominant player in the field, OpenSea, hoping to become the largest, most liquid, and cost-effective NFT marketplace in the crypto world.

So, what opportunities and challenges has this platform—Magic Eden—faced in less than a year of development? Next, BlockBeats will provide a comprehensive overview of this project and the story behind it.

Growing into a $1.6 Billion Unicorn in Nine Months with the Power of Four

Seven years ago, Sidney's first crypto company failed during the bear market of 2015, leading him to bankruptcy and living on a sailboat. Fortunately, Starbucks allowed him to charge his devices for free during that time.

Eleven months ago, as co-founder and CTO, Sidney started his second crypto company, Magic Eden, from scratch, primarily providing an online marketplace for NFTs on the Solana blockchain.

Before this, Sidney had worked as an Engineering Manager at Uber and Facebook, focusing on artificial intelligence, machine learning, and search recommendations. Later, his childhood friend Jack Lu reached out to him to discuss the idea of launching an NFT marketplace on Solana.

Both Jack and Sidney are Australian-Chinese who lived in Melbourne during their high school years. They met at a bus stop on their way to a math tutoring class when they were 16. Years later, Jack worked for a while at the cryptocurrency exchange FTX and saw an opportunity in the development of Solana, eager to start something new in this rising ecosystem.

Later, two more co-founders, Zhuoxun and Zhuojie, joined the team. Zhuoxun was the second employee at dYdX and had previously served as a senior product manager at Coinbase, while Zhuojie was a colleague of Sidney's at Uber. The four co-founders quickly began the early development of Magic Eden, leveraging their rich expertise and experience in the crypto field, as well as their good collaboration in product, technology, and operations.

Magic Eden co-founders (from left to right): Jack Lu, Sidney Zhang, Zhuojie Zhou, and Zhuoxun Yin.

When discussing the advantages of Magic Eden, CEO Jack stated that having founders with experience at leading exchanges like Coinbase and FTX gives them unique consumer market insights and crypto exchange experience. The NFT marketplace's business model is actually very similar to that of crypto exchanges, with mechanisms for trading, issuing, and pricing, making the application itself resemble a consumer exchange market.

Today, this company, which has been developing for less than a year, has a team of over 100 people, including the sailboat owner who provided Sidney with accommodation back then. They continuously gather community feedback, test new features, and release iterative versions at a rapid pace, hoping to have the opportunity to change the future of Web3.

Moreover, Magic Eden's total trading volume has exceeded 23 million SOL (peaking at $1.9 billion), accounting for over 90% of the NFT market trading volume on Solana, and it continues to grow. Not content with this, Magic Eden recently announced its multi-chain expansion, integrating the Ethereum NFT ecosystem.

In terms of funding, Magic Eden completed a $130 million Series B round in June this year, led by Electric Capital and Greylock, with continued participation from Sequoia Capital and Paradigm. The post-money valuation has grown about tenfold since the Series A round in March, reaching $1.6 billion.

Thus, Magic Eden quickly grew into a crypto unicorn in just nine months, largely unaffected by the bear market in crypto and the slump in NFT trading. In contrast, its competitor and current NFT market leader, OpenSea, took three years to reach this point.

However, for Magic Eden, this may just be the beginning.

Directly Competing with OpenSea, Aiming for a Multi-Chain NFT Ecosystem

Throughout the NFT bull market cycle, Magic Eden has consistently outperformed its competitors. It has now established a dominant position in the Solana NFT market, and this progress is remarkably similar to OpenSea's market share on Ethereum. In the total trading volume ranking of NFT markets, Magic Eden ranks second, closely following OpenSea. In fact, with the surge in Solana NFT trading in May this year, Magic Eden's 24-hour trading volume once exceeded that of OpenSea.

Additionally, after investing in Magic Eden, Sequoia Capital partner Shaun Maguire stated that while people typically buy or sell NFTs on OpenSea, there is a weakness compared to Magic Eden: it primarily relies on the inefficient Ethereum network.

Due to the different ways NFT traders interact with these two platforms, generally speaking, the gas fees for purchasing a single Ethereum-based NFT on OpenSea often cost tens of dollars, while the fees for trading Solana NFTs on Magic Eden are less than one cent. As NFTs serve as an excellent entry point for new consumers into Web3 and the crypto market, Magic Eden provides a more accessible, lower-cost, and faster user experience.

In terms of operational mechanisms, Magic Eden covers everything from primary issuance to embedded trading. For the former, it closely collaborates with creators on its Launchpad to help projects mint, market, and successfully execute launches. For the latter, Magic Eden adopts an API-driven approach to help projects manage and host their own embedded markets. This is similar to the progress we see in e-commerce, where brands operate across channels, selling not only through third-party retailers but also directly to consumers via their own websites, and Magic Eden's infrastructure supports creators in cross-channel combinations.

