Chain Reaction

Magic Eden threatens OpenSea’s NFT dominance (w/ Jack Lu)

Episode Summary

For our Tuesday episode where we chat with a web3 expert, we talked to Jack Lu, the co-founder and CEO of fast-rising NFT marketplace Magic Eden. The venture-backed startup was founded last year and has already reached unicorn status -- raising at a $1.6 billion valuation.

Episode Notes

Welcome to Chain Reaction, where we unpack and explain the latest in crypto news, drama and trends, breaking things down block by block for the crypto curious. 

For our Tuesday episode where we chat with a web3 expert, we talked to Jack Lu, the co-founder and CEO of fast-rising NFT marketplace Magic Eden. The venture-backed startup was founded last year and has already reached unicorn status -- raising at a $1.6 billion valuation. In our conversation, we discussed:

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Episode Transcription

Anita Ramaswamy  0:03  

Hey everyone, it's Anita and Lucas Welcome to chain reaction where we unpack and explain the latest in crypto news drama and trends breaking things down block by block for the crypto curious.


Lucas Matney  0:16  

So today for our interview, we chatted with Jack Lew who's the CEO of NFT marketplace magic eaten in June, the startup raised $130 million at a $1.6 billion valuation. I know what you're thinking there are a lot of unicorns in this space. This one was a little different because it happened after the crypto downturn had already come into full effect. So open sea may be top dog in the NFT marketplace world after a pretty massive head start but this company magic Eden has quickly made a name for itself as the go to place to buy NF t's on the Solana blockchain, the young now unicorn startup is getting ready for a major launch on the Ethereum blockchain as it looks to come for the industry's players on their home turf. This was a wide ranging super great conversation. So let's get straight into it. Jack, it's great to have you.


Jack Lu  1:03  

Absolutely. Thanks for having me, Lucas. Pleasure to be here.


Lucas Matney  1:05  

So I mean, magic Eaton has been in the news a lot lately. And I guess for more of our general audience listening that don't follow crypto super closely. Maybe they've heard of open sea. But magic Eden has been a pretty uprising strength in the NFT marketplace world in the past year or so what's been going on? And how do you compare it to kind of open sea and some of these other big platforms?


Jack Lu  1:25  

Yeah, absolutely. Thanks for having me on to tell a bit about our story. So magic, you know, where the biggest marketplace on Solana, that's where our home is. And our origin story is so Solana being one of these new kind of Frontier blockchains and developer platforms. So we started off the recently announced our expansion to the theorem ecosystem where some of our peer marketplaces have kind of like started that base from but I'll like I'll TLDR story is we started about 10 months ago, we've processed around $2 billion of NFT trades on our platform, all of that on Solana. And right now we transact over 90% of all the Solana NF T's. I think how we're different to other marketplaces is a couple of dimensions. Number one, we're not really a generalized marketplace that play in every category, like we don't play in one on one fine art, we don't do like user names, domain names, there's two that we really focus on, we really want to be a world class and industry leading player and the number one would be collectibles. So it started off as like profile photos. But now it's kind of expanded into different things like avatars and stuff. But collectibles is, you know, one category. And the other one for us is games. And for both of those kinds of use cases, we want to go super, super deep, right? So for example, on the gaming side, gamers can come to Majeed and play the game itself. And the philosophy there has always been around for us to say, hey, like, it's used as a really new abstract kind of concept, right? You felt like crypto in general is like pretty abstract just to the average person. Yeah. And our view has always been that, Hey, you come to measure you didn't, the first thing we ask our users to do should not be like to fork out 1000s of dollars to buy this like new abstract thing that just appeared on the internet, you should actually experience the value first without having to pay for anything. So come here, play a game play crypto game, if you like it, and you know you're immersed in it, then if you feel so compelled to buy something and take a home and enjoy it, enjoy the rest of experience, you can do that as well. So that's kind of the philosophy and kind of the immersive product experience that we want to build. We have some other analogies on the collectible side. But that's kind of roughly how we differentiate. Right. And


Anita Ramaswamy  3:26  

yeah, I guess speaking about the different types of NF T's that are out there, I want to get your thoughts on how you think user habits are sort of changing around NF T's like I know, there's a lot of use cases, like you mentioned gaming, but there's a lot of use cases beyond just like profile pictures and visual art. But it seems like those have had slower uptake over the past year or so. So do you see that shifting soon? And how are users changing what they want from NF T's?


