While the FTX crash and the Crypto Winter that saw NFT sales plunge 90% dominated Web3 headlines this year, for many creators there was a bigger issue at play. His royalties have come under attack, undermining a central promise of Web3 as a sustainable model for musicians.

Creator royalties on NFTs ensure that artists receive a share of the revenue each time their work is sold on a secondary market. As the NFT music market has matured since multi-million dollar sales garnered mainstream attention, these royalties have been a central part of Web3’s proposition, presenting musicians with a potential alternative to the major label system and allowing them to generate significant revenue. long-term. finished. Only now, that promise is fading, as several new NFT platforms effectively or explicitly cut creator royalties, even though it was a central part of Web3’s promise when they originally put their NFTs up for sale. , in an aggressive bid for the market. Share.

Even OpenSea, the largest NFT marketplace, briefly considered changing its policy before a deafening backlash from artists forced the company to double its commitment to royalties. OpenSea also introduced a “compliance tool” that allows artists to blacklist rival marketplaces that don’t honor creator royalties. It’s a small victory for creators, though some have called it a “Band-Aid” as many growing platforms, including Blur, Magic Eden, LooksRare, and Sudoswap, still don’t impose royalties by default. In some cases it’s a hardline policy, in others the royalty is “optional” allowing merchants to opt out of paying the artist when they sell an NFT. Most merchants opt out, making the effective royalty rate close to zero.

Creator royalties are the beating heart of Web3 and the main reason artists flocked to NFTs in the first place. “Coming from the world of music, the promise of being able to earn royalties in perpetuity without the interference of middlemen was something I could only dream of,” he says. Illa Da Producer, a 12-platinum certified music producer credited on Eminem’s “Killshot” and community leader at Yuga Labs, the company behind Bored Ape Yacht Club. The artist can choose his own royalty rate, typically 2.5% to 10%, and they are lucrative, having earned over a billion dollars for creators on OpenSea in 2022 alone.

But there’s a problem. These royalties are not directly encoded into the NFTs themselves. They were introduced by marketplaces like OpenSea, originally to attract artists to the space, which means they can be phased out just as quickly.

None of this was a problem during the bullfight, where JPEG files of cartoon animals sold for over a million dollars each. Collectors were flush with cryptocurrency, happy to pay royalties to the artist every time they made a winning trade. But now the bubble has burst. Ethereum price is down 75% and NFT volume is down 90% from January highs. NFT platforms are left fighting for market share in a shrinking economy and traders are trying to save as much money as possible.

In a desperate bid to attract users, rival marketplaces like X2Y2 effectively cut royalties from creators by making them “optional”: merchants can choose not to pay royalties to the artist when they sell their NFTs, therefore pocketing more money from each sale. Other platforms, including Blur, LooksRare, Sudoswap, and Magic Eden, followed a similarly aggressive policy.

The creators were blunt in their criticism. “In many ways, it amounts to stealing by the market,” he says. jeff nicholas — the founder of WRVPSound, a collection of 9999 AI music NFTs and the largest Web3 music project ever made by volume at 6115 ETH (~$7.15 million at current prices) negotiated: “If a project establishes royalties in its terms of service and those royalties are not forced.”

However, it worked. Merchants left OpenSea en masse. The platform’s market share fell from 80% at the start of the year to 45% in November, according to cryptocurrency research firm Messari. As a result, OpenSea claims that more than $1 million in royalties from creators was overlooked in the first week of November alone. Faced with the risk of losing even more market share, OpenSea was forced to act quickly and released a tool that allows artists to blacklist those rival markets.

But there is a catch. The tool only works for new NFTs. It wouldn’t work for the thousands of existing NFTs and projects. The future of royalties on these collections, including the Bored Ape Yacht Club, Doodles, and Azuki, was left open. In a blog post, OpenSea put all the options on the table, including the potential for optional royalties.

The reaction of the artists was fierce. “The message for trading platforms like OpenSea is this,” he says. gino the ghost — Grammy Award-winning producer and founder of Web3’s music project Blocktones — “Either you stand firm in supporting the spirit of Web3 as the creative revolution, or you lose the trust and business of the very creatives that made you successful in the first place.”

Many artists spoke about their fear of losing their livelihood if OpenSea goes ahead. “I am a transgender teenager who escaped from an abusive home through the power of NFTs,” Fewocious, a 19-year-old digital artist who has built a huge following on Web3, wrote in a statement on Twitter. “And there are probably many more artists, many of whom may not be as lucky as I am, who live off their artists’ royalties… Please reconsider removing the royalties.”

Fewocious’s statement spread quickly on social media, garnering retweets from Snoop Dogg (“Power to Artists”) and sparking further discussion from industry executives like Lady Gaga’s former manager. troy carter“Fucking the creators is very Web2.”

The founders of the space also warned that it would threaten the future of NFT companies, as many projects rely on royalties to finance their business operations. “None of the best NFT projects you see would be where it is without them,” he says Betty — founder of Deadfellaz, an NFT project that partnered with Steve Aoki in October to launch Halloween merchandise and has generated more than $37 million in total volume since launching in 2021. “That’s why most of us came to this industry and it is what the platforms like. It was built on Opensea”.

After engaging with the community in several heated public debates, OpenSea clarified its position and promised to enforce creator royalties on all existing collections in the future. speaking to Billboard, OpenSea admits that they could have communicated better during this time. “We own that,” he says Shiva Rajaraman, product vp. However, he claims that OpenSea has always supported artists, and while all options were discussed internally, OpenSea never wanted to remove creators. “Honestly, the idea of ​​just getting rid of creator fees didn’t make sense.” Instead, OpenSea wants to put the power in the hands of the creators, he explains. “We should respect, as platforms, that choice that is made [by creators]instead of making that variable.”

Meanwhile, the new on-chain compliance tool, which Rajaraman describes as a “healthy tension against other markets,” is starting to work. At least one rival marketplace, X2Y2, has backed down, admitting it will also levy royalties on all existing collections. OpenSea has since handed over ownership and control of the tool to a collective of various NFT platforms so that the community can be more involved in its development.

Artists have mostly responded positively. “This is actually a very good start to enforcing royalties,” says Nicholas. And it’s proof that artists can still make themselves heard, force change, and define their terms in the nascent Web3 space. However, he also admits that this solution might just be a “Band-Aid”. Despite the advances of the artists in the last month, the final decision still seems to be in the hands of the markets.

Therefore, some creators are fighting for a complete change in the system. “[We need] a focused and creator-led solution,” says Deadfellaz’s Betty. “We needed to come together for a long time…and work on solutions outside of centralized marketplaces.”

Meanwhile, artists and OpenSea agree that creator royalties should be enshrined as a social and cultural rule, even if some markets don’t always abide by them. “If we don’t,” says Nicholas. “Web3 risks going down the same path as every other technical innovation in the last 20 years and squeezing artists and creators once again.”