Although recently overshadowed by the drama surrounding the downfall of FTX, NFT creator royalties have been one of the recent hot-button issues of the industry. With protocols like SudoSwap, LooksRare, and X2Y2 creating or adding a feature that allows buyers to easily bypass creator royalties, many are arguing the pros and cons of these types of applications, and how other platforms should respond. So, what’s the right way to approach this?
Who Should Decide, the Creator or the Buyer?
When thinking of some of the core tenets of blockchain and decentralization, code is law, meaning if some platforms have the ability to bypass royalties for buyers, then they should be able to. But what does this mean for creators as a whole? In our eyes, there are strong arguments on both sides, and some ecosystems will obviously split to zero royalty fee marketplaces based on user preferences, but we believe the creator should dictate the intricacies of their collection, not third-party platforms.
Eliminating royalties for artists, developers, and creators detaches future profit potentials from long-term project success, which could disincentivize creators to stay attached to their projects in the medium to long term. This is exactly the opposite of what the industry needs; there are already enough pump-and-dump and ‘get rich quick’ projects, and removing creator profits from long-term success can exacerbate this problem even further. Everyone needs to eat, and this includes buyers, sellers, and creators. This is especially true with free mints, as creators only have one option if royalties are removed, which is to save a portion of their collection to dump on the market further down the line (if the project ever becomes successful). This creates a high-risk circumstance for creators, not allowing them the chance to offer their products for free, eliminating earning a small percentage of each sale from the project they put blood, sweat, and tears into creating.
At the end of the day, creators are responsible for the ecosystems they created on their own terms, and the buyer should respect those decisions or not partake in that ecosystem. Although technologically possible to remove this feature from projects, we believe that incentives need to be correctly aligned across all stakeholders for medium to long-term success, with the creators being some of the most important stakeholders (if not the most important) to potential future success. This can only be done if the creator has a say in the settlement process within their ecosystem, and also continuously rewards the growth and robustness of their project.
We spoke with some of our industry partners, and they had varying views, with some refusing to give their opinion publicly, as they do not want to be perceived as ‘controversial’ or anger people who believe in one side of the argument over the other. One of our partners who commented on this had a very similar outlook to us, acknowledging the technological possibilities of bypassing royalties, but understanding that it may not be best for the growth and sustainability of the NFT ecosystem.
“Web3 is still in its early days. We’re seeing people experiment with all sorts of business models. For some things like royalties, the technology hasn’t fully caught up, so enforcing them becomes more of a social convention. I think that projects and artists have the right to set their own rules, and we — as businesses and collectors — should do our best to support them.” - Sandy Carter, SVP and Channel Chief, Unstoppable Domains
Regardless of which side of the fence you stand on for this argument, one thing is clear, we should do everything we can as a community to encourage creators and help them build with long-term and sustainable models in mind.