Jack Lu  3:47  

Yeah, it's really good question. There's a couple of takes on it. Right? Like I think number one, the use cases for NF T's is definitely expand it. And that's one of the primary reasons why we chose Solana as the first blockchain to build it in the first place. That was a really intentional choice for us. And our logic that was kind of thinking, hey, zooming out, if he's as a thing is so early, right, and this is like first innings or even like pre first innings of this whole space. And we think that the use cases for this new kind of technology primitive is going to explode. And that will be better built on a blockchain or developing environment where the costs and you know the barrier to experimentation is super low. Right. And that's why we chose the latter. We saw these like new use cases around games, music ticketing, and even for profile pictures. We saw some different takes on it like mutations staking like gamifying the collectibles themselves which we did not really see in other environments. So in some sense of the availability of new technology is enabling new use cases and things are looking pretty experimental and these like new things are starting at the same time. I think just currently where we are today in history, it's a bear market sentiments down there is definitely a compression to like Powell uses like to believe That's right. And that's I think that's not just the NFT thing that's generally exactly all of web three. So now like the people who are still here who are still retaining the ecosystem, like power users, a lot of them kind of were inserted into the ecosystem through collectibles through trading. And that's the main we see like the slivers of new like innovation more along that vein, like Powell use a palette trading tools, financialization of crypto financialization of NF Ts. So those are kind of some emerging themes that we're seeing.


Lucas Matney  5:30  

Yeah, I'm curious gaming, something that always interests me with NF t's just because there's been so much talk and obviously, like, it's very easy to illustrate some use cases when it comes to some of the existing in app purchases and microtransactions people are making conventional games, but there really haven't been any super successful, either Solana or just like kind of general blockchain games that have felt like games, I guess. So what do you think the outlook is for that? And especially if it's like, really about the core group of believers who are like in NF T's during the bear market, I counted as a game or something like that get super popular and bring new volume to you guys?


Jack Lu  6:06  

I think there's a very accurate points. And yeah, for sure. Look, I think there's a couple of things. So number one, it's very hard to be in the business of picking like, what's the best game that's gonna come out, like even the industry, that logic of that industry has always been a hits driven, right. And we as a platform, and we as a kind of a web three platform, a technology platform is even harder for us to pick up who are going to be the winners, okay, we're gonna be massive, just being one step removed from being like a content creator in the game space. But that being said, there's a couple of thoughts there, I think, like, we see a massive pipeline of game creators under the hood building games. And that gives us a real sense of like bullishness on the category in general. And the reason for that is, our philosophy of how this ecosystem grows, has always been a creative first lens, in the sense of we as a platform, our core thing is we're like a commerce and marketplace layer, right on use cases that happen in the ecosystem. But it's the creators who create those use cases, who are then going to pull end users into this ecosystem. Once we see a lot of gaming developers really exploring web three, we became super bullish that, hey, some of these folks are going to create the next big hit, right? The second lens there is definitely right. Like, I think the right lens to look at games is there is no such thing as web three games, right? Oh, there is no such thing as web street gamers, people who wants to play games do not go looking to play a web three game, they just want to go play a game. And what we see today is more the predominance of like web three games. So it's mostly like web three folks who then put like their skin over some kind of, you know, their web three ideas, I think we're going to see a shift where it's like pure game content developers who are masterful at developing content masterful at developing game loops themselves who are going to come into this space. And they're more like using web three as an instrument as some tool to like surface or realize some kind of player goal or product goal, right within the game itself. When that happens. I think I'll, you know, we'll be much more bullish of like real games that like very vibrant content come into the ecosystem.


