The debate surrounding creator royalties in the NFT space has yet to find a conclusion. Considering the fast-paced nature of the market, it comes as no surprise that key players in Web3 are changing their position on royalties and other hot topics, and breaking news that creates normalizing waves throughout the ecosystem.
One such key player is Magic Eden. In September, the Solana NFT marketplace giant announced the launch of MetaShield, a new suite of tools designed to help NFT creators protect their royalties. Now, the platform has doubled back, stating that creator royalties will now be optional on the marketplace.
The NFT community’s response to the news was polarized. Although Magic Eden stated via social media that the decision stems from the fact that creator royalties “are not enforceable on a protocol level,” some feel that the move was a slap in the face to creators, while others believed it was simply inevitable.
So what happened that led to this decision? And what does Magic Eden have to say about it?
Magic Eden says goodbye to royalties. But why?
While it does seem like quite a 180-turn for Magic Eden to offer new protections for creator royalties, only to strip them down a month later, the platform doesn’t seem to have acted out of malice. On the contrary, when announcing this decision to the public, the company communicated that it was made with much difficulty, but ultimately came after deliberating internally and fielding input from Magic Eden traders and creators.
“We have actively been trying to avoid this outcome and spent the last few weeks exploring different alternatives,” Magic Eden stated on Twitter. “Unfortunately, royalties are not enforceable on a protocol level, so we have had to adapt to shifting market dynamics.”
Could it truly be as simple as that? It definitely seems so.
Interest in optional creator royalties has grown in the NFT market, and Magic Eden’s ecosystem is no exception. Now, the decision of paying royalties has been passed from the seller to the buyer. So, regardless of a royalty split set by a creator, it’s up to the buyer’s discretion to pay all, some, or none of the kickback percentages that creators think they deserve.
In conjunction with the decision, Magic Eden has also waived all platform fees for the foreseeable future, meaning that the standard two percent fee collected by the marketplace will be dropped for the time being. The platform also announced a Creator Monetization Hackathon to develop pro-royalty and alternative creator monetization tools.
Although some seem to think the $1 million hackathon was organized to help curry favor with the NFT community, Magic Eden has continued to communicate the regretful nature of their optional royalties decision, tweeting that the company hopes the change will not be permanent.
What does the NFT community think of the move?
While those in the NFT community may have varying opinions about this move from Magic Eden, optional royalties are nothing new in Web3. As prominent Artist Bryan Brinkman put it, “the idea of ‘optional’ royalties is a misnomer,” noting that collectors have long been circumventing royalties via trades and backchannels, according to an interview with nft now.
“Magic Eden is just chasing the trends and making avoiding royalties easier technically and ethically flexible,” Brinkman said. “I think markets can do what they wish, but if you push optional royalties for creators, the next logical phase is optional fees for marketplaces.”
Just as we’ve seen platforms like sudoswap, X2Y2, and Yawww emerging as opponents of cookie-cutter creator royalties, the popularity of zero-fee marketplaces cannot be ignored. And of course, while the conversation surrounding this Magic Eden news has stirred up disdain in the NFT space, the company’s decision to make royalties optional speaks to the viability of creator royalties in the NFT space.
As prominent voices weigh in on the ongoing debate surrounding royalties, industry heavyweight Beeple took to Twitter to say that while he is pro-royalties, “switching from a seller’s fee to a buyer’s premium” could be a more sustainable model, long-term. “Switching to a buyer’s premium, [buyers] are actually very motivated to pay [royalties] as they are entering the project and creators can see if [royalties] were paid,” he said, directly commenting on Magic Eden’s actions.
Beeple went on to note that creators could potentially “disable” NFT metadata if royalties aren’t paid (much like MetaShield hoped to empower creators to do), or take measures that are less punitive and more geared toward “premium” versions of NFTs. In his Twitter thread, he reminded his followers that NFTs don’t come with built-in royalty splits, and that they are something that must either be offered or honored by NFT marketplaces.
Yet to Betty, co-founder of the influential Deadfellaz project, the importance of creator royalties to power the NFT space cannot be understated. “There’s not a single project in this ecosystem that hasn’t used royalties to build,” Betty stated via Twitter. She also noted that Magic Eden’s decision could serve to make it harder for smaller creators to be self-starters and achieve higher status without the financial benefits of royalties, tweeting: “your faves with huge volumes? Would they have catapulted to where they are without royalties?”
Who suffers the most from this? Smaller creators, the least funded, least connected. Who make up that cohort by demographic? This is ridiculous.— BETTY (@betty_nft) October 15, 2022
The argument coming from artists in the space is salient, to be sure. But on the other hand, collectors continue to oppose options that take away their choice in the matter, leaving them to be forced into paying secondary fees on top of their often sizable transactions. And beyond the matter of choice, some have even cited another point of contention, that many pump-and-dump schemes and rug pulls have made use of royalties to slowly accumulate wealth.
So again, it is the necessity and the viability of royalties that is most prominent in the discussion surrounding Magic Eden’s actions. Because whether or not royalty percentages are set at a smart contract level, marketplaces have the opportunity (not a requirement) to honor and implement them.
How are creators affected by all this?
Quite obviously, Magic Eden making royalties optional affects creators the most. It’s no stretch to say that unenforced royalties will benefit collectors the most, as they can now choose how much they pay creators when purchasing a piece on the secondary market. It’s highly unlikely that collectors will opt to pay more for their NFTs if given a choice.
Although Beeple made some good points about the viability of a “buyer’s premium,” it’s perhaps only established artists and well-endowed collections that would benefit from this model. Meaning that, as Betty noted, smaller artists would find it difficult to accrue profit over time, and would likely struggle to gain a foothold by taking punitive measures regarding the payment (or lack thereof) of royalties.
As far as Brinkman is concerned, Magic Eden’s decision could change how creators release work. “We will see less free mints and airdrops, and more creators holding back mints for themselves,” said Brinkman. “In the same way we have seen creators take more control over their smart contracts and primary sales, I believe we will see creators move away from the marketplaces and move towards more bespoke secondary marketplaces that can offer incentives catered more towards artists and collectors.”
Although the creator royalties debate feels like a two-group engagement — those who support royalties and those who don’t — marketplaces remain the third party that truly has the power to move the needle. Regardless of what artists and collectors say, it’s the actions of the platforms that make releasing and trading NFTs possible that matter most.
This is precisely why Magic Eden’s decision, in addition to news from other platforms like Blur (which aims to reward collectors for paying royalties) is so pressing. Truly, compelling points have been made by all parties in the creator royalties debate. But until there comes a method that pleases everyone, the discussion continues.