When NFT (non-fungible token) sales skyrocketed in spring 2021, the art world got a breath of fresh air in its transition to digital culture. While many conservative dealers, scholars, and critics glared at the notion of a strictly virtual art enterprise, business-minded artists around the world rejoiced. NFTs theoretically guarantee secondary sales royalties, an ongoing passive income opportunity that has historically eluded art makers in many jurisdictions. But a lot has changed since his NFT trading heyday last year.
Axios reported that four separate crypto marketplaces will no longer honor artist royalties. Magic Eden and LooksRare in particular have moved to a model of royalty options, allowing buyers to decide whether to pay the creator his 3%-10% of the NFT’s normal resale price. The motive is clear. Traders want larger profit margins on reselling her NFTs, and platforms want to retain and reward traders who buy in bulk. This development has led investors to speculate as to whether the NFT bubble is finally poised to burst.
NFT creator fees are contracts, but blockchain code cannot actually enforce token transfer provisions, making these contracts intentionally voluntary in nature. From an operational perspective, royalties were not guaranteed on the blockchain. Instead, each NFT document only claims royalties. This is a procedure that the platform has previously accepted on more favorable market conditions.
“There is zero way to technically enforce royalties.”
Mike Winkelman, the artist better known as Beeple, who famously sold his NFT at Christie’s for $69.3 million (including fees) in March 2021, wrote on Twitter:the base you want[s] We will honor these royalties.”
Marketplaces like LooksRare tried to offset the damage by introducing 25% protocol fee reductions for creators, but criticism was swift to come. Watchdog communities, such as, have named and shamed royalty-evading platforms, created blacklists, and threatened a massive sale. So far, Ethereum market leaders MakersPlace and OpenSea have maintained their preferential fee policies. MakersPlace CEO Craig Palmer even declared in his public statement that an “optional approach” doesn’t fit his “vision for space.”
Impairment of flexibility
In November, OpenSea CEO Devin Finzer announced that a mandatory creator fee would apply to new NFT collections. “We believe that creators should have the power to build 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,” he blogged. Still, the code that the creators of Ethereum NFTs can insert into these new collections will inevitably impede trading on other markets, creating an obstacle for sellers who value flexibility.
“This speaks to the ideology of Web 2.0 still remaining in Web 3.0,” says multidisciplinary artist and community head of Misa.Art, an NFT marketplace founded in Berlin. Margaret Murphy says “But what feels different is the way artists and creators are pushing against this.” added. “In my experience, Tezos is an artist-friendly blockchain, as opposed to Ethereum,” she says. “Perhaps the conversation is about ditching the capitalist motives behind flipping NFTs on Ethereum that are making Web 3.0 worse.”
“Perhaps the conversation is about ditching the capitalist motives behind flipping NFTs on Ethereum that are making Web 3.0 worse.”
Tezos is not alone in benefiting from an artist-centric approach. As of October, Cardano NFT has officially become his third largest NFT trading protocol. Artists looking to retain their royalties run on two of the most popular blockchains: Ethereum (larger, user-friendly platform) and Solana (smaller, newer markets with faster speeds and lower transaction costs). We have identified Cardano as a possible alternative. A space that eliminates creator fees is largely what Solana is backing, but even Ethereum-based policies are preventing sellers from trading on other platforms, and ultimately, sellers and creators alike. It reduces the flexibility of the market to evaluate
The trend towards no commissions on NFTs reflects a general trend towards cutting corners in the cryptocurrency space. After cryptocurrency exchange Binance.US removed fees for bitcoin spot trading last July, fee compression became a hallmark of the trading ethos in the space. Technology-enhanced efficiencies can reduce the cost of doing business, but they can also spell doom for NFT traders. His OpenSea commitment to artist royalties may buck broader economic trends, but as a side effect, it may minimize diversification across blockchains.
