Sep 1, 2022 - Economy & Business

New platforms raise questions about NFT artist royalties

Illustration of a sad face made from paint.
Illustration: Shoshana Gordon/Axios

Non-fungible token (NFT) creators have been getting paid on secondary market sales of their creations, but new entrepreneurs entering the space are foregoing those payments in order to pass savings on to collectors.

Why it matters: A part of the NFT economy's public pitch has always been that they offer a better deal for artists. They offered a way for creators to benefit from secondary sales of their artwork, or so the argument went.

  • This has knock on benefits. It can incentivize teams not to just make one-off works, and foster community around creations that build more value.
  • A creator might not stop at a one-off. They could put on events or shows, or create products around their art, all of which increase its mind space and drive up value.

One problem: Well, assumptions about NFT royalty payments just aren't universally true.

  • NFTs allow an artist to post a royalty for secondary sales in the NFT itself, which is logged forever on the blockchain. But that royalty is only effective insofar as marketplaces honor it.

Context: The NFT market is down but definitely not out. According to NonFungible.com, there was about $855 million in NFT sales in August — far below past highs, but more than enough to keep a bunch of startups going.

The intrigue: Still, a couple of newer, notable marketplaces just aren't honoring royalties, and collectors seem to like it.

  • Sudoswap is a decentralized exchange that allows buying and selling to go on autopilot, managed by code.
  • And x2y2 is basically a marketplace like LooksRare or OpenSea, except it's more decentralized than the latter (the marketplace leader).

Sudoswap has really increased its volume over the last month, but it is x2y2 that's dominating the market (though it has a token, so that could be a lot of wash trading).

  • Regardless, it's a lot sales, which only makes it more disconcerting for artists that it has suggested making paying royalties optional.

What they're saying: "Artist Royalties are as fundamental as rain: They keep the creative cycle alive," the artist Hackatao (who has been making NFTs since long before they were cool) told Axios via Twitter.

  • NFTs aren't like paintings. They don't stop evolving when they get sold. Each collection is a project.
  • "Many NFT projects manage to finance their team with royalties from the secondary market, If we remove this resource, the projects would no longer be sustainable," Hackatao added.
  • In a statement from the NFT project Axolittles (which actually switched leadership from the originally creators) they noted that the assets and their marketplaces are symbiotic. "Platforms should be allowed to innovate however they want. ... The problem they're going to face here is that there is 0 incentive for a team to support their platform."

What we're watching: Royalties might become less bespoke, more standardized, and something that becomes more consensus than enshrined law.

  • "I don’t think royalties could be 100% *technically* enforceable," Jake Brukhman, CEO of CoinFund, told Axios via email, "but they can certainly be made socially enforceable."
  • "The better solution would be for all parties to adopt on-chain royalty standards that operate regardless of transaction venue," he said.
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