Lucas Matney  8:08  

Yeah, I mean, how bullish Are you that there's going to be a slice of the pie for you guys, though, because I guess I feel like if some company right now, if you're playing with like PFPs, like, obviously, a team of five people could like spin up a fairly convincing PFP project, but it takes a lot of energy to create, like a large world scale game. And therefore I would kind of imagine that they'd be like, Okay, if you transact these assets on our platform, it's whatever 1% transaction fees, but if you do it on other, maybe something's imbibed in the contract where it's like, there's like a kickback or something I would imagine they tried to discourage that, wouldn't you think? If it was like a popular enough game, like just seems Oh, yeah,


Jack Lu  8:44  

the urge to create closed gardens?


Lucas Matney  8:47  



Jack Lu  8:48  

That's a pilot,


Lucas Matney  8:49  

which, you know, it's it's something that the community would hope wouldn't happen. But even with like other side or something like that, they created a Bitcoin and they're pushing users to transact in that way to buy parcels of land. So it's like, there's Oh, yeah,


Jack Lu  9:02  

yeah, absolutely. I think, you know, we'll have to see right, like, we'll have to see how things play out. The thing I would definitely say is, it was kind of tensions between platform and content creators existed many like manifestations, not just the web through purchasing NF T's but like it went to PC console, all of that, right. So I'm sure there are those kind of dynamics at play, that's just going to something that we have to solve at the same time, I think in the gaming space and in the collectible space, any other aspects of NF T's there is very strong convergence of interest as well. Right? Very, very strong convergence of interests. And a few like things that's worth pointing out is number one, there is a strong like convergence of interest in terms of knowledge sharing, and just especially like expertise affecting like expertise based partnerships, because what what the game played folks, imagine put yourself in the shoes of a trailblazing indie game developer who wants to try web three, innovate and build the next big thing. You've got limited runway. You have to build a really, really good game. You've raised like a bunch of money and now it's up at Marquette, their primary motivation is around how do I build a really good game and like find a publisher and build a really engaged user base, all of that has got nothing to do with crypto. And all of that has got nothing to do with Blockchain. They're very disincentivized from them saying, yo, let me spend like a quarter of my runway to then figure out this like blockchain thing, which half the time it's kind of jank. And you know, the systems and stuff like break all the time, they're really looking for a trusted partner to absorb that complexity for them, and also actually hold their hand to say, here are all the do's and don'ts and all the pitfalls, right, like within the blockchain space. The second thing is that the reason that games attracted to this blockchain value prop in the first place is the ability for there to be a secondary market, right, which previously, they did not have a real business model to have all of the web to games business models is really about like primary sales from the gaming publisher to the user and selling like escape items. And they don't encourage resells among users, because they had no way for the publisher to monetize those resells. But then if you think about it, if they are attracted by the value proposition of users selling to each other, that happens in the crypto space in an open economy, like that's the really unique thing about crypto, you have internet level liquidity of items being traded back and forth amongst users. So in that sense, it's really natural for them to partner with like a marketplace where we can facilitate that kind of behavior. And then there's many other things as well to go into but I would say, of course, there is some natural platform content creator attention, but just given where we are in this space, there's a lot of convergence that's putting people together as well and making them want to work together. Totally,


Anita Ramaswamy  11:39  

I want to actually hop to a different topic that's been on my mind based on some news that you guys announced earlier this month, which is that you are going to support Ethereum NF Ts. And I'm curious if you can just talk a little bit more about that decision, just how you're going to stay true to this vision of wanting to keep cost down and everything and what the value prop is for Ethereum, NF T's versus Solana NF Ts.


Jack Lu  11:57  

Yeah, absolutely. I think from Day Zero in the company, we've always wanted to be multi chain, it was funny, because the last couple of weeks, we've been grinding so hard trying to build our eath product. So yeah, sure, had some time to like walk down memory lane and like, look at some of our, like old like strategy decks or whatever. And yeah, from the very beginning, we said, hey, let's go to like Eve, at some point, I think the motivation is is like, number one, ease as the ecosystem is NFT ecosystem that we've long admired. There are many, many creators, there are many, many collections there which have like long legacies, huge amounts of prestige, and like very storied reputations, right? I'll be like groundbreaking, either groundbreaking in terms of the innovation or groundbreaking in terms of the impact


Anita Ramaswamy  12:36  

on the world. Yeah, it's like all the other big well known projects.


