Magic Eden, Founders Sued by $ME Buyers Over Broken 'Utility' Promises

Three $ME token buyers sued Magic Eden and its four co-founders, alleging the company promoted the token's use cases — multichain trading, governance, staking rewards, and revenue sharing — then delayed, diminished, or abandoned them, according to a class-action complaint filed in federal court in New York.

Jaime Pagan, Ariel Ruano and Chris Sadowski filed the suit on June 16 in the U.S. District Court for the Eastern District of New York against co-founders Jack Lu, Zhuoxun Yin, Sidney Zhang and Zhuojie Zhou, along with Euclid Labs Inc., which does business as Magic Eden, and the ME Foundation. The plaintiffs are represented by Max Burwick of Burwick Law, a firm that has brought several consumer class actions against crypto issuers.

$ME traded at about $0.056 on Tuesday, leaving it down roughly 99% from its post-launch high and giving it a market capitalization of about $34 million, according to CoinGecko data. The token slipped 3.8% over the prior 24 hours, compared with BTC’s 2.4% decline.

The complaint, which cites prices as of its filing date, says the token reached about $5.63 on Dec. 11, 2024 — excluding a launch-day spike on thin liquidity — and had fallen about 98%, to roughly $0.12, by mid-June.

The case is one of the first to test whether a token's marketed "utility" can support consumer-protection claims rather than securities claims. The plaintiffs state plainly that they are not asking the court to decide whether $ME is a security. Instead, they bring claims under New York consumer-protection statutes and common law, arguing that the represented features — not any expectation of profit from a common enterprise — gave the token its value. A win would offer a template for token holders seeking recovery without wading into the securities-law fights that have defined most crypto litigation.

Magic Eden did not reply to a request for comment from The Defiant by press time.

The 'Use Case' Theory

The complaint's core argument is that buyers were told why $ME would have value, not merely that it might rise. Holders received no equity, no contractual revenue rights and no enforceable governance power, the plaintiffs say, so the token's value rested on whether its promised features would drive real demand.

"These were not vague aspirational statements or puffery," the complaint says of the marketing. "They were specific operational claims about concrete use cases made to consumer audiences through promotional channels."

The plaintiffs identify four features they say were represented and then not delivered as described. A multichain strategy spanning as many as ten blockchains was scaled back in February, when Lu announced Magic Eden would refocus on Solana and wind down its Bitcoin and Ethereum Virtual Machine marketplace operations. Governance through the ME DAO was not operational for about nine months after launch. A broad revenue-sharing and staking-reward model was announced in January and did not begin until Feb. 1, 2026. And a November buyback program was later changed and discontinued, according to the filing.

The suit ties the token's economics to Magic Eden's revenue. Lu disclosed in January that the company generated about $24 million in revenue in 2025, the plaintiffs note. The Defiant reported at the time that a 15% allocation to the $ME ecosystem would translate to roughly $3.6 million a year if revenue held. The complaint alleges the subsequent Solana retrenchment narrowed that revenue base.

Co-founders Named

The complaint names each co-founder individually and ties them to specific representations. It alleges Lu made or amplified the multichain and platform-growth claims and personally announced the Solana retrenchment. It says Yin made cross-chain strategy updates and points to his prior roles at dYdX and Coinbase. It alleges Zhang was responsible for the wallet's technical architecture, and that Zhou made decisions on token infrastructure and smart-contract deployment.

The filing also raises a security concern, citing CoinDesk reporting that Magic Eden's wallet stored recovery phrases and private keys with no route to delete them. The plaintiffs say users were funneled into the proprietary wallet to claim their airdrop and were not told of the deficiency before importing their credentials.

Magic Eden gained prominence as the largest Solana NFT marketplace before expanding across Bitcoin and Ethereum. The complaint says the company raised about $157 million from investors including Paradigm, Sequoia Capital, Electric Capital, Greylock and Lightspeed Venture Partners at a $1.6 billion valuation, and that its founders previously worked at companies including FTX, Google, Coinbase, Facebook and Uber. The Defiant covered the token's launch in December 2024.

Jury Trial

The suit seeks class certification covering everyone in the U.S. who acquired $ME between the Dec. 10, 2024 launch and the filing date. It asks for damages under New York General Business Law Sections 349 and 350, compensatory damages for negligent misrepresentation, and restitution and disgorgement on an unjust-enrichment theory. It also seeks an injunction barring the defendants from moving traceable assets derived from the conduct alleged, plus attorney's fees and interest. The plaintiffs demand a jury trial.

The allegations are untested. None has been proven, and Magic Eden has not yet responded in court.

The defendants will have an opportunity to respond, and a motion to dismiss is the typical first step in cases like this one.