What is Magic Eden?

Magic Eden was born in 2021, during the height of the NFT hype. People had just discovered that they could create and sell pixelated JPEGs for millions on the Ethereum blockchain. Solana already had successful DeFi ecosystem – NFTs took their value to another level. Creators realized they could flip their NFTs at sub-cent fees and dazzling speed on Solana. And so, Magic Eden was born.

Magic Eden is an NFT marketplace where people can launch and transact their JPEGs with ease. The platform is centralized, meaning the marketplace has no native token (yet?) and the core team is solely responsible for the security and quality of listed collections. You heard that right, NFTs might be for everybody, but only quality collections make it though Magic Eden's gate. The team is transparent about the vetting process, saying that they prioritize quality and safety when vetting a project. 

Beauty is in the eye of the beholder, and Magic Eden does its best to welcome creators from all over the world. As far as the responsibility of the platform goes, they make sure creators uphold to their promises by showing all the details of their offering. Furthermore, vetted collections get a verified badge that attests they've been analyzed. One of the most popular ways of verifying a project is by doxxing the team. The idea is to have a known face behind the project so the risk of rug pulling decreases. After the minting is finished, it is the responsibility of each project to fulfill their roadmap and engage with the community.

Much of the responsibility lies with the user, who is strongly encouraged to DYOR and stay in touch with the project's communication channels. It's not the fault of Magic Eden if the price of your Rainbow Pickle Rick went to zero after the project flopped. Unverified collections bear a much higher risk of being rug pulls. 

Magic Eden derives its value from making the minting process nice and simple. At a valuation of $1.6B, Magic Eden has grown to become the biggest NFT marketplace on Solana. Their path, however, hasn't been rosy. The marketplace had its share of fake NFT listings due to hack attempts. One such case occurred in January 2023, when 13 fraudulent NFTs were transacted for around 1100 SOL. The platform temporarily halted minting and proceeded to shut down the purchase of unverified NFTs as a precaution. All affected users have been refunded.

Another peculiar event happened in the same week, when a third-party caching service got hacked. For one hour, pics of The Big Bang Theory and porn were displayed instead of the actual NFTs. Magic Eden said the NFTs were safe, and the issue was solved swiftly. 

In each of these situations there was no major incident – users were refunded and no NFTs were stolen. However, it stands to show that operating a centralized NFT marketplace comes with certain risks. For example, Magic Eden holds custody of the listed NFTs in an escrow wallet. This approach was quite popular in the beginning, but it bears the risk of being stolen via an exploit. 

Magic Eden justified its approach by saying it makes the users experience much simpler, and the NFTs would be much safer with them than in the hands of an unexperienced user. To balance things out, the smart contract code is closed-sourced and permissioned. Only the core team has access to it. The marketplace plans to move towards an escrowless model in the future. 

How does Magic Eden work?

Magic Eden is where users can buy and sell NFTs. The platform is based on Solana and uses its proof of history consensus to settle trades at high speeds for a fraction of the cost. Just like on Ethereum, NFTs on Solana carry a unique proof of ownership. This is embedded in the metadata of each NFT. Metadata can include details such as the name, description, creator, and attributes of the NFT. 

NFTs on Magic Eden store their metadata on the Arweave blockchain, which provides decentralized and permanent storage for the NFT's information. This metadata is an important part of the NFT ecosystem, as it provides valuable information about the ownership, authenticity, and characteristics of NFTs. By leveraging metadata, creators and buyers can make more informed decisions about NFTs and ensure the integrity of the NFT marketplace.

Magic Eden uses smart contracts on the Solana blockchain to implement the core functionality of the marketplace, such as minting, listing, and selling NFTs. These smart contracts are audited for security and operate autonomously on the blockchain. Due to the fact that the code is closed-source, details about its inner workings are kept private as to minimize hacking attempts.

To differentiate from other NFT marketplaces, Magic Eden has a launchpad section. Here, users can directly mint NFTs from newly launched collections. The launchpad provides a streamlined process for creators to mint and sell their NFTs, while also providing a mechanism for buyers to participate in new and exciting NFT projects.

In order to use the launchpad, creators must first apply. The application process includes a review of the project's concept, artwork, and other details to ensure that it meets the standards of the Magic Eden community.

Once a project is approved, the creator can mint their NFTs and list them for sale on the Magic Eden marketplace. The creator sets the price and quantity of the NFTs, and buyers can purchase them using SOL or other accepted cryptos. 

Magic Eden operates as both a primary and secondary market for NFTs. While the platform has no listing fees for creators, it takes 2% on every transaction. These transaction charges are separate from royalty amounts set by creators.

With 500,000 transactions on a daily basis, Magic Eden has no competitor on the Solana blockchain. This makes the marketplace highly profitable, although, the platform is secretive about disclosing its revenue. The company is estimated to make around $13.3M per year. The costs of running a business of such size are also high. These include things like staffing, hosting, platform, and development expenses.

How to make money on Magic Eden?

Making money on Magic Eden involves buying and selling NFTs. The key in securing a bigger profit margin is to keep an eye on whitelists for upcoming collections and to generally be active in the NFT space.

A whitelist is a list of approved wallet addresses that are allowed to participate in a specific NFT sale. Typically, NFT creators or marketplaces will use a whitelist as a means of ensuring that only a select group of individuals or organizations can purchase or bid on a particular NFT.

Whitelisting can be used to create a sense of exclusivity around a particular NFT sale, or to ensure that the sale is conducted fairly and transparently. By limiting the number of participants and verifying their identities or qualifications, whitelisting can help to prevent bots, scalpers, or other malicious actors from unfairly dominating a sale or bidding process.

To participate in a whitelisted NFT sale, users must have their wallet address added to the whitelist by the NFT creator or marketplace. This process may involve submitting an application, providing proof of ownership or qualification, or meeting other requirements specified by the sale organizer. In practice, obtaining a WL relies on you being active in the Discord of the respective project. Once approved, whitelisted users will be able to participate in the sale or bidding process on equal footing with other approved participants.

Since you are among the first to mint the NFT, this creates an advantage. For example, users can quickly sell on the secondary markets as the floor price often goes up. Timing is of the essence when it comes to NFT flipping, so you may want to set up notifications for each event.