A lot is modifying in the NFT space because of the ongoing crypto bear market. Many marketplaces are choosing to either ignore creator royalties or let traders decide whether or not to pay them. Artists and collectors have been arguing about royalties for months, but now the trend is quickly spreading to other parts of the NFT industry.
On Friday, the last big domino fell in the Solana NFT market when Magic Eden, which is by far the biggest marketplace on Solana, said that creator royalties would no longer be required. This was because Magic Eden had lost a lot of market share to new companies that didn’t pay royalties. Almost every Solana NFT market with a significant share of the market has now either turned down royalties or made them optional. This means that NFT traders on Solana no longer have to pay between 5% and 10% in fees for each trade. This may increase sellers’ profit margins, but it cuts into the money that project creators and founders can make.
Ethereum, which is still the biggest blockchain platform for NFTs, has seen marketplaces like X2Y2 and Sudoswap grow as they push back on royalties in some ways. But the top marketplace OpenSea and others still pay creator royalties, so there hasn’t been as much of a “race to the bottom” on fees in the Ethereum market as there was in the Solana market.
Numerous artists are speaking out against marketplaces that don’t pay royalties. Tyler Hobbs is a generative artist who made the valuable Art Blocks: Fidenza collection and helped make the new QQL project, both of which were made on Ethereum.
He said this week that it’s possible that the Ethereum market could also reject royalties on a large scale, but that creators and collectors on Ethereum have a different attitude than those on Solana.
“I think that the Ethereum space is really much more serious,” he said. “The serious artists and serious collectors tend to be in Ethereum, rather than on Solana. It’s a much better test of those systems, and I think creators will put up much more of a fight when it comes to Ethereum.”
Most of the NFT art market is on Ethereum, which has a thriving scene thanks to platforms such as Art Blocks and SuperRare, which sells one-of-a-kind artwork. Solana’s art market isn’t as big or valuable, and profile picture collections and video game NFT projects take up most of its NFT space.
Exchange Art, a Solana NFT art market, has spoken out against what Magic Eden and others have done. The platform said in a tweet on Saturday that marketplaces that didn’t pay royalties broke a “social contract,” and it said it would give creators a way to stop their NFTs from being traded on such marketplaces.
Solana’s decision to stop paying creators royalties may also affect how the space develops in the future. The creator of the NFT project Taiyo Robotics, who goes by the name Tom, tweeted today that he has talked to project creators who are switching to Ethereum. They said that the average primary sale price is higher and that “people are mostly happy to pay royalties on secondary.”
“In my mind, this is the single biggest threat to the 0% royalty thing moving forward,” Tom continued. “What is the incentive for new creators to come to SOL when they already typically make less money from mint here for quality projects, and now there’s no royalties?”
Hobbs and his QQL partner Dandelion Wist have already shown how serious they are about getting royalties. The QQL smart contract, which is a piece of code that powers autonomous, decentralized Web3 apps, has a blacklist that stops listed Ethereum marketplaces from interacting with its NFTs on behalf of their owners. These platforms can’t be used to sell QQL NFTs.
QQL went on sale at the end of September and has already made more than $28 million in sales on the secondary market. Because of the blacklist, X2Y2 didn’t handle any of these later trades. The market complained about this in a Twitter thread, which suggested that Hobbs and Wist were putting holders’ ownership rights at risk with the coded method.
Hobbs stated that he has generally received favorable feedback, both from NFT artists who may explore using similar strategies and collectors who recognize the value in giving an artist commission when a piece is sold on the secondary market.
“I think they understand also that giving artists that stability and giving artists a little bit more power is really in the best interest of the artwork, and that everybody will benefit from having that in place,” he said. “People have been very supportive.”
We think a “Fair Royalty” paradigm should exist (user decides what they want to pay, and creator decides who they want to serve).
We firmly believe that Web3 should be focused on this.
— X2Y2 (@the_x2y2) September 29, 2022
As an artist, Hobbs has a real stake in the debate. He became one of the most important people in the world of NFT art when he released Fidenza on Art Blocks last year. This was a collection of 999 Ethereum pieces that were each made by an algorithm running on a blockchain. Fidenza has had several sales in the seven-figure range, and the least expensive NFT on the market right now is listed for almost $128,000.
The recent launch of QQL has made Hobbs’ success in the NFT space even bigger than that of most other artists. But he is still sure that ongoing royalties are important for all creators in the Web3 space to have equity and long-term stability.
“It’s one of the single largest, positive shifts that NFTs have opened up for artists compared to the traditional art markets,” Hobbs said of royalties. “I think it would be a real tragedy for those to slip away. It just makes such a difference in the lives of artists and how much opportunity an artist has to support themselves through their work.”
Basically, NFT royalties can’t be fully enforced on either Ethereum or Solana right now, but developers are working on ways to make that possible. Hobbs said that it is possible to get around even the QQL blacklist. But changes to NFT standards and smart contracts in the future could make it possible for more strict royalty methods.
“One of the beauties of NFTs and Web3 is that a lot more power is in the creator’s hands. The approach that we took is not bulletproof. There are ways to get around it. There are always ways to get around these things,” he said.
In the end, even so, he doesn’t think that the code is the only thing that matters when it comes to NFT royalty enforcement. He said that collectors need to understand why artist royalties are important, and that platforms and markets need to come to the same cultural agreement.
“It is a cultural issue, not a technological issue,” Hobbs said. “The case has to be made culturally of why this is a valuable policy for us to commit to, and I’m willing to be part of that discussion, as well. I think it’ll take time for those cultural norms to really evolve and solidify.”
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