OpenSea logo with coding in the background.

We Need to Talk About OpenSea and Creator Royalties

BY Eric James Beyer

November 08, 2022

The Alpha:

  • On November 6, OpenSea announced in a blog post and on Twitter that it would introduce a tool for new collections to enforce creator fees (artist royalties) on its platform.
  • The tool is a snippet of code that represents OpenSea’s first attempt at on-chain enforcement of royalties in NFT transactions and will apply to all new collections on its platform. The company gave itself a month to come out with a firm stance regarding how it would address royalties enforcement for existing collections. Several options, including optional royalties — and 0 percent royalties — were in the mix.
  • Following severe backlash and strident vocal opposition to the proposal from the NFT community, however, OpenSea announced on November 9 that it would continue to enforce creator fees for all existing collections.

Why it matters

The royalties debate in the NFT community is one of the space’s most important and consequential discussions. Widely considered to be one of the founding tenets of Web3, royalties have allowed artists to sustain themselves in a way previously not possible in the traditional art world. Via a combination of earning money through primary sales and taking a small cut every time their NFT changes hands, royalties lend credence to the Web3 community’s claim that NFTs help chip away at the “starving artist” trope that has robbed artists of dignity for centuries. They have helped lift people out of poverty, pay off loans, and gain economic independence. That’s to say nothing of the countless NFT projects involved in building and sustaining entire sub-communities on the back of such fees.

According to a late October study by crypto firm Galaxy Digital, more than $1.8 billion in royalties have been paid out to the creators of Ethereum-based NFT collections. Notably, OpenSea has paid out the most royalties to creators by a wide margin. But creator royalties aren’t enforceable at a technical level. Ultimately, it’s up to marketplaces to offer and honor them or not. For example, marketplaces like sudoswap and X2Y2 have planted themselves firmly in the zero-royalty camp.

OpenSea’s announcement resulted in an explosion of commentary from nearly every prominent figure in the NFT space. While many were happy that OpenSea decided to take a stand to support artists and new collections by introducing a tool that restricts NFT sales to marketplaces that enforce creator fees, many more were dismayed that it was seemingly abandoning its existing collections. Those collections, the community noted, were part of the reason OpenSea grew to become the number one NFT marketplace in Web3.

“Unfortunately, the bitter pill is that, to the best of our knowledge, the only way to achieve on-chain creator fee enforcement for existing collections with non-upgradeable smart contracts is to take drastic measures with their communities, like shifting the canonical collection to a new smart contract,” wrote OpenSea CEO Devin Finzer in the blog post. “In our opinion, by far the better option is for existing creators to explore new forms of monetization and alternative ways of incentivizing buyers and sellers to pay creator fees, and to ensure that future collections enforce creator fees on-chain.”

What’s next

To OpenSea’s credit, the company and its CEO were receptive to the community’s frustrations at the news. Finzer spent days making the rounds in Twitter Spaces, fielding questions from an understandably agitated user base. And while neither he nor the company’s Twitter handle were initially very helpful in clarifying what exactly would happen to existing collections after its December 8 deadline passed, they decided to heed the voice of the creators and collectors that power its platform.

The move is an encouraging one. While marketplaces (including OpenSea) that support creator royalties have a long way yet to go to better enshrine creator rights in their platform infrastructure, the fact that the NFT community was able to influence one of the largest organizations in the industry is a win that’s difficult to understate.

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