On February 16, Danny Deezy (@dannydiekroeger), the founder of Deezy Inc., highlighted the hilarious move of Magic Eden, a popular NFT trading marketplace for Bitcoin involving Coinbase. However, on May 20, the Mononaut (@mononautical) revealed the actions of Coinbase as a revert to Danny’s reaction.
Highlights from Danny Deezy’s Post
In the initial post on May 16, Danny Deezy revealed that “Magic Eden has pulled one of the most hilarious finesse moves on Coinbase I’ve ever seen.”
It highlights the actions of Magic Eden, a popular marketplace that outsmarted the crypto exchange giant Coinbase. Magic Eden successfully landed the responsibility of paying the bills for consolidating tiny outputs or crypto dust for the executed transactions on the marketplace on Coinbase.
The scheme was discovered and was widely spread through social media platforms like X.com. Magic Eden was utilizing their Coinbase account addresses rather than their own addresses to receive utxos (unspent transaction output).
These transaction outputs ranged from 1000 to 2000 Satoshis. The amount was not significant per transaction basis but will consolidate into a burdensome amount due to their size and associated transaction fees.
The situation has gained attention within the cryptocurrency community as notable figures such as MoonOverload and Mononautical draw attention to the matter on social media platforms like Twitter.
Implications of Those Actions
The implications of those actions are both humorous and financially impactful. By directing these tiny outputs into Coinbase’s account, Magic Eden effectively transfers the responsibility of consolidating them and paying the associated fees- to the exchange giant.
Considering Coinbase’s size and scale, it appears that the exchange is not equipped to efficiently handle the consolidation of these outputs, resulting in substantial costs incurred through transaction fees.
Coinbase is incurring funds due to the inefficient handling of these small outputs.
Danny Deeze’s Suggestions for Coinbase
In a subsequent post, Danny Deeze proposed some remedies for the situation, which offered Coinbase engineers a straightforward fix. The proposed solution involved the exclusion of small UTXOs from normal withdrawal coin selection and implementing a separate process dedicated to consolidating these outputs at low-rate fees.
A solution like this may require some initial investment in development, but it could ultimately save Coinbase from making a significant loss in the space.
A closer look at transactions involving Magic Eden’s marketplace fees reveals the extent of Coinbase’s exploitation. One particular transaction, highlighted at X, illustrated Coinbase’s overpayment of fees and inefficient coin selection.
Source: mempool.space
These transactions unnecessarily include over 60 tiny UTXOs as inputs, resulting in a transaction size almost 30 times larger than necessary. This inefficient handling fees of fees and coin selection compounds the issue, contributing to Coinbase’s financial losses.
Coinbase’s Reversal Action
Coinbase Prime, a division of the Coinbase exchange, has recently been identified as actively consolidating these tiny outputs. The company is taking advantage of low-fee environments to streamline its operations. However, the overall impact on Coinbase’s financials remains significant, which requires the company to take urgent remedial action.
As the situation gains popularity, industry observers speculate on the broader implications of the exchange. This incident highlights the importance of robust infrastructure and efficient handling of transactions in the cryptocurrency space, particularly as platforms continue to scale and diversify their offerings.
As a result of rising pressure, Coinbase CEO Brian Armstrong and the exchange’s engineering team are forced to take decisive action to address the issue. It will implement the proposed fixes and optimize the coin selection processes, which could mitigate financial losses and restore confidence in operational efficiency.
