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Magic Eden Implements Stringent KYC Procedures Following Scams

  • NFT creators on Solana marketplace Magic Eden will now be subject to stricter procedures.
  • The company announced a new doxing policy for creators who want to drop their collections on the marketplace.
  • This policy would ensure stringent safety and project quality checks that would protect the interest of minters.

The recent development unfolds against a backdrop of rug pull scams that saw minters lose thousands of dollars on Magic Eden.

Minters lost $58,000 (645 SOL) in the first scam because of an NFT collection, King of Chess, which claimed to be an NFT chess game. If this scam was damaging, the next was more malicious, as it mocked Magic Eden’s flawed security policies. The Balloonsville NFT series, a 5000-item collection, scammed minters of almost $600,000 (5000 SOL). Adding insult to injury, the Balloonsville team took to Twitter to admit it was a sham and trolled Magic Eden’s porous policies. “All it took was a couple was a couple of paid actors,” the now-deleted account tweeted.

Balloonsville’s last seen post

Through a series of tweets, the team revealed that Magic Eden saw obvious red flags but never acted on them because “they knew their guaranteed 5% from our hyped launch was coming.” Top on the list of red flags was the team’s deliberate failure to provide an ID or a proof of concept. The Balloonsville team then ended its tweets with a petition for the Solana community to boycott Magic Eden. 

What Next for Magic Eden?

Magic Eden bore the brunt of these scams as they had to refund investors their money, admitting that its previous guidelines were lacking.

These rug pull events have served as a wake-up call for the NFT platform. Since its launch in September 2021, the marketplace has recorded about 411,425 users and a trading volume of over $704 million. Following the scams, the company paused its minting and marketing service Launchpad, before restoring the service two weeks later. According to Huang, the scams showed that the company was trading quality for speed.

The Solana marketplace will also adopt new policies to ensure there is no repeat of the previous events. According to  an official blog post published in the aftermath of Ballonsville’s claims, Magic Eden announced it was working on tighter policies:

We previously refunded and derugged projects, partially because our policies were unclear and therefore so were the community’s expectations of us. Moving forward, we are making our policies clear. We believe these policies will protect the quality of projects. . .”

Rug Pulls, New Rules, and the Magic Eden Marketplace

Part of Magic Eden’s restructure will be its adoption of a stringent doxing policy. In a rug pull, developers of a crypto project abandon the project, taking investors’ funds with them. They maliciously create a token or NFT, list it on a DEX or marketplace, and pair it with a leading cryptocurrency, say Ethereum or Solana. Unsuspecting investors then swap their ETH or SOL for the token or NFT. Once there is a significant number of investors, the developers withdraw all the ETH or SOL from the liquidity pool, rendering the token or NFT useless. 

To prevent future rug pulls, Magic Eden’s doxing policy would require project developers to reveal private information about themselves such as their name, face, and address. Magic Eden says its new policies will evaluate subsequent creators based on two major criteria it had erstwhile ignored prior to now: safety and quality.  

This implies that the number of projects accepted on the marketplace might reduce, as procedures become even more rigorous. Teams behind subsequent NFT projects will privately dox to Magic Eden should they wish to remain anonymous. 

Additionally, to reinforce quality, Magic Eden will require developers to prove that they have experience running NFT projects with real social engagement. If it is a gaming project or one that involves token distribution, then the team must provide a whitepaper and a practical roadmap. 

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Finally, using Magic Eden Launchpad means that the company will escrow a project’s funds for a minimum of 24 hours. Projects that want to further prove their authenticity can choose to increase the escrow period to 14 days.

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