When NFT (non-fungible token) sales surged in the spring of 2021, the art world held its breath for a digital culture shift. While many old-guard dealers, scholars and critics rolled their eyes at the idea of strictly virtual art ventures, commercially-minded artists everywhere rejoiced; NFTs would theoretically insure royalties on secondary sales, a recurring passive income opportunity that has historically eluded art creators in many jurisdictions. But a lot has changed since the heyday of NFT trading last year – according to Reuters, sales have fallen nearly 99%, a 15-month low in an already precarious industry, and creators are feeling the pressure.
Axios has reported that four separate crypto marketplaces will stop honoring artist royalties, a worrying trend that is impacting those who first brought blockchain into cultural consciousness. Magic Eden and LooksRare, in particular, have opted for optional royalty models, allowing buyers to decide whether or not to pay creators the usual 3-10% of the resale price of NFTs. The motivation is clear: Merchants want higher profit margins on NFT resales, and platforms want to retain and reward merchants who buy in bulk, a practice that raises fees at a higher rate than one-time purchases. This progression has investors wondering if the NFT bubble is finally ready to burst.
Even though NFT creation fees are contracts, the blockchain code cannot actually enforce token transfer stipulations, making these contracts essentially voluntary by design. From an operational point of view, royalties have never been guaranteed on the blockchain; instead, documentation of each NFT only requires a fee, a procedure that platforms have previously honored under more favorable market conditions.
“There is NO way to FORCE royalties technologically”
Artist Mike Winkelmann, better known as Beeple, who sold an NFT in March 2021 at Christie’s for $69.3 million (including fees), wrote on Twitter: “There is NO way to FORCE royalties technologically,” insisting that creators should “build a collector base that WANTS[s] to honor these royalties.
Even as marketplaces like LooksRare tried to make up for the damage by instituting a 25% protocol fee reduction for creators, criticism came quickly. NFT artists and watchdog communities like the Immutable X crypto ecosystem name and shame platforms that evade royalties, compile blacklists, and threaten massive divestments. So far, Ethereum market leaders MakersPlace and OpenSea retain their fee promotion policies; in a public statement, MakersPlace CEO Craig Palmer even said the “optional approach” didn’t fit his “vision for the space.”
Obstacles to flexibility
In November, OpenSea CEO Devin Finzer announced that a mandatory creation fee would be applied for new NFT collections. “We believe that creators should have the power to create the collections and communities they want, and that buyers and sellers should continue to have the freedom to choose which collections they engage with and which they don’t. don’t engage,” he wrote in a blog post. However, the code that the creators of Ethereum NFT will be able to insert into these new collections will necessarily prevent them from being traded on other marketplaces, an obstacle for sellers concerned with flexibility.
“All of this is indicative of how Web 2.0 ideologies are still present in Web 3.0,” says Margaret Murphy, multidisciplinary artist and community manager at Misa.Art, an NFT marketplace founded in Berlin. “What looks different, however, is how artists and creators are opposing it.” She adds that not all platforms seem to be plagued by these bitter dynamics between artists and sellers. “In my experience, Tezos is the blockchain that aligns in favor of the artist, as opposed to Ethereum,” she says. “Perhaps the conversation is really about eliminating the capitalist motivations behind the NFT rollover on Ethereum that makes Web 3.0 worse.”
“Perhaps the conversation is really about eliminating the capitalist motivations behind the NFT rollover on Ethereum that makes Web 3.0 worse”
Tezos isn’t the only beneficiary of an artist-centric approach. Since October, Cardano NFTs has officially become the third largest NFT trading protocol, largely due to its creator-friendly royalty policy. Artists looking to retain their royalties have identified Cardano as a viable alternative to the two most popular blockchains: Ethereum, the larger, user-friendly platform, and Solana, the smaller, newer marketplace with faster speeds. and lower transaction costs. Space creator fees are primarily supported by Solana, but even Ethereum-based policies prevent sellers from trading on other platforms, ultimately undermining the market flexibility that sellers and creators enjoy.
The trend towards eliminating fees in NFTs reflects a general trend towards cost reduction in the crypto sphere. After cryptocurrency exchange Binance.US eliminated fees for spot Bitcoin trading last July, fee compression has become a feature of the industry’s trading philosophy. While technology-enhanced efficiency can reduce the cost of doing business, it can also represent its own harbinger for NFT traders. OpenSea’s commitment to artist royalties may run counter to broader economic trends, but as a side effect, it may minimize diversification across blockchains.
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