How Web3 Artists Responded – Billboard

While the demise of FTX and Crypto Winter which saw NFT sales drop by 90% dominated the Web3 headlines this year, there was a bigger problem for many creators. Their royalties have been under attack, undermining a key promise of Web3 as a sustainable model for musicians.

Creating royalties on NFTs ensures that artists are paid a cut of the income every time their work is sold on a secondary market. As the music NFT market has matured since multi-million dollar sales attracted widespread attention, these royalties have been a central part of the Web3 proposition – presenting musicians with a possible alternative to the major label system and allowing them to generate meaningful income over long time. term. Only now is that promise being pulled out from under them as several new NFT platforms effectively or explicitly cut out royalties for creators – even though it was a core part of the Web3 promise when they originally listed their NFTs for sale – in an aggressive bid to market share.

Even OpenSea, the largest NFT marketplace, briefly considered changing its policy before a deafening backlash from artists forced the company to double its commitment to royalties. OpenSea also introduced an “enforcement tool” that allows artists to blacklist rival marketplaces that don’t respect royalties. It’s a small win for creators, although some have called it a “bandaid” as many emerging platforms, including Blur, Magic Eden, LooksRare and Sudoswap, still don’t enforce royalties by default. In some cases it is a strict policy, in others the royalty is “optional” allowing traders to opt out of paying the artist when selling an NFT. Most traders opt out, making the effective royalty rate close to zero.

Creator royalties are the beating heart of Web3 and the primary reason artists flocked to NFTs in the first place. “Coming from the music world, the promise of being able to earn royalties in perpetuity without interference from middlemen was something I could only dream of,” says Illa Da Producer, a 12-time platinum-certified music producer credited on Eminem’s “Killshot” and community manager at Yuga Labs, the company behind Bored Ape Yacht Club. The artist can choose their own royalty rate – typically 2.5% to 10% – and they’re lucrative, generating more than $1 billion for creators on OpenSea in 2022 alone.

But there is a problem. These royalties are not coded directly into the NFTs themselves. They were introduced by marketplaces like OpenSea, originally to attract artists to the space, meaning they can be removed just as quickly.

None of this was a problem during the bull run where cartoon animal JPEGs were selling for over a million dollars apiece. Collectors were flush with crypto, happy to pay the artist royalties when they made a winning trade. But now the bubble has burst. The price of Ethereum has fallen by 75% and NFT volume is down 90% from the peaks in January. NFT platforms are fighting for market share in a shrinking economy and traders are trying to save as much money as possible.

In a desperate bid to attract users, rival marketplaces such as X2Y2 effectively cut out royalties for creators by making them “optional” – traders can choose not to pay the artist royalties when selling their NFTs, thus pocketing more money from every sale. Other platforms including Blur, LooksRare, Sudoswap and Magic Eden followed a similarly aggressive policy.

The creators were sharp in their criticism. “In many ways it amounts to theft of the market,” says Jeff Nicholas – founder of WRVPSound, a pool of 9,999 AI music NFTs and the largest Web3 music project ever by volume at 6,115 ETH (~$7.15 million at current prices), “If a project puts royalties in the terms of service and these royalties are not enforceable.”

Still, it worked. Traders left OpenSea in droves. The platform’s market share fell from 80% earlier in the year down to 45% in November, according to crypto research firm Messari. As a result, OpenSea claims that more than $1 million in creator royalties were effectively bypassed in the first week of November alone. At risk of losing even more market share, OpenSea was forced to act quickly, launching a tool that allows artists to blacklist the rival marketplaces.

But there is a catch. The tool only works for new NFTs. It would not work for the thousands of existing NFTs and projects. The future of royalties on these collections – including Bored Ape Yacht Club, Doodles and Azuki – was left wide open. In a blog post, OpenSea put all options on the table, including the potential for optional royalties.

The backlash from artists was fierce. “The message to trading platforms like OpenSea is this,” says Gino the ghost — a Grammy-winning producer and founder of the Web3 music project Blocktones — “Either you stand firm in supporting the ethos of Web3 as the creative revolution, or you lose the trust and business of the creatives who make you successful in the first place.”

Many artists spoke out about their fear of losing their livelihood if OpenSea followed through. “I’m a transgender teenager who escaped an abusive household through the power of NFTs,” Fewocious — a 19-year-old digital artist who has built a massive following in Web3 — wrote in a statement on Twitter. “And there are probably so many more artists, many of whom may not be as fortunate as me, who make a living from their artist fees … Please reconsider removing royalties.”

Fewocious’ statement quickly spread across social media, garnering retweets from Snoop Dogg (“Power to tha artists”) and further discussion from industry leaders such as Lady Gaga’s former manager Troy Carter“Fucking creators is very Web2.”

Founders in the space also warned that it would threaten the future of NFT companies, given that many projects rely on royalties to fund business operations. “None of the best NFT projects you see would be where they are without them,” says Betty — founder of Deadfellaz, an NFT project that partnered with Steve Aoki in October for a Halloween merchandise drop and has generated more than $37 million in total volume since launching in 2021. “That’s why most of us flocked to this industry , and that’s how platforms like Opensea were built.”

After engaging the community in several heated public debates, OpenSea clarified its position and promised to impose royalties for creators on all existing collections going forward. Talking to BillboardOpenSea admits they could have communicated better during this time. “We own it,” says Shiva Rajaraman, vp for the product. However, he confirms that OpenSea has always stood behind artists, and although all options were discussed internally, OpenSea never wanted to cut out creators. “Honestly, the idea of ​​just getting rid of the creator fees didn’t make sense.” Instead, OpenSea wants to put the power in the hands of creators, he explains. “We should respect, as platforms, the choice that is made [by creators]instead of making that variable.”

Meanwhile, the chain’s new enforcement tool – which Rajaraman describes as a “healthy tension against other marketplaces” – is starting to work. At least one competing marketplace X2Y2 has backed down and admitted it will also enforce royalties on all existing collections. OpenSea has since handed over ownership and control of the tool to a collective of several NFT platforms so that the community can become more involved in how it develops.

Artists have largely responded positively. “This is actually a very good start to enforcing royalties,” says Nicholas. And it’s proof that artists can still make themselves heard, force change and define their terms in the emerging Web3 space. However, he also admits that this solution can only be a “bandaid”. Despite the progress made by artists over the past month, the final decision still appears to be in the hands of the marketplaces.

Some creators are therefore fighting for a complete change of the system. “[We need] a creator-focused and led solution, says Betty from Deadfellaz. “We’ve needed to come together for a long time … and work on solutions outside of centralized marketplaces.”

Meanwhile, artists and OpenSea agree that royalties to creators should be a social and cultural rule, even if they are not always honored by some marketplaces. “If we don’t,” says Nicholas. “Web3 risks going the same way as every other technical innovation of the last 20 years and squeezing the artists and creators again.”