Magic Eden flip-flops on Solana NFT royalties, making them optional

Magic Eden, the most popular marketplace for Solana NFTs, announced late Friday that it will no longer strictly respect the creators fixed royalties on NFTs sold through its platform, bowed to recent pressure as royalties-hunting rivals quickly stole its market share.

“After some difficult reflections and discussions with many creators, we have decided to move to optional royalties,” the platform tweeted. Magic Eden also said it would waive its platform fees during a promotional period, in an apparent attempt to win back traders.

Magic Eden had been the most dominant NFT marketplace on Solana for the past year, typically holding 90% or more of the market share at any given time. The startup rode that momentum to a valuation of $1.6 billion in Junejust nine months after launching the platform, when it raised $130 million in Series B funding.

However, emerging marketplaces that chose not to require sellers to pay royalties to creators on secondary sales — such as Hadeswap and Solanart — began in recent weeks, prompting action from the platform.

Last week Magic Eden said it had the collaboration with Coral Cubeanother marketplace and aggregator, to enable Solana NFT transactions with optional royalties, while keeping the full creator royalties in place on Magic Eden’s own marketplace.

On Thursday, Tiffany Huang—Magic Eden’s head of marketing and content—told Decrypt that the Coral Cube partnership was designed to “protect the Magic Eden brand while serving merchants” and that the marketplace “has always prided itself on being deeply creator-centric.”

But on Friday night, Magic Eden tweeted that it had changed its mind, and would follow the growing trend of Solana marketplaces that allow users to bend to pay royalties to artists and creators of NFT projects.

– This is not a decision we take lightly. We understand that this move has serious implications for the ecosystem, says Magic Eden tweeted. “We also hope that it is not a permanent decision. Today, royalties cannot be enforced on the chain. We welcome and hope to see new standards that protect royalties.”

In support of the noted desire, Magic Eden announced a hackathon initiative to inspire Web3 developers to develop NFT technology and standards that can make royalties fully enforceable on-chain. Magic Eden will award up to $1 million in prize money, and Solana’s co-founder Anatoly Yakovenko is among the judges for the hackathon.

Typically, in an NFT marketplace transaction, the seller pays the set royalty fee to the project creator. However, Magic Eden has approached it differently, placing the burden on the buyer in each transaction to choose whether or not to pay the royalty. By making it possible to not pay royalties, it is treated more like a tip to the creator.

Market movements

Momentum around skipping NFT royalties has grown in recent months, and recently came to a head at Solana. Decrypt explored the changing tides in the Solana Room last Thursday, highlighting the sudden rise of rival Hadeswap, the views of creators and collectors, and what Magic Eden said it planned to do as its grip on the market weakened.

As of Thursday afternoon, zero-royalty and royalty-free marketplaces had significantly cut into Magic Eden’s recent market share, which was 58% over the previous 24 hours and 61% over the previous week based on total Solana NFT trading volume.

Traders already seem to be returning to the platform following the announcement on Friday. According to data collected by NFT market place TiexoMagic Eden is responsible for 86% of Solana NFT trading volume in the last 24 hours, at the time of writing.

However, Magic Eden’s decision to not only make royalties optional, but also temporarily cut its own marketplace fees, has had an unintended consequence: it has led to a sudden increase in wash tradewhere a user trades NFTs back and forth between controlled wallets at artificially inflated prices well above what the market dictates.

It has allegedly been done by project creators and backers in an attempt to increase the tracked trade volume of the respective projects, thus elevating them in the sales rankings and potentially earning them more visibility in the process. Rival marketplace OpenSea, which still honors royalties to creators, said Saturday that it would temporarily stop including Solana NFT projects on its overall market-covering leaderboard due to the apparent manipulation.

Reactions to Magic Eden’s announcement have been widely mixed, and accordingly divisive tenor of the royalty debate in the weeks and months leading up to the decision. Many Solana NFT traders mocked Magic Eden on Twitter for its abrupt about-face after previously pushing back against royalty-dodging rivals.

And while some creators acknowledged that the market is trending in this direction and that unenforceable NFT royalties cannot be a sustainable revenue stream for Web3 creators, others were upset by the news and the potential impact on their businesses.

Two other Solana NFT marketplaces said they would maintain royalties to creators, despite the trend: game-centric marketplace Fractal and art marketplace Exchange Art. The latter also said it is expanding the use of an optional “Exchange Royalties Guarantee” tool that allows creators to prevent their tokenized artwork from being sold on other marketplaces.

“At an alarming rate, platforms have decided to treat artists as a SKU rather than people,” Exchange Art tweeted. “Royalties exist for a reason and creators should not have to worry about being listed on sites that reject their rights. This is not acceptable, and [we’re] simply will not tolerate it.”

Notable creators from across the NFT space also joined. Pseudonym Deadfellas co-creator Betty tweeted that Magic Eden’s move would “free up smaller creators to launch themselves without the huge advantages those who are funded and well-connected already have.” Creator and collector Jimmy “j1mmy” McNelis described it as a “bad move,” among other colorful comments across a number of tweets.

Artist Mike “Beeple” Winkelmann was more diplomatic, tweeting that while he is “obviously pro-royalty and [doesn’t] love what Magic Eden and others are doing,” he praised Magic Eden’s move to put the royalty decision in the buyer’s court.

“By switching to a buyer’s premium,” Beeple wrote, “they are indeed very motivated to pay this when they enter the project, and creators can see if this was paid.”