Should NFT creators expect royalties? Sudoswap says no

Creator royalties have been a prominent facet of the NFT market for years. Even in the early days of the creative Web3 economy, artists of all persuasions could sustain themselves through a mixture of income from primary sales and repayments received via secondary market royalties.

Yet while royalties for creators seem crucial, they are not hard-coded into the market – much less individual smart contracts. Creator royalties, sometimes called creator fees, are an option implemented only to reserve a certain percentage of each secondary sale (peer-to-peer trade), which is sent back to the NFT’s originator.

When collecting secondaries, most collectors have no problem paying a royalty fee directly to an artist. Although optional, it is almost impossible to avoid paying royalties to creators in the NFT space. That can be a good thing or a bad thing, depending on who you ask, since decentralized payments are facilitated by centralized funds.

Take OpenSea: If an artist’s NFT sells on the secondary market on OS, the platform itself receives the royalty via the transaction. It is only after the royalty has been received that OpenSea, in this situation as an intermediary, sends the royalty payment to the artist.

But events like OpenSea’s aren’t the end-all-be-all. The advent of services like Manifold may change that. With manifold’s royalty registry, it is now possible for smart contracts that initially did not support royalties for creators to add them. This will effectively make it easier for marketplaces to use appropriate on-chain royalty configurations instead of the aforementioned centralized model. This is precisely why a debate surrounding the necessity of royalties to creators – and the viability of continuing to be facilitated by middlemen – has bubbled up recently, effectively dividing the community once again over the usefulness of NFTs.

While we can’t draw a direct line back in time to where this conversation started, some recent news from automated market maker (AMM) sudoswap has undoubtedly fanned the flames of this burgeoning dispute.

How? It all started when sudoswap announced the public release of its new marketplace protocol – one that comes with zero percent NFT creation royalties.

A little context about sudoswap

Sudoswap is an AMM, with a twist. Like other AMMs, or decentralized crypto exchanges (DEX), sudoswap facilitates coin exchange via liquidity pools – stores of crypto locked in a smart contract that work to create liquidity for faster transactions.

The main identifying factor that sets sudoswap apart from other DEXs is that it also facilitates swaps between ERC-721 tokens (NFTs) and ERC20 tokens (such as ETH). Simply put, this means that users can sell their NFTs without first having to find a buyer. This way, users can exchange an NFT directly for ETH without having to accept a bid or wait for someone to buy the NFT.

Of course, there is much more to the mechanics and functionality of NFT liquidity pools on sudoswap. To learn more about the details, consider visiting the sudoswap blog here.

Beyond the new mechanics of the platform, it is clear why sudoswap is a popular option for traders as opposed to buying and selling via OpenSea, LooksRare or similar marketplaces. Nevertheless, the recent controversy does not come directly from NFT swaps, but from sudoswap’s aforementioned new marketplace protocol.

Next to announcing the sudoAMM launchmarketed as “the decentralized NFT marketplace,” sudoswap revealed that it would cut trading fees down to 0.5 percent, in direct contrast to the typical 7.5+ percent of other platforms.

Still, while sudoAMM’s fees are significantly lower than other platforms, it comes at the price of royalty fees. Since most popular NFT marketplaces only charge a platform fee of around 2 to 2.5 percent, the other 5+ percent is usually set by the artist or team behind a collection.

However, SudoAMM does not allow artists to enter a royalty percentage. Since sudo is a tool for trading and not creation, they collect NFTs for sale on-chain, without honoring royalties set via contract or marketplace. This means that artists will not receive kickbacks from secondary sales on sudoAMM.

Why the royal creation debate is important

A rift is forming in the NFT room. And like the debate about art needing to have utility, it may simply come down to a question of morality and the underlying functionality of NFTs themselves.

NFTs do not come with built-in royalty parts. This is something that must either be offered or respected by NFT marketplaces. While most platforms offer creators the ability to set royalties, it is not required. And regardless of whether a royalty percentage is set at a smart contract level or not, marketplaces have it possibilitynot one claimto honor and implement royalties.

While many have weighed in on the topic, Beeple may have distilled the argument perfectly down to a humanistic proposition: The royal debate hinges on collective morality. And the morality of the room remained unchallenged as creator royalties became the norm throughout the NFT market. However, as differing opinions on royalties proliferate, sudoAMM has highlighted the need for a discussion on how these norms are set, and whether or not they must be respected.

You could say that sudoswap is doing nothing wrong by denying creators the ability to set their own royalty percentages. But both artists and collectors in the NFT space feel that taking away their agency by receiving a percentage every time their art is resold is a trick on creators.

If collectors don’t want to pay royalties to artists, should they have more options in the matter? Are services like sudoswap beneficial to the NFT space by giving traders a choice? Or are the artists and those who shape the content to have the last word? The jury is still out.