New platforms raise questions about NFT artist royalties

Creators of non-fungible tokens (NFTs) have been paid for secondary market sales of their creations, but new entrepreneurs entering the space are forgoing those payments to pass savings on to collectors.

Why it’s important: 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 bank on benefits. It can motivate teams to not just create one-off works, and foster community around creations that build more value.
• A creator may not stop at one. They can organize events or shows, or create products around their art, all of which increase thought and value.

One problem: Well, assumptions about NFT royalty payments are just not 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 to that extent marketplaces honor it.

Context: The NFT market is down, but definitely not out. According to NonFungible.com, there were about $855 million in NFT sales in August – well below previous peaks, but more than enough to keep a bunch of startups going.

The intrigue: Still, a couple of recent, notable marketplaces just don’t honor 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 (market leader).

Sudoswap has really increased its volume in the last month, but it is x2y2 that dominates the market (although it has a token, so it can be a lot of wash trading).

• Either way, it’s a lot of sales, which only makes it more troubling for artists it’s proposed to create optional to pay royalties.

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

• NFTs are not like paintings. They do not stop developing when they are sold. Each collection is a project.
• “Many NFT projects manage to fund 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 original creators) they noted that the assets and their marketplaces are symbiotic. “Platforms should be allowed to innovate as 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 looking at: Royalties may become less tailored, more standardized, and something that becomes more consensus than written law.

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