A Zoom on the tokenomics of Magic Eden (ME), the leading NFT marketplace

What is Magic Eden?

Magic Eden is an NFT marketplace that allows users to create, buy, and sell non-fungible tokens. The platform was launched in September 2021 on the Solana blockchain, during the peak of the NFT sector.

In the months following its launch, Magic Eden expanded to other blockchains, including Ethereum, Polygon, Bitcoin, and more recently Arbitrum and Base. Notably, the integration of Monad is expected in the coming weeks.

In April 2023, during the rise of the Ordinals protocol on Bitcoin, Magic Eden was among the first prominent platforms to position itself, becoming one of the go-to marketplaces for trading NFTs and inscriptions. Furthermore, Magic Eden recently integrated Runes, another type of token developed on Bitcoin.

Overall, the Magic Eden marketplace offers a wide range of services, including, of course, buying and selling NFTs, as well as a project launchpad. Additionally, the ecosystem has grown with the launch of its own wallet, available in mobile and web extension versions.

Here are some key facts about Magic Eden:

• Magic Eden has accumulated over $4.5 billion in trading volume and nearly 2.3 million users.
• The leading decentralized exchange (DEX) on Bitcoin with over 80% market share for Ordinals and Runes.
• The top NFT marketplace with over 60% of NFT market revenue and 29% of active user share.
• Among the first decentralized mobile applications to facilitate user trading.

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The Genesis of Magic Eden’s ME Token

In January 2024, Magic Eden announced the launch of a rewards program. This program distributed "diamonds" to platform users in a slightly different manner from the points typically seen in the ecosystem. Additionally, the "Retroactive Diamond Drop" program rewarded active users since 2021.

A few days after this announcement, Magic Eden officially launched its digital wallet, developed in collaboration with Exodus, a self-custodial wallet. This wallet is compatible with the main blockchains integrated into the marketplace: Solana, Ethereum, Polygon, and Bitcoin. Naturally, it also allows users to accumulate "diamonds" from the rewards program.

Although Magic Eden never officially confirmed its intent to conduct an airdrop, it has been widely assumed that these "diamonds" would serve as a foundation for a future token allocation. Finally, on Monday, November 18, Magic Eden revealed the tokenomics of ME, the future token of its ecosystem.

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ME Tokenomics of Magic Eden

Use and Role of the ME Token

Magic Eden’s ME token will not merely serve as a transaction tool on the marketplace. According to the available information, it will also act as a catalyst for user engagement in two main ways:

• Trading Rewards: Users will earn ME tokens by trading tokens or NFTs, listing collections, and performing common tasks on the platform. This will be part of a rewards program planned by Magic Eden, which has yet to be disclosed.
• Staking and Governance: ME holders will have the option to stake their tokens to earn additional rewards and to vote on the protocol’s development direction through governance rights.

As part of the governance aspect, Magic Eden has announced the creation of a DAO. This will include a Security Council consisting of five members, who will oversee a multi-signature wallet to manage priorities and less urgent actions according to the DAO’s Constitution, which will be shared after the token launch.

ME Token Structure and Distribution

The ME token’s structure and distribution have been designed "to align the community and the team and ensure long-term growth of Magic Eden’s ecosystem," which is particularly crucial in a domain where utility tokens often struggle to maintain value over time.

The total supply of ME is set at 1 billion tokens, which will be distributed over the next four years as follows:

• 12.5% available at the Token Generation Event (TGE) and distributed as an airdrop to the community (Magic Eden users on Solana, Bitcoin, and EVM networks).
• 37.7% allocated to the community and ecosystem development, with the majority (22.5%) for the active user rewards system and the rest (15.2%) for future grants to creators supporting Magic Eden, including 5% for the Foundation’s treasury.
• 26.2% for contributors, particularly advisors and contracted employees. Over half of these tokens will be locked for a minimum of 18 months after the TGE.
• 23.6% for strategic participants "who played a key role in Magic Eden’s development" (no further details provided). All of these tokens will be locked for 12 months post-TGE and unlocked progressively.

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Additional Information

The ME token launch is planned for the coming weeks, according to Magic Eden’s official statement. An eligibility verifier will be publicly shared so that each user can prepare and link their digital wallet to Magic Eden’s mobile app. It’s also important to note that the airdrop claim process will take place on the marketplace’s mobile app.

Public reactions on X to Magic Eden Foundation’s ME tokenomics announcement have been mixed but generally positive. First, there is no clear indication of how "diamonds" (the points accumulated by users) will be converted into ME tokens during the airdrop and launch, which has raised some questions.

Regarding the distribution, the fact that over 50% of the tokens are dedicated to the community has been widely appreciated, especially since only 12.5% of tokens distributed through the airdrop will be available at launch. However, the allocation to strategic participants has drawn criticism, particularly concerning the role of these individuals and the substantial share of tokens they will receive.

Some concerns have been raised about the real utility of the ME token and how it differentiates itself from other marketplace tokens. In this regard, questions have been raised about the projected inflation over the next four years and the mechanisms Magic Eden will need to implement to mitigate it, as well as the project’s ability to sustain interest beyond the initial launch.

Indeed, when looking at the five other major NFT marketplaces, performance has been mostly negative since the start of 2024. For example, Blur (BLUR) also conducted an airdrop, which initially generated notable excitement. However, this is much less the case today, with BLUR’s price dropping by 45% since early 2024.

Despite a surge in activity in March 2023 (start of Bitcoin Ordinals) and between November 2023 and February 2024 (Bitcoin Runes), the NFT market is now at extremely low activity levels. For instance, the week of November 3 to 10 recorded only $81 million in total volume across all blockchains.