Jack Lu  12:39  

Exactly, exactly. Right. So us as a very community driven marketplace and a very creative first marketplace. There are many those types of communities and creators who want to partner in the ecosystem, and we can learn a lot from them. So this has always been an area where we said, especially for collectibles, like that use case, there is so much more like so much more that we can do and so much more we can expand to that. The second part about our value proposition is, I think, actually the Solana Ethereum ecosystems are converging. And we can see that we have many examples of end users who collect both on Aetherium and Solana. And at the same time, we have many examples of creators who both launch on eath. And then once you launch on Solana, we already work with those folks. And I think the general logic is that for collectors, they historically have seen Solana as more like a frontier chain, or frontier ecosystem, you know, they collect some stuff from eath, they kind of liked what they saw, then they want it to go to a younger ecosystem where there's like, more upside more innovation, maybe like it's a bit more more unformed, and they can, you know, have a bigger say in shaping that ecosystem. And there is almost a trickle down effect, in some sense. So in that sense, like a lot of our users are very familiar with both of these ecosystems, and we want to serve them well on both. We feel like on Solana our vision of having very immersive, kind of like marketplaces like, you know, what I've mentioned earlier, where you can come to play game, you can come experience other things related to NFT trading, that value proposition has really resonated well with our existing user base. And we already know that already trade on eath. So why don't we go and use that same philosophy to serve them better, as well?


Anita Ramaswamy  14:16  

Yeah, that makes a lot of sense. I guess this is sort of related. But one trend I've noticed with, you know, the, the big crypto like token exchanges, not necessarily NFT marketplaces, is that fees have been coming down. And it seems like there's this sort of Race to Zero fees. You know, Coinbase is talking about that with that subscription business and all I guess, do you see that eventually happening and the NFT marketplace space as well?


Lucas Matney  14:39  

Please know.


Jack Lu  14:43  

Yeah, I mean, we, to be honest, I hope not. And to be really honest, I really thought though, so fair enough, right. Like, on one hand, it's well known news. There is a lot of new entrants into the NFT marketplace space who basically compete on low fees, not just low marketplace fees, but not having like creative royalties, like not respecting some like basic tenants of the entity ecosystem. And at the same time, from our live through experience, from magic you did I find, like our users in general, don't care whether the fees are 2.5, or two or 1.5. Right. And when we do like user interviews or feedback, like, in general, that's like, you know, not not even in the top 10 of like user pain points, or things that they want magic either to solve. And then there's some other thing about market structure in the sense of marketplace fees relative to create a royalty. So like NF T's, whenever secondary sale happens, the seller will also have to pay fees to the original creator, the marketplace fee portion of the total fee amount that gets taken out of the sale is the boss small, much like the significant majority that right? So it's also like, yes, we can compress marketplace fees. But that doesn't really unlock so much more savings for the user, it's really the Creator royalty part of it that has the lion's share of the fees. So in some sense, some like microstructure reasons why I feel like all of this is it's like a red herring. In some sense, the more focus will matter, you don't like our lens to this problem is more that it's always about user value, we as a product, and as a platform, we have to provide value to our users, right. And as long as we are providing value to our users in XYZ ways, we should be able to incentivize and attract them to use majeeda, regardless of the fees that we have. That's kind of a view on this.


Lucas Matney  16:21  

Yeah, because like last year, as you guys were growing a ton and NFT marketplace at large was just really expanding. Like, there are a lot of people getting rich, but maybe that's becoming a little less true for the more recent entrants into the market over the past few months. So I guess like in that lens, it might seem like transaction fees could be something where, hey, maybe it's 2%, or two and a half percent or something like that. But when you're seeing the lines go down and down and down. Maybe you're thinking like, Okay, I like I like that 2% I want that 2% in my bank account. So well, that's, that's, that's a little bit of an aside, I guess, zooming in on to like a individual situation. So I know earlier this month, you guys put in a proposal to the ape coin Dow to kind of work on a proprietary marketplace for products in the Hugo world. And then you know, renderable just came out with their fee, yours kind of had like a tiered transaction fee structure based on if you're kind of already involved with when the products they're doing something that doesn't have any fees. That seems like it'd be kind of hard to compete with. So like, how do you feel about that as just kind of like a harbinger of the future of fee talk?