In response, OpenSea has also begun to make adjustments, officially launching NFTs based on Solana in April this year, priced in SOL. By July, OpenSea announced the official launch of the "Solana Launchpad." Subsequently, creators can obtain NFT mint hosting services through OpenSea, as well as guidance for all activities, communities, and supporter whitelists prior to minting NFTs, along with services for all activities and secondary sales after minting.

However, more than three months later, the usage rate of Solana NFTs on OpenSea has remained lukewarm, showing little improvement. Data from Dune user rexzh0u indicates that on August 10, OpenSea accounted for only 0.8% of the daily trading volume of Solana NFTs, and it has not exceeded 10% for a long time, indicating that Magic Eden's position in this area remains unshakable.

On the other hand, Magic Eden has accepted the challenge and chosen to confront OpenSea directly. On August 2, Magic Eden announced that it would integrate the Ethereum NFT ecosystem and expand to multiple chains. Subsequently, the platform will provide Ethereum NFT creators with the same "listing" advantages as its Solana users, including its popular minting toolkit, whitelist tools, and marketing support.

Additionally, Magic Eden has ramped up its efforts, proposing to the ApeCoin DAO on August 10 to establish a low-fee NFT trading market for APE holders, allowing them to buy and sell NFTs with a minimum transaction fee of 0.75%. At that time, each transaction will incur a 1.5% fee for the seller, with a 0.5% discount for all transactions involving APE holders, and an additional 0.25% discount for transactions involving BAYC, MAYC, or BACC holders.

In the future, Magic Eden may continue to expand collaborations with other significant projects in the Ethereum NFT ecosystem. Currently, in terms of its operational mechanisms and community culture, it has successfully established a strong moat in Solana's NFT trading. In less than a year since its establishment, the platform has surpassed 22 million monthly unique visitors, with over 100,000 wallets interacting with the platform daily, and the secondary market boasts over 8,000 collections.

Critical Success Factors: Risks and Opportunities in Early Development

However, Magic Eden's development has not been smooth sailing; it faced a crisis that was crucial to its success early on.

"Magic Eden is too stupid to require ID verification; you believe anything now; it's easy to prove we are a rug; we just paid a few actors."

This was a mockery directed at Magic Eden by the initial rug project on its platform, Balloonsville. The Balloonsville series consists of 5,000 NFTs minted through Magic Eden's Launchpad, successfully earning over 17,890 SOL (worth $2 million at the time), only to announce that it was all a carefully orchestrated scam.

Furthermore, Balloonsville accused Magic Eden of increasing revenue through the Launchpad while lacking control over the verification of the authenticity of collections due to a lax process. After this tweet was sent, Balloonsville deleted its account. Soon, Magic Eden found itself mired in public opinion, facing numerous criticisms from its NFT collectors and creator community.

This incident also served as a wake-up call, leading Magic Eden to face two choices: tell users they should take responsibility themselves, as minting NFTs is essentially DYOR (Do Your Own Research); or offer refunds. This put the Magic Eden team in a dilemma, but they ultimately chose the latter.

The team spent hours on Twitter Spaces answering questions from many community members, soliciting feedback, and refunding users for the cost of minting NFTs. They then rallied community members to continue advancing the Balloonsville project, injecting 5,000 SOL into it, effectively resolving the project's crisis. Today, "Balloonsville 2.0" has become a thriving community-driven NFT project with a gamified ecosystem where users can stake their NFTs to earn the project's native tokens and explore its metaverse.

Despite this, the incident had a significant impact. At the time, Magic Eden paused its Launchpad program for two to three weeks, forfeiting revenue from upcoming mint projects, and even introduced upcoming creators to competing NFT platforms to allow them to continue their launches. As a result of comprehensive reforms to its platform processes, Magic Eden's business began to decline sharply.

"In crypto terms, this incident is what we call 'De-rugging.' Our Launchpad business shrank by about 70% within a month, but we chose to stand with our users and use this time to completely overhaul our platform operations and reinforce user trust. This reflects some of the principles we hold as a company, and we will continue to live by them," said Magic Eden COO Zhuoxun.

Since then, Magic Eden has launched nearly a hundred NFT projects without any scams or rug events, possibly achieving the best security record in the industry. Additionally, Magic Eden later launched two of the most iconic Solana NFT series, Okay Bears and DeGods, with the former achieving a total trading volume of nearly 2 million SOL and the latter exceeding 800,000 SOL.

"Yes, we are grateful for the challenges we faced during that rug incident. Successfully navigating through that crisis has elevated our platform mechanisms and operational capabilities to a new standard," Zhuoxun commented on the unforgettable rug incident.

Core Products: Launchpad and Eden Games

Today, Magic Eden sees itself as the steward of the NFT ecosystem, emphasizing a higher degree of responsibility to users. CEO Jack believes that in a world where well-known Web3 applications are challenging for newcomers to use, Magic Eden's user experience should resemble that of Web2 applications while maintaining the core spirit of Web3. "It needs to be fast, clear, low-cost, and support better user protection, and this sense of responsibility towards ecosystem users has also created more security and reliability for Magic Eden."

