Artists Say NFT Markets Betray Web3 by Nixing Royalty Payments

On a hot and humid Tuesday night, collectors flocked to a stuffy art gallery in Lower Manhattan. It was his only chance to get a physical copy of “” by Justin Aversano.Cognition”, a series of 364 mixed media pieces that the grieving artist created in 2014 after the death of his mother.

Sitting in a back room away from the crowd, the DJ, and the gallery staff, Aversano explained how he had gotten into cryptocurrencies.

Paradigm shift

“I think what got me into NFTs in the first place was the fact that royalties were a thing, and this technology made it possible for artists to be sustainable with their royalties,” Aversano said. “It’s a paradigm shift.”

Artists have long relied on royalty payments from secondary sales of their work to make a living. In industries dominated by studios, publishers, agents and talent managers, that’s been a struggle. The stories are a legion of artists forced to seek redress through lawsuits.

One of 364 paintings from Justin Aversano’s Cognition project.

The advent of non-fungible tokens promised to give artists a handy digital tool to collect their due with little fuss. Thanks to smart contracts, creators can now expect to receive regular and reliable payments for their work much smoother than in the past. After all, that is the main goal of blockchain technology: to cut out intermediaries and friction and make transactions more efficient.

But now that business model may be in jeopardy, calling into question one of web3’s central themes: creative freedom powered by cryptocurrencies.

tip jar

On August 26, the NFT market X2Y2 made royalty payments optionalciting competition from a fast-growing, royalty-free competitor sudoswap. Not surprisingly, the number of buyers on the site who pay full royalties the following week it fell from 96% to 88%, according to X2Y2.

The performers backed off and X2Y2 partially reversed course. But his action rattled creators who realized royalty payments were less of a paradigm shift than a glorified tip pot.

“If this becomes the trend, I’m off web3,” Amber Vittoria, a New York-based artist, tweeted. “Ignoring a creator’s royalties is not innovative, it’s regressive.”

If this becomes the trend, I’m off web3. Ignoring a creator’s royalties is not innovative, it’s retrogressive.

amber victory

Aversano isn’t the only artist to embrace the promise of NFT-backed royalties. In a panel discussion on September 2 hosted by X2Y2, several artists spoke about the importance of royalties in attracting them and their peers to blockchain technology.

“Every culturally significant person I know who is undecided about this space has said that the only thing that intrigues them is the fact that they get royalties,” said Pat Dimitri, a musician. “And that it seems like artists are actually being fairly compensated for their output for the first time, maybe ever.”

But there is a problem: royalty payments are easily evaded.

NFTs are smart contracts, and within each NFT, artists input what their royalty percentage should be, Wacky Chainer, the pseudonymous director of business development at X2Y2, told The Defiant.

‘Call it Benevolence’

But those contracts do not automate the collection and distribution of royalty payments.

“It’s always been the… I don’t want to call it benevolence, but there was an understanding that the marketplaces would collect those royalties for creators and redistribute them,” he added.

In the race to increase collector volume in a bear market, markets are now under pressure to cut royalties.

Royalty-free NFT marketplace Sudoswap launched on July 9. Two months later, it’s the fourth most popular platform for buying and selling NFTs, according to the NFT data platform NFTGO.

Lower trading fees

OpenSea is still at the top of the market, but its share has dropped this year amid the rise of Sudoswap and X2Y2, which charge lower trading fees. X2Y2which launched in February, has a daily volume of $9.1 million compared to $15 million for OpenSea, according to radardapp.

With Sudoswap hot on its heels, X2Y2 announced on August 26 that it would let buyers decide whether to pay royalties to artists. The decision was spurred on, in part, due to the addition of Sudoswap to the list of markets in the NFT Gem aggregator, which allows buyers to compare prices on different platforms. gem was acquired by OpenSea earlier this year.

“You already had other marketplaces that are working at 0% [royalties]it’s just that they weren’t that popular,” Wacky said.

Gem developer Vasa has said that the platform will give buyers the option to pay royalties on NFTs purchased from Sudoswap, although it did not provide a timeline for its implementation.

Following protests from the artists, X2Y2 pivoted and announced that it would reinstate mandatory royalty payments for smaller NFT collections and allow art owners from larger collections to decide among themselves, by majority vote, whether to enforce royalty payments.

However, the experience was a wake-up call, according to the artists who participated in the panel organized by X2Y2 on September 2.

Dylan Shub, the founder of the Fat Cats NFT collection, said the markets had misled the artists who had courted them without explaining how NFT royalty payments work. Mr0, a pseudonymous developer at crypto firm QuantumTECH, agreed.

Royalties and all that was really just a marketing device.

Sr0

“Most of the markets knew this,” Mr0 told the panel. “But they had a supply issue needing to bring a ton of artists into the space, so you have to start selling dreams at that point. Royalties and all that was really just a marketing mechanism.”

Participants agreed that there was little that could be done technologically to enforce royalty payments. Mr0 said that he would just start a “game of cat and mouse”. Some said the most likely way forward was to make it a cultural expectation, like tipping in restaurants.

rooted in culture

“When you go to a restaurant, we all think someone is a jerk if they don’t tip the waiter or waitress, right? We have ingrained it as part of our culture,” Shub said. “If we can cultivate a culture where people feel part of the community and want to pay royalties because it’s a good feeling, that’s very helpful.”

Musician Dimitri said that shaming people into doing “the right thing” could work. But, in a sense, he would replicate the system he hoped NFTs would replace.

“I can tell you very honestly, in 10 years in the Web2 music industry, I’ve had to fight tooth and nail to get paid many times over,” he said. “And I would prefer not to continue doing that. Hopefully, Web3 was…a way to avoid having to fight people over the money I’ve made.”

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Some artists have discussed blacklisting markets that allow buyers to circumvent royalty payments, Wacky told The Defiant. godsthe team behind a popular collection of NFTs on the Solana blockchain, has said that buyers who refuse to pay royalties will not be entitled to the benefits that come with ownership of a DeGod NFT, such as future airdrops.

“This whole royalty war is going to change the NFT landscape,” Wacky predicted. It can affect the livelihood of artists. Or it could “generate a lot of very competitive creators,” working hard to cultivate “very trustworthy and loyal customers” who are willing to pay royalties, elevating the NFT art scene.

Buck Flipping NFT

Standing outside the Manhattan gallery Tuesday night, pseudonymous NFT collector ThePregnantChad held up one of the 364 pieces in “Cognition,” which had been carefully packaged to protect it from the rain.

He entered the market in February looking to make a quick buck trading NFTs and found them beautiful. Now he collects them for aesthetic pleasure and is happy to pay royalties to “true and good artists”.

“If you’re jumping into the space and you’re looking to move a lot of pieces, and you’re looking to make a lot of revenue very quickly or whatever the case may be, more power to you, but then I’m not looking to support those royalties,” he said.

“But as an artist, you know, someone like Justin Aversano, or someone like gray process … yes, those people deserve royalties. That is why we have the beauty, the beauty that we are having now. And I love that part of the blockchain. I don’t want to change that.”

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