- In less than a year, Magic Eden has become one of the biggest NFT marketplaces, rivaling OpenSea.
- Its cofounders made a big bet on Solana, a blockchain that promises quicker, cheaper transactions.
- Magic Eden has gained popularity by embracing alternative uses for NFTs such as gaming.
Like many crypto-curious market observers, Jack Lu found himself astonished by the rapid rise in popularity of nonfungible tokens last year.
But Lu, who at the time worked at the cryptocurrency exchange FTX, felt that the NFT buying experience could be better. In his view, the process of discovering new collectible tokens left a lot to be desired, and purchases often involved steep transaction fees. What NFT marketplaces needed was more attention to product design, he thought.
Lu, an Australian immigrant who landed in Silicon Valley, had previously been a product manager at Google, and he knew of a few others with experiences building products at companies like Coinbase and Uber. By the end of last summer, he had corralled three of his friends — two of them fellow Australian expats — to launch their own marketplace, Magic Eden.
Less than a year later, Magic Eden has become one of the most popular venues for buying and selling NFTs. The company processed $319 million in NFT sales last month, it told Insider.
Among NFT marketplaces, it’s now a growing competitor to OpenSea — the mammoth NFT marketplace that has raised $425 million in funding from investors like Andreessen Horowitz and Coatue Management, valuing it at $13.3 billion. Magic Eden has its own share of top-tier backers, including Sequoia and Greylock, with a fundraising haul of $29.5 million. Coinbase Ventures and crypto-focused VC firm Paradigm have invested in both marketplaces.
Lu, Magic Eden’s CEO, and his cofounders — CTO Sidney Zhang; COO Zhuoxun Yin; and chief engineer Zhoujie Zhou — sought to set their company apart by showing off a greater variety of uses for NFTs.
The vast majority of them function as profile pictures, or PFPs, that their owners buy for hundreds and sometimes thousands of dollars and display online on their social media profiles.
But Magic Eden’s founders were drawn to other applications for NFTs, such as video games. That drew them to Solana, a blockchain designed to process transactions quickly at low costs, which lended itself well to alternative uses for NFTs — such as allowing customers to play preview versions of NFT video games inside Magic Eden’s app before making a decision to buy the full version.
“We love experimenting,” Yin said. “Our fundamental belief is there will be many new types of assets using NFTs as technology.”
Magic Eden’s cofounders also pursued an alternative strategy to gain market share: Instead of making their marketplace a destination site, they would seek to partner with other companies to embed their marketplace on other Web3 platforms. For instance, users of the crypto wallet Exodus can access Magic Eden’s app inside their wallets.
The company has sought to strike other partnerships, too. For the NCAA US college basketball tournament March Madness, it developed an NFT with Overtime, a Gen Z-focused sports media company, that allowed buyers exclusive access to games and events hosted by Overtime.
Those strategies have helped Magic Eden to grow quickly and command the marketplace for Solana-based NFTs. By last November, just a few months after its launch, it commanded 30% of the volume in Solana-based NFTs, the company said. Today, it controls more than 95% of the market, according to data from Dune Analytics, a crypto analytics platform widely used in the Web3 industry.
“We’ve had a lot of exposure to different marketplaces,” said Mike Duboe, a partner at Greylock, who made the firm’s investment in Magic Eden. “Then we started using their product, and frankly, this is the best team on Solana.”
Magic Eden has benefited from another tailwind: Solana has gained favor among some Web3 developers for certain use cases, including NFTs. For years, Ethereum, home of the second-most valuable cryptocurrency, has been the leading blockchain for app development. Many of the most popular NFT collections, including Bored Ape Yacht Club, CryptoPunks, and Moonbirds, use Ethereum as their base, and OpenSea got its start there, too.
But Ethereum is relatively slow at processing transactions, and the costs of doing so — known as “gas fees” — can increase dramatically during spikes in volume. For instance, Yuga Labs, the parent company of Bored Apes Yacht Club, had to contend with a surge in gas fees in May when it launched a land sale for its metaverse.
By contrast, Solana promises faster speeds and lower costs. Because of those perceived benefits, Solana has on occasion been referred to as an “Ethereum killer.”
That’s likely an overstatement, said Ethan Daly, a partner at the venture capital firm Shine Capital who focuses on Web3 investments. (He is not an investor in Magic Eden or OpenSea.)
“I still see a premium associated with Ethereum,” he told Insider. Solana’s mechanism for verifying transactions makes some slight compromises in security and decentralization as compared with Ethereum, he said, but it also makes Solana a better blockchain for certain applications, such as gaming.
Magic Eden’s cofounders, for their part, don’t necessarily see Solana as an “Ethereum killer,” either. But the increased popularity of the blockchain signals a rising movement to make Web3 more accessible to a wider group of users as crypto makes a stronger bid for the mainstream. Among the top Solana NFT collections are DeGods, The Catalina Whale Mixer, and Degenerate Ape Academy.
Magic Eden’s team built its marketplace from the start with the goal of accessibility in mind, Tiffany Huang, its head of marketing and content, said. The average NFT price on Magic Eden has been about $250 over the marketplace’s lifespan, according to the company. By contrast, the average price for Ethereum NFTs on OpenSea in May was $1,756, based on data from Dune Analytics.
That lower barrier to entry is also beneficial to creators seeking to reach wider audiences, Huang told Insider. “We wanted to build what we thought could be a better ecosystem for creators,” she said.
The growing popularity of Solana has also caught the eye of other marketplaces, including OpenSea and Rarible, which now both support the blockchain. So far, Magic Eden has kept its position as the leading venue for Solana-based NFTs, according to Dapp Radar.
Going all in on Solana, however, does entail some risk. The blockchain has on occasion faced some technical challenges, including outages in May and earlier this month that left users unable to make transactions for hours.
Some data suggests that overall NFT volume has peaked. In May, The Wall Street Journal cited figures from Nonfungible.com that showed a steep drop in NFT transactions. But data on NFTs has occasionally come under dispute from Web3 founders and investors: Some panned the Journal’s analysis, arguing that Nonfungible.com’s numbers were invalid.
Data from Dune Analytics shows that total daily volume in dollars on both OpenSea and Magic Eden has dropped since early May. That drop, according to Magic Eden, stems largely from the plummeting values of cryptocurrencies in recent weeks. Measured in solana, its volume has trended upward and reached a monthly record in May, the company said.
“We think NFTs, in general, are super early,” Lu said. “There will be some cyclical peaks and troughs in the overall market, but we really believe the use cases are only going to go up from here.”
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