Launchpad

Another key factor driving Magic Eden's growth is the launch of its Launchpad. Previously, many NFT collections took weeks to reach the secondary market for trading. Moreover, launching NFT projects on Solana was a challenge for creators, as they needed to search for smart contract developers online and pay them to build custom mint sites.

Magic Eden has significantly shortened this time through its all-encompassing NFT minting platform, Launchpad, allowing an NFT collection to be traded on the platform just minutes after minting.

In December 2021, Magic Eden began to strengthen the operation of its Launchpad, attracting creators to publish their NFT collections on the platform. Although the Launchpad had actually existed since the second month, the team later did a lot of work in the background to make the experience smoother and more seamless.

Initially, the Launchpad was a product that only helped creators publish NFTs, but it gradually began to expand the user journey for creators, such as helping them target specific members in the community through pre-releases. After the launch, it introduced features to help creators manage their communities or view statistics and analytics to understand how their communities were formed, which is one of the most creative aspects of the product.

Additionally, the Launchpad is experimenting with some social features, starting to conduct interesting experiments around chat. Magic Eden believes that most NFTs inherently have a very social experience and are also an emotional experience: there is often a lot of hype at the moment of NFT minting, or when the popularity of an NFT rises and everyone is talking about and trading it. The added social features not only provide users with more space but also foster deeper emotional connections and feedback.

Currently, the Launchpad has become an important part of Magic Eden's growth flywheel, continuously attracting top NFT creators who wish to reach the platform's broad user base. To date, over 250 projects have minted through the Launchpad, generating over $10 million in revenue from its primary minting since its inception.

Eden Games

On the other hand, by creating a low-barrier and fast-execution environment, Magic Eden also positions itself as a leader in category expansion, moving beyond PFP NFT series into gaming, sports, art, and more cutting-edge fields. To this end, Magic Eden launched Eden Games, a content hub for game publishers. Magic Eden states that Web3 gaming will serve as an entry point for millions of users into blockchain, pushing blockchain into the mainstream.

Focusing on gaming, Magic Eden envisions a future where NFTs can be transferred and interoperated across games, ultimately providing better liquidity for players while also offering game developers more accessible economic infrastructure. Therefore, the platform will build a bridge for game developers and players to embed blockchain technology into traditional games and crypto-native games.

Recently, Magic Eden also launched a venture capital department, Magic Ventures, to invest in Web3 games, with former Tencent Games investment and strategic partner Tony Zhao leading this department. Additionally, it announced the appointments of former League of Legends TSM team player Yoonsup Choi, Fortnite champion player Harrison Chang, and former SOAR Gaming esports director Matt Biamonte, who will focus on gaming and NFTs, providing advice and support for game developers' launch strategies.

Since the launch of Eden Games, the Magic Eden team has introduced over 30 games and virtual world projects, including Mini Royale Nations, Everseed, and SkateX, capturing over 92% of the NFT trading volume in Solana gaming.

MagicDAO

In terms of decentralized governance, Magic Eden is also gradually exploring this area. It has released a collection of NFTs called Magic Ticket, allowing users in the community to access MagicDAO. Over time, more specific community users will be able to participate in some core decisions of the platform.

Specifically, MagicDAO members are divided into three levels: OG, Degens, and Normies. Each DAO member not only has voting rights but can also participate in planning Magic Eden's homepage and take part in its API beta testing hackathons.

Currently, some activities are already underway, such as community voting to support certain carousels on the homepage and actively encouraging developers to build various products, whether it's watchlist monitoring, analytical tools, or relevant infrastructure within the gaming market.

Additionally, as people re-enter more real-life scenarios, Magic Eden has also hosted some events through the DAO, such as two large events organized by the team for NFT LA and NFT NYC in the second quarter, which have become a very important part of expanding its community and NFT culture.

The Road Ahead

Today, Magic Eden enjoys a significant lead in the Solana NFT market, achieving this in less than a year, reflecting its effective strategy and execution.

To grow, expand, and reduce its risks, multi-chain development may be necessary for Magic Eden, but whether it can replicate the network effects of its current NFT ecosystem on other chains remains to be seen. Particularly, its community differs from the creators and collectors of Ethereum NFTs, which may hinder its development into new ecosystems, requiring it to find new footholds and rebuild its usage within the Ethereum community.

Moreover, as Ethereum scaling solutions gradually enter the market and gain adoption, along with the occasional outages of the Solana network, Magic Eden's reliance on Solana's advantages in fast, low-cost transactions may be eroded by similar experiences on Ethereum, which, with more validating nodes, will also provide better security.

Whether we will continue to see stronger user growth in its NFT ecosystem and more NFT collections being released remains to be observed. However, having experienced both lows and highs, Magic Eden should not fear challenges and will continue to move forward.