OpenSea joins the optional royalties camp, mainstream platforms end the era of mandatory royalties

By Nancy, PANews

Recently, OpenSea announced that it will shut down the royalty enforcement tool "Operator Filter" on August 31, and will switch to implementing an optional creator fee model. As soon as this news came out, it was met with protests from many parties. Among them, Yuga Labs, the parent company of BAYC, took the lead in boycotting, saying that it insisted on protecting the creator’s royalties, and would gradually stop supporting all upgradeable contracts of OpenSea SeaPort and any new series. So why did OpenSea stop enforcing creator royalties? Which projects will have a greater impact?

OpenSea changed royalties from mandatory to optional, causing controversy

A few days ago, OpenSea officially announced that OpenSea will no longer enforce creator royalties from August 31, but will introduce an optional creator royalty mechanism to better reflect the choices that drive this decentralized ecosystem and the principle of ownership.

To put it simply, starting from March 2024, sellers can decide the split ratio of secondary sales, if they set the split ratio to 0, then the creator will have no income.

Specifically, the disabling of the royalty enforcement tool includes four main aspects: (1) disabling the OpenSea Operator Filter from August 31, 2023; (2) disabling the OpenSea Operator Filter before August 31, 2023 , and for collectibles that exist on all non-Ethereum blockchains, from August 31, 2023 to February 29, 2024, OpenSea will enforce the creator's preferred fee in all secondary sales; (3) will start on August 31, 2023 and will make it easier for buyers to identify secondary sale listings that include creator preferred fees; (4) will start on August 31, 2023 and will make it easier for sellers to choose Creators prefer fees or customize how their creator royalties are paid.

Although the original intention of OpenSea’s Operator Filter launched in November 2022 is to limit the creator’s NFT secondary sales to the NFT market with an enforced royalty mechanism, thereby filtering out such optional and zero-royalty platforms such as Blur, But as mentioned in the tweet, the success of Operator Filter relies on the participation of everyone in the ecosystem, which unfortunately didn't happen. In fact, although Operator Filter allows creators to blacklist NFT marketplaces that do not enforce royalties, NFT marketplaces such as Blur and LooksRare have bypassed the operator filter by integrating OpenSea's NFT aggregator Seaport protocol, thereby bypassing the operator filter. Blacklist and avoid creator fees. In addition, in February of this year, OpenSea released the three major function adjustments of 0 fee for a limited time, revised optional royalties (minimum 0.5%), and updated blacklists.

At the same time, OpenSea Pro (formerly NFT aggregator Gem) announced that with the adjustment of creator fees, it will start charging 0.5% platform fee for all OpenSea pending orders and sell orders created on OpenSea Pro from August 31. The platform also said the adjustment was necessary to prevent market manipulation and keep transaction data as accurate as possible.

In fact, the recent adjustment of OpenSea's royalty structure is not unrelated to the market dilemma it faces. On the one hand, the price and trading volume of NFT continued to decline under the bearish market, which means that the trading interest of NFT Trader is declining, and the income of the platform has been affected. According to Dune data, as of August 22, the weekly trading volume of NFT has dropped by more than 96.9% from the peak of nearly 330 million US dollars in January 2021.

On the other hand, OpenSea's market share is constantly being grabbed. According to Dune data, as of August 22, OpenSea's weekly transaction volume accounted for only 22.8% of the market, only one-third of Blur's, and as high as 95.6% in January 2022. At the same time, from the perspective of the number of weekly transactions, OpenSea accounted for 57.6%, a drop of more than 63.6% from January 2022.

OpenSea's implementation of copyright optionality has also drawn criticism. For example, NBA Dallas Mavericks owner Mark Cuban said on social platforms that as an OpenSea investor, it was a huge mistake for OpenSea not to collect and pay royalties for NFT sales, which weakened people's trust in the platform and damaged Phillip Kassab, head of NFT and gaming growth at Sei Labs, said that (cutting royalties by platforms such as Blur and OpenSea) is a short-sighted strategy that ignores the fact that sustainable success in this space is built on empowering traders and creators. fact on the delicate balance of power of the author.

Under the reform of the royalty system, top projects bear the brunt

Yuga Labs took the lead in protesting OpenSea's adjustment of the creator's royalty mechanism. On August 19, Yuga Labs officially announced that it will gradually stop supporting all upgradeable contracts and any new series of OpenSea SeaPort.

In fact, royalties are a very important source of income for the project side, so various NFT trading markets usually make a fuss around royalties. But with the downturn in the market, creators' earnings are facing a sharp reduction. According to Nansen data, NFT market royalties have fallen to $4.3 million in July this year, a 98% drop from the peak of $269 million in January 2022, as the transaction fee rate dropped from 5% per transaction to 0.6%.

What is even more fatal to creators is that as OpenSea also shifts to an optional creator royalty model, this means that there is no leading trading platform in the NFT market that supports mandatory royalties. For example, Blur, LooksRare, etc. use an optional royalty model, SudoSwap adopts a zero-royalty strategy, and so on.

According to previous statistics by data analyst @Panda Jackson, during the trial period of Operator Filter (from November 8 to December 12, 2022), 31.6% of the total 2,215 new collections used mandatory royalties. The adoption rate increased from 14% to 40% within 4 weeks, and nearly 80% of the total transaction volume of new collections was contributed by royalty-enforced collections. Not only that. The data also showed that only 0.8% of deals with non-mandatory royalties complied with royalties, compared with 86.6% of deals with mandatory royalties. This data shows that if royalties are not enforced, creators will have little to no royalties, after all, royalties increase the cost of buyers. Although this data is not the latest, it also confirms the importance of mandatory royalties to creators to a certain extent.

Faced with the situation that creators cannot continue to obtain royalties, which NFT projects may be more affected? According to Definitive data, as of August 22, the top 10 NFTs with royalties are BAYC, Otherdeeds, Azuki, CLONE X, Moonbirds, Doodles, Parallel, RTFKT-MNLTH and VeeFriends. Among them, BAYC ranked first with US$58.8 million in royalties; Otherdeeds ranked second with US$52.7 million; Azuki ranked third with US$44.1 million; CLONE X and Moonbirds followed closely with US$37.7 million and US$28.1 million respectively back.

In short, for OpenSea’s royalty reform, some people think that the optional royalty or zero-royalty strategy may attract NFT traders in the short term, but in the long run, it will make creators lack creative motivation, which is not conducive to the continued innovation and development of NFT However, some people believe that the existence of royalties is not conducive to NFT liquidity, and will make investors who have lost money face further losses.