Jack Lu  17:22  

Yeah, I still go back to the point of, you know, obviously, we have our own lens on this whole thing, right? Like, if everything goes to zero, we'd have a business model. That's just like putting, like, candidly out there. Our thoughts


Lucas Matney  17:32  

was Coinbase is discovering right now.


Jack Lu  17:35  

Yeah, exactly. There's a few like, I think like the structural trends that we see in the centralized exchange space for fungible tokens might not always play Nf Ts, because there's a much bigger portion of like institutional market makers there. And even in the non crypto world, there are like very special fee structures usually given to those ecosystem participants. Whereas in NF Ts, there's just not enough liquidity in the overall ecosystem to really support those kinds of market making institutional players and therefore I think like some of the fee compression you see in clinical tokens might not translate like what to want to end up on the other side of like a coin, and fees and like majeeda A coin prolozone fees. So a couple of things that number one, like we really wanted to do this proposal, a point coming from this motivation, in the sense of, we think well, one of the best NFT marketplace, product builders in the world. And I think our track record stands to speak for itself. But one of the fastest like unicorns in the world like in general, right, I 10 months, we hit 1.6 billion. And then we were the number six marketplaces Solana to come along. And we had to overcome a lot of network effects that other incumbents had to get to where we are today, we didn't launch a token, we didn't incentivize behavior, we got that through like building great products, talking to our users and talking to our community, and just moving really fast. That is our track record. And that's how we are who we are. At the same time. We go to eat with a lot of humility, in the sense of I almost think of us as saying, hey, well, like software guys who know how to build a really good app. Yeah, well, like one of the best in the game. Right? I would like to make that


Anita Ramaswamy  19:05  

question as hosted by Jackie, are produced by


Jack Lu  19:12  

you. I think it'd be an amazing marriage for one of the best product builders.


Anita Ramaswamy  19:17  

Bryce Durbin is our Illustrator, Alison Sprager. Leads audience development, and Henry pick. For listening, see you


Jack Lu  19:25  

next week, we want to build a marketplace because this is important for our ecosystem. I think it goes to say that like you are a world leading community, and you then deserve a world leading product to match the status of your community. We think were the right people to deliver that for you. And our track record stands for itself. In that sense. I don't need to compete on fees. The motivation of our proposal is we don't get paid at all if no one uses our product. So we are willing to say build the best product there is commensurate with the heights of the eight Quinn community and that if people are incentivized and find it useful, and they liked the experience, they use it then as you will be financially incentivized the same way as well. That's all. That's all tick.


Anita Ramaswamy  20:05  

Tock, I want to touch on a topic that's been in the news this week. I mean, one thing I was reading about was this like pseudo rare rug pull situation that happened. And it just got me thinking about, you know, NF T's more broadly. I know in February, you guys mandated that anyone who was minting an NFT on your platform would basically have to reveal their identity and go through the KYC process. And from my understanding, that's not the standard with all NFT marketplaces. So I'm wondering if you faced any pushback from creators about this? I know the decision was made to sort of increase safety or prevent redpolls. Right.


