Magic Eden (ME) appears to have allegedly abandoned its permissionless ethos by quietly upgrading its smart contracts to require its signature for every transaction that occurs on the platform, which could cause adverse network effects across the Solana web3 ecosystem, according to NFT analyst Pland.
The move has stirred controversy that rippled throughout the web3 space, as it basically drives ME closer to web2. The marketplace that once carried the banner of decentralization is now under threat with this new policy, which may very well introduce a single point of failure.
Who Will Be Affected The Most?
For third parties, ME’s new policy means that the only option they can do to allow collectors to purchase listed NFTs is to acquire an application programming interface (API) key. While the policy isn’t illegal, this scheme doesn’t sit well in a web3 environment, which, in the first place, was built to counter this centralized system.
Aggregators, which help collectors buy or compare NFT prices from different platforms in one place, were the first casualties of ME’s new policy. CoralCube, one of the most popular aggregator platforms, is now prohibited from sweeping ME’s digital items and, as a result, has already removed its migrate listing button.
The aggregator platform further explained that when NFT creators list their digital assets on ME, they also transfer their creations’ ownership. Moreover, artists will now need ME’s signature to retrieve their NFTs. But what’s more concerning is that they can also be potentially locked out from their creations when they lose their API key, or sudden technical issues arise in the marketplace.
Magic Eden’s Envelopment Strategy Might Be the Reason
Apart from its signature policy, Magic Eden is now also providing tooling for its users, which made a severe impact on its analytics solutions providers, especially Solsniper. This move heavily incentivizes ME users to use its built-in tools and stay within the platform instead of using third-party services.
In business terminologies, this move is called “envelopment strategy,” which involves combining one’s functionality into a competitor’s market. Standalone services are prone to this “attack” and often have no choice but to play by the rules of the business “attacker.” But while this decision gives ME a ton of leverage, it can potentially drag down builders’ confidence in the platform as it directly competes with its solutions providers.
ME Running Out of Lock-In Advantages
When Magic Eden launched, it almost had all the advantages of an NFT marketplace, including having the best platform and sought-after engineers. These were ideal pieces to wield a “lock-in effect,” where users would have no choice but to stay in the platform (rather than switching services) because of its advantages.
But today, with the rise of new competitors such as Yawww, Coral, and Hyperspace, the only lock-in power left for ME is its liquidity, which may explain the marketplace’s recent (and drastic moves) to protect itself from the growing competition. Despite ME’s aggressive moves, other platforms still have options to compete, such as paying NFT projects to be their launch partners, which can be an enticing offer for many NFT developers.
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