Canceling royalties, the awakening of the creator economy dream

Author: WhiteForest & Alex, Foresight Ventures

On August 26, the NFT trading platform X2Y2 announced the launch of the "customizable royalty" feature, allowing buyers to choose not to pay royalties to project parties. This has sparked some heated discussions. In fact, X2Y2 is not the first to take this step; Sudoswap launched without royalties and transaction fees in April 2021. OKX NFT and Element have also attempted to not charge royalties.

The Cancellation of Royalties is an Inevitable Trend

In a competitive market, any industry will engage in price wars. Marketplaces lack strong barriers beyond traffic and brand, and products do not have sufficient differentiation, making cost competition an inevitable means of competition. Before customizable royalties, many platforms had already undergone self-revolution to reduce transaction fees.

The debate over customizable royalties is merely different stakeholders trying to protect their own interests.

There are certainly long-term perspectives arguing that undermining creators' passion will affect the foundation of the NFT industry, prioritizing short-term gains over long-term sustainability. I do not believe this viewpoint is entirely incorrect.

1. From the perspective of artistic creation, masters like Van Gogh, Schubert, and Rembrandt were all impoverished, and we cannot find a positive correlation between wealth and creative level.
2. Is it reasonable for royalties to often reach as high as 10%? Could it actually lower the level of creation? However, I still agree that creators should receive reasonable compensation.
3. Why has free minting become popular this year? Because these NFTs can no longer attract genuine consumers and can only profit from trading. Truly valuable artworks should not fear price wars; their goal should be to sell at higher prices rather than increase trading frequency.

Let me break down the psychology of the three parties involved.

Project Parties: After free minting, the cancellation of royalties results in a significant loss of income, affecting ongoing creation.

Marketplace: Reducing intermediary costs helps acquire more users and seize market share.

Users: Selling NFTs can yield more income.

It is evident that the cancellation of royalties benefits both parties. Even if the long-term impact on creators' passion is valid, I do not believe it will stop the trend of canceling royalties. Because the market will move in the direction of least resistance under the collective force of participants. Even without X2Y2 and Sudoswap canceling royalties, other platforms would initiate this change. In a brutal competition, if you do not cancel royalties while others do, you will lose market share. As a platform, if you go bankrupt, what long-termism can you uphold? Most users do not genuinely care about creators; they only care about whether they can make more money.

This competitive landscape resembles the "Battle of the Hundred Regiments" from years ago, where price wars and even subsidy wars are detrimental to long-termism. But the final outcome is that "bad" currency drives out good currency, and the victor emerges, as Meituan breaks through and rebuilds order.

How to View Project Parties' Joint Resistance Against Platforms Cancelling Royalties?

I believe it is unlikely to succeed.

Can you ban a platform in the contract? Can you ban an endless stream of platforms? Opensea acquired Gem, and Gem is willing to integrate the no-royalty Sudoswap.

Project parties are not a monolith either; most blue-chip projects have multiple sources of income and confidence in long-term prices, and they will not oppose no royalties. The founder of the famous project Memeland, 9Gag, tweeted: "Revenue is more than royalty." Project parties should bravely seek income beyond royalties rather than only focus on their small piece of land; holders are your loyal believers, not your source of income.

In a market of homogeneous products, users will also choose project parties willing to forgo royalties.

NFT self-built platforms? Don't think about it; this is just digital collectibles.

The Awakening of the Creator Economy Dream

What was the narrative of NFTs we initially discussed? Breaking the monopoly of intermediary platforms over resources and unleashing more creators' talents.

We should view this issue dialectically.

1. The fact that trading platforms are lowering transaction fees aligns perfectly with the original intention of NFTs. If platforms that cancel royalties are unjust, then are project parties that charge 10% royalties also unjust? Isn't lowering royalties a way to reduce intermediary costs?
2. X2Y2 is not directly canceling royalties; it is offering customizable royalties. If sellers truly believe royalties are reasonable or wish to support project parties, they can choose to pay 100% royalties, and the platform could even offer options to pay more than 100%. We can wait and see the users' choices; this is the market trend.

If we look at this industry more realistically.

1. What backgrounds do most NFT project parties have? Are they artists, investors, or speculators? Are these royalties incentivizing artistic creators?
2. How many participants or traders in the Creator Economy market are here to support artistic creation? How many holders can articulate the creative background, artistic genre, or author information?
3. How long can the narrative of so many Creator Platforms last?

Making money is just making money; there's no shame in that.

Since Change is Impossible, Where Do Project Parties Go?

For NFT project parties that have lost royalties, the remaining path will be more challenging, but that does not mean there is no way forward. Project parties should focus more on building their brand, monetizing through IP, and actively aligning their interests with those of holders, transforming the existing copyright fee system into an IP monetization system to escape the copyright dilemma.

1. Reserve 10% of NFTs in the treasury when issuing NFTs, and sell them in the market when the NFT price rises to a certain level for monetization.
2. Retain the brand IP rights of NFTs and actively participate in market operations and commercial monetization.

In the future, various industry standards for NFTs will become increasingly regulated, and soft rug pulls and low-quality projects will become harder to issue. Just like the chaos of ICOs in 2017, future NFT issuances may even impose lock-up periods before selling NFTs to protect holders. As we evolve from ERC721 to ERC721A and then to ERC721R, we will find that the rules are evolving around how to protect user rights. We believe that the world of NFTs is still in its early stages, and copyright will not be the only solution; more user-friendly solutions will be widely promoted. Long For NFT, Holder LFG!

Conclusion

Dreams are still worth having; after all, compared to the stark reality, people prefer to live in dreams.