Author: Deepanshu Tripathi, co-founder of Asset Mantle
NFT royalties, which have sparked heated debates across social media, dominated the November crypto news cycle. While NFT traders and collectors defend and oppose the merits and rights of web3 artists, many forget the core principles of the web3 paradigm that empower users in the first place.
Important parameters governing the platform, such as whether artists receive royalties on secondary sales of NFT artwork, are more important than the methods and mechanisms by which those parameters are determined and how they are applied. not.
To ensure decentralization, i.e. commitment to on-chain transactions and on-chain governance, the web3 NFT marketplace must ensure that the parameters governing NFT loyalty are determined by the DAO. Additionally, you should ensure that all relevant parameters are hard-coded into the protocol via the smart contract module. Otherwise, community governance and trustless architecture are glamorous labels at best and blatant deception at worst.
Even in the 2022 bear market, established digital artists can still make a decent living selling their NFT collections on various web3 marketplaces. In addition to earning revenue by selling works of art in advance, called “primary sales”, the artist receives a small share (generally around 5% of his) of all future exchanges on the secondary market. receive. These fees, called royalties, help stabilize an artist’s revenue stream. Providing recurring income can compensate for the reduced frequency of primary sales from collection drops.
But in the last few months everything has changed. August, NFT Marketplace X2Y2 started allowing buyers Because you determine your contribution to royalty. Essentially reducing what was once a mandatory creator reward to an optional tip.
Solana NFT Marketplace on October 14th suit following magical edenReplace mandatory royalties with a similar tip model.
In response, content creators in the web3 space have taken to Twitter to express their disapproval and general dissatisfaction. It’s no surprise that artists who have the proverbial rug pulled from their feet feel marginalized and exploited.
But the problem is: Shifting the blame in the direction of NFT marketplaces may be satisfying, but it doesn’t justify the bigger problem at hand. Like all organizations in the Web3 landscape, NFT marketplaces are fiercely competing with each other to strengthen their platforms and attract new users. With this privilege, it’s simply a no-brainer to cut the second-hand dealer’s commission from his 5% to zero. It puts the money back in the user’s pocket and costs nothing to the platform. After all, it is the very nature of the free market that drives competition down for consumers.
The question at hand is not whether platforms choose to do away with artist royalties, but whether they have the authority to make such choices in the first place. is owned, operated and managed by you. For this principle to remain true in practice, web3 applications need to run entirely on-chain.
So the immediate issue is that ERC721 and other popular NFT token standards do not directly support loyalty via smart contracts. Instead, they rely on centralized marketplaces to honor and enforce loyalty policies, but compete with each other for cost-conscious users.
On November 5th, the Ethereum NFT Marketplace OpenSea twitter thread It outlines plans to develop an “on-chain enforcement tool” that would allow NFT artists to launch new collections with a mandatory creator fee. Acting as a mechanism, artists can block users from exchanging their NFT collections in markets that do not honor creator fees. The band-aid OpenSea enforcement tools fragment the NFT space and undermine the essential inclusion and interoperability of the web3 paradigm.
On the other hand, for existing NFT collections, NFT marketplaces, NFT trader landscapes, and indeed the entire NFT space, for the blockchain ecosystem where on-chain loyalty and other important parameters governing NFTs can be determined by DAOS. There is great demand. It’s hardcoded directly at the protocol level. Unfortunately, Ethereum and Solana, where the majority of NFTs currently reside, are technically incapable of such functionality.
The clock is ticking. This time the web3 community is no longer alone.
While the web3 NFT community bickers and debates the nuances of artist royalties, the web2 incumbent is rapidly shutting down with its own centralized alternative. Announced allowing NFT Marketplace applications in the Store. 30% tax on all transactionsDespite our differences and disagreements, we hope that the early adopters that make up today’s web3 community can band together to combat the next web2 tyranny.
Ultimately, community governance should play a major role in shaping the value of the NFT scene. Soon, artists as well as musicians, gamers, writers, vloggers and other live streamers will be looking to share and monetize their content in the web3 space.
The diversity of voices in the NFT community is poised to grow exponentially. DAOs are essential as an on-chain mechanism to organize different community perspectives and rightfully curate on-chain parameters to support value, community, and content verticals, in addition to existing ones. play a role.
To support the DAO, smart contracts are the only ones that can fairly and consistently apply community-determined parameters so that content creators, consumers, and collectors can enjoy an open and free marketplace for digital content. Works as an on-chain tool.
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