Jack Lu  20:33  

Yeah, absolutely. So so we did to be really honest. And it's a really interesting, I think, being a platform. And even our, like, our thinking on this whole thing has evolved many, many times from or, I guess, the wins, we had all along the ways, but also like the major else we had along the way, as well, right? Yeah. But the I think the real crux of it is that at the end of the day, building a platform product like this requires a balance between all of the users in the ecosystem, there are like creators, of course, and end users, right? And at the start given, like the ethos of anonymity and stuff in crypto at large, it does seem like the norms would really favor the Creator, right? Yeah. And we should say, you know, creators should be fully anonymous, yada, yada, yada. But after we really started the product, like our Launchpad product, and our create a product and so on, we realized like actually striking the balance so far in favor, credit is not right. It's not right, for not just magic, you know that ecosystem, it's really, really not right for the end user. The end user expects trust, safety, reliability, information, transparency, when they use a product like magic, we cannot be so far in favor of the Creator, that those things are disregarded, we have to effectively do a 360 degree view of what is the true health of a product like this. And if you want to build something that's really healthy, and it's going to last for the long term, you have to cover or 360 degree view of these dimensions. So when we introduce policies like that, yes, some creators, you know, chose not to work with us, of course, like then we lost deals, and we lost like customers, or rev potential and stuff. But really, that's worth it, you know, like we should always to build like a long term product and a product with legacy. We really should focus on the user first, right? Imagine EDA and what we care about, like that comes second or third down the line. So in that sense, yes, some credits dropped out of line, but it was the right trade off to me,


Lucas Matney  22:23  

I guess, wrapping things up, just kind of zooming out from educated and looking at Solana versus Aetherium. As you've noted, it's a bear market and hefty volumes have been sliding. Lots of volumes have been sliding. But it also feels like when times get uncertain, a lot of crypto investors move to some of the chains and tokens that have been more certain in the past and like, you know, the Solana eath pair has been kind of like dropping over time, I guess. How do you feel about having kind of the lion's share? Especially right now, I guess, but like, have your like revenues tied to Solana headed deeper into a bear market?


Jack Lu  22:57  

Yeah, those special feelings either way? It's that sense. Of course, we're hoping to take a big chunk of the eath. market as well, as you know, we measure our success on that. But I think, you know, in general, like we're super optimistic, the Solana like ecosystem long term, right. I think if we zoom out and think about the last Bull Run, Solana was really the breakout story that in general, and I feel like in every like major Bull Run, there is some breakout use case or some breakout ecosystem that kind of like dominates. And I really feel like a lot of has broken the sound barrier there. And we're very proud to have like, started this ecosystem. And most importantly of all, we see very, very different use cases emerging in the Solana ecosystem. visa vie the Ethereum ecosystem for us. Well, like a user first company, rather than a chain first or technology for this company. Because even now, like our DNA, as founders, we have four founders, we all come from that consumer internet product management, consumer internet, technical engineering background. So for us, like, as long as we see there are users in certain ecosystems, and they have really clear pain points that we are well positioned to serve. And we have a very differentiated view to serve, we are happy to go there, we're happy to build towards that, right. And the chain. And the technology is just like some instrument for us like so those users, but it's not the primary consideration. So in that vein, we see soul develop its own, like user ecosystem, we see like those users, we see like very, very exciting use cases here where like we're bullish about the future there. And of course, Aetherium has long been an ecosystem that we've admired, right? Of course, we want to go there and see what we can learn how we can better serve those users as well. So yeah, those special concerns about any of those sounds good. Yeah.


Anita Ramaswamy  24:39  

Well, it'll be interesting to see how that all plays out. And thank you so much, Jack for coming on. This was a really fascinating discussion. I personally learned a lot. So


Jack Lu  24:47  

thank you. Awesome. Yeah. Thanks to Tom for having me. Thanks, Jack. Thank you for the opportunity.


Lucas Matney  24:55  

We'll be back every week with interviews with the experts in the web three space catch any to Jackie and myself every Thursday for the latest in crypto news. You can keep up with us on Spotify Apple Music or your favorite pod platform and subscribe to our companion newsletter also called chain reaction. Links to the newsletter and more from our guests can be found in our show notes and be sure to follow us on Twitter at chain underscore reaction. Chain Reaction is hosted by myself. Lucas Matney along with my co host and Anita Ramaswamy. We are produced by Yashad Kulkarni and our associate producer is Maggie Stamets with editing by Cal Keller Bryce Durbin is our Illustrator Alyssa stringer leads audience development and Henry pic of it manages TechCrunch his audio products thanks for listening