The NFT Rout erases artists’ $1.5 billion windfall as royalties fall

The NFT Rout erases artists' $1.5 billion windfall as royalties fall

As the market for nonfungible tokens (NFTs) experiences a significant decline, the relationship between traders of digital collectibles and the creators of those collectibles is becoming more strained.

The source of the tension is the decisions that leading NFT exchanges, such as Blur and OpenSea, have made to lower the royalty rates. Those are paid to artists whenever ownership of an NFT is transferred. They believe that lowering these fees will encourage more trading activity and help revive the currently sluggish levels of buying and selling, Hoping that this will happen if they lower the fees.

On the other hand, this strategy to lower artist income might have unintended results, such as stifling the production of new works of art and causing a standstill in the market. According to data provided by Token Terminal, trading volumes have already suffered a significant drop of 95% since the beginning of 2022, falling from $17 billion to a mere $4.3 million in July of this year. 

According to research conducted by Nansen, royalties reached their highest point of $269 million in January 2022 but have since significantly decreased as a result of lower rates, dropping from as much as 5% per transaction to 0.6% in July.

Some industry professionals believe that this strategy is short-sighted because it ignores the significance of striking a healthy balance between empowering traders and creators in order to ensure the long-term viability of the non-fiat currency market. 

Phillip Kassab, the growth lead for non-fungible tokens and gaming at Sei Labs, a company that specializes in blockchain technology, emphasized the importance of striking a delicate balance that is beneficial to both parties.

According to the data provided by Nansen, the NFT market went through a difficult stretch between the months of August 2021 and May 2022. During this time period, cumulative monthly royalties reached an astounding $1.5 billion, largely driven by the popularity of collections such as Yuga Labs Inc.’s Bored Ape Yacht Club. 

However, because the NFT market was experiencing a downturn and the effects of the stimulus during the pandemic era were beginning to wear off, creator payouts began to significantly decrease.

The introduction of Blur in October brought about a significant change to the environment. The strategy employed by Blur involved lowering royalty rates, which ultimately led to an increase in trading activity. As a direct consequence of this, Blur quickly rose to the top of the cryptocurrency industry and now controls more than 70 percent of the daily trading volume on the Ethereum blockchain, as indicated by a dashboard provided by Dune Analytics. 

This disruptive strategy put pressure on the established marketplace, OpenSea, and forced them to follow a path that was similar to what the disruptive strategy had in mind.

According to Ally Zach, a research analyst at Messari, the launch of Blur signified a significant shift in the NFT market, making it more financially oriented. This was the result of the market becoming more focused on Blur.

There is currently a lack of clarity regarding the path that NFTs will take in the future. Famous artists like Michael Winkelmann (Beeple), who made a staggering $69.3 million for his Everydays NFT in 2021, are optimistic about the future of the digital collectibles industry despite the fact that many people hold the view that the previous popularity of digital collectibles is just a trend that will eventually fade away.

There is the opinion among some industry professionals that royalty rates ought to be hardcoded into the software that governs NFTs rather than being adjustable variables that are controlled by exchanges. On the other hand, there are those who support the establishment of online marketplaces such as SuperRare and Art Blocks that mandate the payment of royalties to the artists who use their work.

Chris Akhavan, the chief gaming officer at NFT marketplace Magic Eden, emphasized the significance of governing rules in the web3 space through code as opposed to relying solely on social norms. He stated that this was more important than ever before.

The Chief Business Officer of OpenSea, Shiva Rajaraman, stated that the company is committed to exploring new ways for creators to engage with their communities and earn a living that go beyond just creator fees. For instance, they propose linking NFTs to merchandising, with the idea that the proceeds from sales should support artists’ salaries.

Matt Kane, an artist whose NFT titled “Right Place & Right Time” sold for over $100,000 in 2020, is concerned that a decrease in creator engagement could negatively impact the quality and diversity of NFTs, which would outweigh any temporary surge in trading volumes that resulted from lower transaction costs.

Kane mentioned the fact that some of his collectors voluntarily help artists by providing royalties following transactions that take place on platforms that do not enforce intellectual property rights. Having said that, he did concede that not everybody has the same perspective.

He is of the opinion that one of the potential benefits of this technology is the transition toward a non-zero-sum economy, in which the success of one individual is beneficial to the entire community. However, at the moment, there appears to be a resurgence of the zero-sum mentality, which holds that the success of one individual comes at the expense of the successes of others.


About Ylleza Jashari

Senior student pursuing a degree in Security Studies at Rochester Institute of Technology. In my role as a Content Writer at Walletor, my primary objective is to develop informative content that effectively educates all Walletor users on the most up-to-date insights pertaining to financial transactions, digital wallets, and the broader cryptocurrency industry.

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