Magic Eden is forced to adapt
Magic Eden is slowing losing it’s grip on the Solana NFT market. For the past week now there has been a strong debate about NFTs and royalties. DeGods recently turned their projects royalties off sparking a huge debate about the validity of the move within the space.
This new debate has seen some markets that eschew creator royalties capture the market share in ways that haven’t been done in the Ethereum community as of yet.
Adapt to Survive
Markets like Magic Eden are having to adapt. The leading Solana marketplace currently commands 90% of the Solana NFT market share gaining a $1.6 billion market share back in June. The marketplace has seen great success with the Solana NFT community and its NFT launchpad service. Currently, the hold that Magic Eden has on the market has been slowly eroding as new rivals have come and drawn NFT traders away from the platform by promising traders with the promise of transactions without royalties. This allows traders to gain greater profits by allowing them to avoid paying fees on each trade, some of which can read up to 12%.
The current new competitive climate has forced Magic Eden to look inside and change things up in order to survive. The company has announced a partnership with the coral cubes NFT platform which will see the company offer zero-royalty transactions.
Magic Eden teased the offering to users to “ determine what royalties on our platform will look like” Coral Cube is an NFT marketplace that allows for optional creator fees meaning that those fees are determined by the community and not the platform.
The change does not mean a full 180 from Magic Eden, instead, the marketplace leader will use the partnership with Coral Cube to utilize the system already established by Coral Cube to offer the zero royalty platform. The company will continue to keep the creator royalties intact on Magic Eden in order to “protect” its brand as stated by Tiffany Huang the Head of Marketing and Content at Magic Eden, this seems to be certain “have your cake and eat it too” attempt.
Most NFT creators create their projects with royalties set between 5% and 10% on their artwork, profile pictures, collectibles, or video game items. The royalties give the creators a way to earn passive income by creating a percentage of the sale price for any future secondary market trades. This method of sales has been touted as a key part of web3 and what helped build the momentum of the NFT wave that took place in late 2021, a system of rewarding creators in perpetuity.
The royalty itself is built into the smart contract, or code inside of the NFT. The royalties are meant to be consistently enforceable as they are immutable within the code. The fact is that marketplaces have the ability to code around that code and make those royalties unobtainable. The reasoning is that larger transactions would be discounted due to fees for royalties being waived, this is tempting to a retail investor, especially during a bear market.
This new way of doing business with NFTs has been gaining traction with traders on the Solana blockchain but has angered many creators and businesses as they have become dependent upon the royalties to remain sustainable.
Matt Medved, an artist and founder of NFT Now put it bluntly in a tweet:
The main debate is that by destroying the ability to gain royalties you are once again taking advantage of the creator and not honoring their work and skill. The purveying though is that creators should be paid in perpetuity.
The beginning of this debate was started when a new marketplace Yawww decided to launch a platform that didn’t honor the royalties of NFT creators which was then followed by Solanart, another earlier marketplace. The current alleged “perpetrator“ is Hadeswap which is currently luring users away from Magic Eden.
According to data that has been compiled from another NFT marketplace, Tiexo, the controlling share of Magic Eden has definitely dwindled in recent weeks. According to the charts, the share fell from 89% to 79% in a matter of months. This week alone has seen the commanding share of the market drop to 58% in total. This marks a startling decline and one that needs to be addressed by Magic Eden in order to retain its leadership position.
Magic Eden originally had such dominance and went unopposed for a while, it would seem other marketplaces had to come up with ideas to take down the goliath and with that goal in mind created the zero-royalty system that has taken the NFT sphere by a storm of late.
Hadeswap just launched and isn’t quite like any other marketplace on Solana. The platform uses automated market maker formats like decentralized exchanges for their trades, the NFTs are sold into liquidity pools which earn trading fees for the creators of those pools. The platform is currently no.2 of all trading platforms and was created by HGE, the founder of OpenDAO and the creator of the ABC project, which is also zero royalty. HGE sees the move to zero royalty as beneficial for the space and a way to give power back to investors. HGE states that while there are no royalties on the platform creators can create their own liquidity pools and take trading fees instead thus gaining even more SOL.
As stated before, it’s not just the marketplaces that are beginning to adopt this way of thinking, projects are beginning to do it as well. The biggest news this week was Frankdegods, the leader of the DeGods ecosystem deciding to take his project and make it completely royalty-free, a move which saw a lot of scrutiny by the community as a whole.
The new collection Y00tS will also see royalties cut, this angered many as the project just released at a premium. Frankdegods argues that royalties are inherently not a viable way for startups to grow but also stated that he believes royalties are an “incredible use case of NFTs”. Frankdegods states he will continue to support creators that want to find solutions to enforce royalties but the idea is not viable for his business at this time.
Magic Eden has had its fair share of controversy with many deriding not only its dominance in the Solana ecosystem but also the fact that there has been a considerable amount of VC investment in the platform. Another major complaint of ME is the fact that it uses closed-source code and allegedly copies other features that were developed by other community builders.
There have been many moves ME has made that have left a sour taste in the collective mouths of those building on Solana, including the decision of the platform to start embracing the Ethereum ecosystem, some seeing it as a betrayal of the blockchain that helped it grow.
Either way, it sees the relationship between Magic Eden and Coral Cube as meant to bridge the gap between both ways of trading NFTs.
The announcement is not one of acquiring another company, instead, it is meant as an announcement of a partnership that is meant to build on the vested interests of both companies. The exact terms of the deal were not made public at this time