What about Collector Royalties?

16 Nov 2022

You may have lost it in the chaos of FTX and midterm elections, but it was just over a week ago that the Creator Royalties discussion came to a head in the NFT space. On Saturday, November 5th, OpenSea announced that they were considering a future where artists and founders of existing NFTs would stop receiving royalties as their work traded on the marketplace. In response, the NFT community banded together and voiced their disapproval on social platforms, viral blog posts, petitions, Twitter Spaces, and even handwritten pleas.

OpenSea’s statement was in response to the sudden surge of trading on smaller marketplaces like Blur, LooksRare, and Magic Eden that have been adjusting the Creator Royalties model or eliminating it entirely. This trend is an existential threat to the NFT ecosystem because Creator Royalties are the cornerstone argument as to why Web3 is better than Web2. For generations, corporations and industries have cut artists out of their deserved share of sales. This time it was supposed to be different.

Who was to blame? The cutthroat marketplaces trying to survive in a crypto bear market? The clever collectors seeking out a cheaper deal on their favorite NFTs? When the ETH is flowing, it’s natural to WAGMI each other behind rose-colored glasses. But after several months of downturn in NFT and crypto momentum, it’s all about the IGMI in the shadowy corners of flips and trades.

As far as the artists and founders, I’ve spoken with a lot of creators who’ve confessed that they’ve always known Web3’s dirty little secret – that there was nothing necessarily firm in place to uphold the Creator Royalties standard. It was always a charitable construct born of more romantic times. Some have been preparing accordingly, building their own marketplaces, or developing new systems to incentivize collectors to pay royalties to the artists. In the end, though, many reach the same conclusion: There’s not much we can do to solve the Creator Royalties issue on existing collections unless we can upgrade their smart contracts with a “blacklist” or “allowlist” tool to ensure trades happen on marketplaces that enforce royalties (most all are not equipped for this). Even with new collections that do have upgradable contracts, the tool could impair innovation, be a temporary band-aid, or be anticompetitive.

A few days later, OpenSea rescinded their tweet and officially declared that they’d abide to paying Creator Royalties on both existing and new projects. It was a major victory as it showed that the artists united could influence a company worth billions of dollars. It was also a symbolic milestone for the biggest NFT marketplace to hold staunchly to the Web3 ethos. Yet, I don’t know anyone who was out celebrating. If anything, OpenSea’s insinuation that they might abandon royalties was a sharp wake-up call to the artist community that after stopping the bleeding, we were devoid of a complete solution. The cold truth is that there is nothing stopping OpenSea from walking back their statement and severing Creator Royalties. Even if they don’t, the collectors can continue to edge out the creators of royalties themselves. The marketplaces will follow them (and vice versa) and cannibalize each other anyway.

Maybe it’s not a singular solve, but a combination of movements that will nudge marketplaces and collectors to maintain Creator Royalties. Overall, there needs to be more education about what royalties are and why they are critical to the health of the NFT ecosystem. OpenSea could brand themselves as the pro-artist platform, highlighting creators and articulating how royalties support burgeoning careers and inspire new art. PFP projects may even consider a path akin to subscription services or in-app purchases, whereby a collector pays royalties to access additional locked utility. Even better, if the NFT collection generates enough good will and value with its community, then a donation-based service could potentially raise enough money to propel the project.

I know that Web3’s brightest minds and most unshakable artists are trying to crack the code. From The Hundreds’ side, we postulate two potential answers for creators to survive and forge an enduring career. First, more mints. Most every traditional collectibles company – from sneakers to sports cards – builds robust brands by issuing more collectibles on a consistent basis. I address how we’ve gotten the NFT scarcity model wrong in the Badam Bomb Squad whitepaper, “NFTS are Forever.” While the items within drops should be limited, the drops themselves should be limitless.

Second, Collector Royalties.

With all the chatter around Creator Royalties, it’s worth exploring where the disconnect lies between the founders and their communities. In a perfect world, the collectors and marketplaces should be eager to honor the artists their share of the royalties in the Web3 spirit. The sobering reality, though, is that they are trying to make as much money as they can, just like the artists and founders. So, is there a path where everyone’s interests are aligned? Of course there is. We just have to find a way for the founders, the flippers, and the marketplaces to all make money on the same trade.

On Monday, November 21, 2022, The Hundreds will release our second major NFT collection in furtherance of Adam Bomb World. Badam Bomb Squad consists of 5,000 PFP-style digital collectibles rendered in 3-D art. The narrative is fitting for our polarized times as Badam Bomb is our unwitting villain, a misunderstood character that is socially judged by stigmas and stereotypes. One distinct piece of the project is that about 1,000 bombs in the original Adam Bomb Squad collection will be airdropped a bomb from the new Badam Bomb Squad for free. Here’s the kicker: those bombs are now virtually bound. Whenever the Badam Bomb Squad NFT trades hands in the marketplace, its Adam Bomb Squad anchor will receive royalties from that sale alongside The Hundreds.

Our 2021 whitepaper for Adam Bomb Squad (The Street Does Not Really Exist) proposed a brand where the consumer shares in the upside as the brand gains notoriety. They deserve this because – by wearing the identifiable marks – they are giving the company free advertising and propagating its awareness. The consumers are also contributing to the vitality and survival of the business. However, this reward shouldn’t just stop at physical clothing. NFT holders are some of the most ardent brand ambassadors of all. They use their NFTs as avatars, dress like them for Halloween, and adopt them as their identities. Doesn’t it make sense that they should benefit from the strengthening of that digital IP as well?

I’m not sure if Collector Royalties will be enough to save Creator Royalties. But, they are another pledge by The Hundreds to continue reshaping the brand-consumer relationship. And another signal flare of hope that there are plenty of answers out there. Way more than there are problems.

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To read more about our next collection, Badam Bomb Squad, dropping on Monday, November 21, 2022, read the story and details HERE.

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