Web3’s promise of NFT’s intellectual property rights “far off,” says Galaxy

Crypto merchant bank Galaxy Digital has studied the current NFT market and concluded that Web3’s promise of digital ownership and property rights “remains a long way off.”

Galaxy Digital reviewed licenses for top NFT (non-fungible token) gatherings such as Bored Ape Yacht Club (BAYC) and CryptoPunks for its latest report, “A Survey of NFT Licenses: Facts & Fictions,” published on Friday by the firm’s research team.

While more than $118 billion in NFTs have been traded in the year-over-year period on Ethereum alone, monthly trading volume has fallen by roughly 90% since January, according to Galaxy.

These declines were largely attributed to the larger decline in the cryptocurrency market which has caused many NFT investors to sell at a loss.

In contrast, NFTGo data shows that the number of addresses holding NFT investments (excluding traders) continues to rise despite the bear market, especially leading collections.

Almost no top NFTs broker IP rights, Galaxy found

The report found that the vast majority of top collections convey zero intellectual property rights to their underlying artwork or media.

Azuki, Doodles, Substantive and VeeFriends NFT projects were also examined.

Recently, some blue-chip aggregators, including Moonbirds, CryptoPunks and Meebits, have changed their terms of use – putting discussions about NFT license agreements in the spotlight.

In the case of Moonbirds, Galaxy found that the move from commercial use licensing to Creative Commons (CC0)—without community consent—highlights the fact that Moonbirds’ owners never owned any intellectual property (IP). It was the parent company behind Moonbirds and Oddities that was responsible.

“CC0 licenses are too permissive,” Galaxy said, because it moves the IP completely into the public domain, meaning no one really owns it. This makes it “unfeasible for entrepreneurs to integrate NFTs into their businesses due to the lack of legal protection.”

Regarding newly acquired Yuga Labs collections CryptoPunks and Meebits, the report found that the new license terms (which were adopted on Monday) are “significantly more professional and explicit in their ownership and license terms.”

Yuga Labs has acknowledged that it has the right to unilaterally update or change the license terms of these projects, which are “usually buried” in terms and conditions guidelines or “never clearly stated” on secondary trading platforms such as OpenSea.

On the other hand, Galaxy labeled BAYC’s license potentially misleading. It is unclear whether Yuga Labs intends to grant identical commercial usage rights to holders of Apes and Punks.

“If Yuga Labs intends the licenses to be functionally identical, they should update the BAYC license to remove misleading phrases such as ‘you fully own the underlying Bored Ape, the Art,'” the report said.

When it comes to Yuga Labs’ “Otherdeed for Otherside” NFTs, the plots of metaverse land are the first tokens issued by Yuga Labs that do not grant commercial rights, the report said.

NFT’s terms and conditions state that while owners have the ability to use and transfer the virtual land they purchase, Otherdeed owners have no copyright rights to associated media, including artwork.

However, owners of the Kodas, the creatures that roam the Otherside, have full commercial rights to the art in accordance with the BAYC license.

World of Women or world of litigation?

Galaxy’s report hailed a collection as the only project to attempt to transfer full IP rights to NFT holders: World of Women (WoW).

“WoW attempts this by offering a new Copyright Agreement,” a governance framework that transfers the copyright of each artwork to whoever owns the WoW NFT.

Still, there is a problem. It is unclear whether the IP agreement will continue to hold in the secondary market, Galaxy pointed out.

“Unless both Coins and Secondary Purchaser agree to these terms, there is no guarantee that the IP Allocation Agreement will pass from Coins to Secondary Purchaser,” the report said.

Galaxy concluded that metaverse realms Decentraland and The Sandbox do a “decent job of trying to assign IP ownership to their users for user-generated content, while appropriately disclaiming what users do and don’t own.”

The firm offered three proposed action points to achieve a future of digital ownership: NFT holders should fight for their IP rights; NFT issuers need to fix their agreements for Web3 to stand a chance; and the decentralized metaverse must enable intellectual property rights by default.

“While there is no requirement that NFT issuers specifically grant full intellectual property rights to buyers, the lack of intellectual property rights undermines grand claims by NFT and Web3 promoters that this technology will revolutionize digital ownership,” the report said.

Get today’s best crypto news and insights delivered to your inbox every night. Subscribe to Blockworks’ free newsletter now.