One of the most potentially powerful tools to attract artists, musicians and other creators to embrace blockchain-based NFTs as a way of distributing their work is in jeopardy.
Royalties are a big draw for artists, who value the ability of most non-fungible tokens to allow the creator to add a royalty collection feature on each resale at the time it is minted. So, each time an NFT is sold, a percentage of the price — generally 5% to 10% — is sent to the person who made it.
On Oct. 27, LooksRare, the second-largest NFT marketplace on the Ethereum blockchain according to DappRadar, announced that it would no longer collect and distribute artist royalties. Instead, it’s turning a quarter of the 2% protocol fee it collects on transactions, so the creators will get a 0.5% cut of sales. Which is better than nothing but a small fraction of the royalty fee that artists generally choose to levy.
LooksRare is the latest in a growing line of NFT marketplaces that are wiping out a tool that has been lauded as a way to attract artists to the NFT market in the first place and help them — especially the smaller and mid-size artists struggling to earn a living.
Until recently, this had mainly been a problem for NFTs built on the Solana blockchain rather than Ethereum, where the vast majority of non-fungible tokens are minted and sold. But like that smaller blockchain’s marketplaces, the growing draw of no-royalty NFT sales platforms is forcing the bigger players’ hands.
“The growth of zero-royalty marketplaces has eroded the general willingness to pay royalties throughout the NFT space,” LooksRare said in a blog post announcing the change. “Good news for traders, but with a big downside: the move away from royalties has removed an important source of passive income for most creators.”
In response, the post said, “we’re choosing to lead the charge in this new landscape, by creating a competitive solution that still benefits creators: diverting protocol fees directly to creators.”
Royally Left Out
A growing number of artists distributing their work via this type of cryptocurrency, in which no two tokens are alike, are using this feature to provide an ongoing revenue stream. It is a particularly good feature for small- to mid-tier artists trying to earn a living off their work.
The problem is this only works if the marketplace where the work is sold respects it and deducts and transfers the fee at the time payment is made. There’s no real way to build it into the blockchain as all someone needs to do is make a private payment from one wallet to another and then transfer the NFT separately.
Among those who’ve chimed in is Mike Winkelmann, better known as Beeple. His sale of a single work that was a collage of 5,000 other pieces of digital art for more than $69 million at Christie’s on March 11, 2021, made international news and brought NFTs to the general public’s attention.
Winkelmann, who said he has used royalties on all of his NFT digital artworks, said there is “ZERO way to FORCE royalties technologically so creators will have to build a collector base that WANT to honor these royalties…. we can’t ‘smart contract’ our way around this. If I have an NFT and I decide to “gift” it to someone, and then they “gift” me 10ETH afterwards, we have gotten around royalties. If someone can explain to me how any smart contract will EVER stop that I’m all ears.”
i think the creator royalty argument is actually a lot simpler than people make it out to be.
There is ZERO way to FORCE royalties technologically so creators will have to build a collector base that WANT to honor these royalties…. It’s really that simple. ?
— beeple (@beeple) August 13, 2022
Dominoes Falling
Still, LookRare isn’t the first major NFT marketplace to crumble.
On Aug. 26, No. 3 NFT marketplace X2Y2 announced it wouldn’t honor the royalty payments, instead making them optional. It also blamed other sites for its decision.
“Dominant aggregators intend to provide similar functionality in the imminent future,” it said in a tweet. “As such, X2Y2 would like to make sure we are ready & staying on top of market movements.”
Buyers on X2Y2 can now choose the amount of royalties they would like to contribute to projects.
Dominant aggregators intend to provide similar functionality in the imminent future. As such, X2Y2 would like to make sure we are ready & staying on top of market movements.
— X2Y2 (@the_x2y2) August 26, 2022
Instead, it said, buyers would be able to “choose the amount of royalties they would like to contribute to projects.”
Making them basically an NFT tip jar.
To people who commented on the thread that the move was horrible, X2Y2 said, “100% agree with you, most definitely shouldn’t be the norm. Having said this… we unfortunately need to remain in the space if we want to change things for the better in the long run. This move is NOT our preference!”
An Alternate Solution
Another solution, by a digital artist going by @Kagani, is an NFT token that allows creators to greenlight marketplaces where the token can be sold, so it cannot be transferred from one wallet to another without going through an approved marketplace that collects royalties.
Bidding for my proof-of-concept artwork, demonstrating marketplace listings determined by the artist — is open for 2 more days:https://t.co/ItgQ4Z4hK1
— ??? ?+? kai.pcc.eth ? (@kaigani) August 24, 2022
The details are unclear, but @Kagani has listed a “proof-of-concept” NFT work on the largest NFT marketplace, OpenSea, to show the idea.
One Solana-based marketplace, Exchange Art, announced a similar plan it hopes would resurrect royalties.
Saying a “social contract was broken and it’s time to take action,” the platform announced on Twitter on Oct. 15 that it is launching an opt-in Exchange Guaranteed tool it says will let creators mint tokens that can only be resold on its platform.
“At an alarming rate, platforms have decided to treat artists as an SKU instead of people,” it said in a Twitter thread. “Royalties exist for a reason, and creators shouldn’t be worrying about being listed on sites that dismiss their rights.”
Both plans raise one important question: What happens to the work if the marketplaces where it can be sold go out of business?
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