Here’s Why the Path to Decentralized Marketplaces Won’t Be Linear

BY Eric James Beyer

October 18, 2022

On March 3, 2022, NFT marketplace giant OpenSea initiated a large-scale ban and removal of accounts associated with an Iranian IP address in an attempt to comply with U.S. sanctions law. OpenSea had no choice but to obey the federal requirement, though many critiqued the platform for having communicated and executed the move poorly. Several Iranian-born artists who no longer reside in the country found themselves locked out of their accounts or had their collections removed entirely.

The move reinvigorated a debate that is as old as crypto itself. “We need a truly decentralized marketplace, NOW,” one Twitter commentator wrote of the event. In the wake of the unhappy news, several NFT community members signaled their support for just that position. How could it be, they asked, that in the world of a decentralized Web3, a gatekeeper is banning people from using its services?

What is decentralization?

Critics are right to pose the question, but the answer is more nuanced than it might first seem. Decentralization is a complicated dynamic that should be mistaken for a quick fix to all of Web2’s woes. And no matter how familiar you are with the topic, it’s worth asking what decentralization means, exactly, and what role it plays in the future of Web3.

The concept of decentralization is simpler than it sounds. Rather than having a centralized authority that owns users’ data (like Meta or Google do in Web2), blockchain’s open and permission-less nature enables a more dispersed model of content ownership and control. In this model, groups of users, not a single entity, manage data storage and movement.

But beyond this definition, there is little agreement about how much decentralization there should be in Web3 or where it is or is not present. Even measuring it isn’t always a straightforward process. If you hold the private keys to your crypto wallet, for example, you undoubtedly own the digital assets within it. But the waters get murkier around Web3 companies, like NFT marketplaces, that offer services based on blockchain tech. For example, a marketplace could decide to limit or revoke your ability to sell or trade the NFTs you own, should they deem it necessary.

Are NFT marketplaces decentralized? 

Until recently, this was precisely the case with OpenSea’s stolen item policy, in which reportedly stolen NFTs were frozen, unable to be sold or traded on the platform, essentially nullifying the digital asset’s existence on the largest NFT marketplace in existence. OpenSea has since updated its policy in response to some pretty pointed feedback from users, but the centralized point remains.

It’s also difficult to ignore the criticisms surrounding who gets verified on OpenSea and who doesn’t, as the process can, at times, appear rather random. Several projects that seemingly meet the requirements either didn’t receive their coveted blue tick for months or haven’t received one at all. Furthermore, the platform just announced that it was temporarily pulling Solana-based projects from its Top and Trending statistic pages to “avoid gaming of those rankings.”

Given the above, it would be easy to say that decentralization appears to exist more in name than anything else when it comes to OpenSea. But before condemning the platform too stridently, it’s important to note that decentralization can be a tricky thing to approach and execute. While speaking to nft now about the after-effects of the Ethereum merge, SuperRare Co-Founders Jonathan Perkins and John Crain noted that it’s almost impossible to implement complete decentralization right off the bat when starting a new Web3 project.

“There have been projects that promise and attempt to complete decentralization on day one,” Perkins said. “And that often doesn’t work because of coordination issues. We had about three and a half years under our belts by the time we pivoted into being a DAO officially. […] We try to increasingly delegate important parts of the power structure to the community.”

This slow approach reveals that decentralization is a work in progress. SuperRare is highly curatorial, accepting artist applications on a rolling basis. The resulting exclusivity has helped establish the marketplace’s spot as a major contributing force in the NFT world, which rode in on the back of centralized decision-making. To help balance out the scales, SuperRare introduced Spaces, independent galleries on the marketplace that curate, promote, and sell art. SuperRare DAO members vote on galleries, giving them free roam to curate as they see fit.

Nifty Gateway recently did something similar when it launched Publishers, its Shopify-like storefront that gives users registered on the platform access to the same tools the marketplace has used to present its Curated Drops over the years. These storefronts also allow NFT collectors to collaborate with artists to promote artwork that might otherwise go under the radar. While these kinds of moves still take place under the banner of a centralized Web3 entity, they matter quite a lot in the larger picture of moving the decentralized needle forward.

Controversial NFT marketplace tools 

Magic Eden, the champion marketplace of Solana-based projects, has also made some decisions that have recently sparked a renewed fervor in the decentralization and royalties debates. After introducing MetaShield in September, a tool that lets creators exclude their NFTs from being listed on marketplaces that don’t honor royalties, the company has seemingly backtracked on its staunchly pro-artist stance, claiming that royalties will now be optional on its platform.

The Magic Eden team claims they made the decision after having “discussions with many creators.” It’s a choice regarding an almost hyperbolically sensitive issue that will have enormous ramifications for the NFT ecosystem it helps support. But what might look like a heavy-handed, centralized move from the outset is deceptively challenging to condemn or laud in black-and-white tones. There’s an argument to be made that the decision delegates power to the marketplace’s users to decide whether or not they want to pay for royalties.

Decentralization is a means to an end

NFT marketplaces seem to largely be in the process of exploring what decentralization means to their business models, their users, and their goals for the future. The founding Web3 ethos is an expanding conversation that fosters its unique evolution and binds it to its most prominent speakers’ common sense, flexibility, humility, and openness to change.

Repeated calls for truly decentralized marketplaces or social media platforms mean little without potentially viable ideas for alternatives to what we see today. And while Web3 denizens must be wary of egregious offenses to the idea of decentralization — the ecosystem deserves no less diligence — the space needs more than harsh condemnation coupled with vague advocacy.

Not every gradient ranging from centralized to decentralized that falls in the former’s territory should be demonized. Similarly, decentralization must be seen for what it really is: a means to an end. Web3 could become the most inherently democratic and egalitarian internet culture and infrastructure society has yet seen, but, counterintuitively, some level of centralization will play an important role in getting there. We should be open to it.

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