The service allows NFT creators to drop their collections directly on Solana’s most popular marketplace, but the company paused the service two weeks ago after two high-profile rug pulls scammed investors out of hundreds of thousands of dollars. Now, Magic Eden has put in place new safety procedures to help prevent future scams, including stringent know-your-customer (KYC) requirements on creators that force them to “privately dox” to the company.
A rug pull is a type of exit scam in which developers, who typically remain anonymous, abruptly leave a project and run off with investors’ money. This type of scam is all too common in the NFT space on both Ethereum, the leading blockchain network for NFT trading, and Solana.
Solana’s premier marketplace only launched last September and has already racked up 411,425 users and more than $704 million in trading volume since launch, according to analytics website DappRadar. But it was recently forced to rethink how it has been conducting its business as a result of rug pulls on its Launchpad platform by NFT projects King of Chess and Balloonsville.
🧵 We’re excited to bring back Launchpad tmr. Did your heart just skip a beat with excitement + anxiety? Fret not.
— Magic Eden 🪄 Solana’s Leading NFT Marketplace (@MagicEden_NFT) February 19, 2022
King of Chess was an NFT collection that claimed to be an NFT chess game but instead stole 645 SOL ($58,000 at the time) from investors. Balloonsville did much more damage, scamming its investors out of 5,000 SOL, worth almost $600,000 at the time.
“With both of these projects, we refunded minters [the buyers], because we felt like they didn’t even get a chance to finish the mint and are stuck in these positions,” Magic Eden’s Tiffany Huang told Decrypt at ETH Denver.
But while most rug pulls go in silence, the team behind Balloonsville instead relentlessly trolled its investors and Magic Eden following the scam. “All it took was a couple of paid actors, and boom. We did it again,” the team said in a since-deleted tweet. Balloonsville claimed to be part of a team that had executed rug pulls on Solana previously.
#Balloonsville just deleted their twitter.
Hey buddy, we traced ur account to @FTX_Official and are working with law enforcement to share your ID to police and ICE investigators.
We have a lot to improve at ME, but you’re an asshole. The Solana ecosystem don’t need u here.
— Jack Lu (@0xLeoInRio) February 6, 2022
The Balloonsville account also said that its actions were meant prove a point and expose a flaw in Magic Eden’s policies. It claimed that Magic Eden had already instituted a doxing policy that required the teams behind NFT projects using the Launchpad to ID themselves to the company. Balloonsville declined to provide ID, but Magic Eden allowed the project to use the Launchpad anyway, it claimed.
Following these events, Magic Eden had a “come to Jesus moment,” said Huang, as the company realized that it was moving too fast and quality on the marketplace was suffering.
“We want to be better,” Huang said. “Now we’re focusing on significantly fewer launches per week, with higher-quality projects.” Apart from refunding Balloonsville buyers, Magic Eden also “derugged” the project by taking it over and redirecting the royalties from Balloonsville purchases to a new community wallet.
🎈 Ok, I found a solution to turn Balloonsville into Balloonsville 2.0 and make it better than it was supposed to be initially.
Goal: Original roadmap, BETTER! More 👇
— ChartFuMonkey (@ChartFuMonkey) February 6, 2022
According to Huang, Magic Eden now implements more rigorous minter safety and project quality checks for NFT collections.
“So within safety criteria,” Huang said, “every project will need to sign a partnership agreement, like an actual contract. Team leads have to, at minimum, be privately doxed to us, although we welcome public doxing.”
Doxing is the revealing of private information about a person, or group, which typically takes the form of revealing the person’s name, face, or address that was previously unknown. And while providing basic ID is standard in traditional business, it’s a thorny point of contention in crypto and Web3. Buzzfeed recently drew the ire of the crypto community when the outlet revealed the identities of two founders behind the Bored Ape Yacht Club, one of the most valuable NFT collections around.
According to Huang, the new quality standards that Magic Eden is implementing include requiring proof that the projects using its Launchpad have experience running an NFT project with real social engagement. For projects that claim to be developing a game or service that involves a token distribution, they must also provide a whitepaper and “realistic” roadmap.
What’s more, projects that use the Magic Eden Launchpad will now have their funds held in escrow for at least 24 hours. They also have the option to increase the escrow period to 14 days, which Huang said projects can opt into to prove they’re in it for real.
Huang also clarified that, going forward, Magic Eden will only refund the victims of a rug pull if the scam occurs during the escrow period.
“We think we’ve made everything much more stringent, but at the end of the day, we can never guarantee against rugs as a platform,” she said. “So people should always be doing their own research.”
Subscribe to Decrypt Newsletters!
Get the top stories curated daily, weekly roundups & deep dives straight to your inbox.