Magic Eden COO calls 0% royalties a ‘prisoner’s dilemma’

Solana’s largest NFT marketplace Magic Eden announced last week a switch to an optional royalty model, a move that means those buying or selling NFTs may choose what percentage cut of the sale is returned to the original artist.

The reaction was swift and predictable. One NFT artist called it a “sad day for Solana.” Broccoli DAO, a community built around the CyberVillainz and CyberHeroez NFT collections, said that the decision could kill its project. It estimates it has lost $27,000 to 0% royalty marketplaces and is now taking measures to block anyone avoiding royalties from its Discord channels.

Magic Eden’s defection was a blow to royalty supporters in the Solana network. The company accounts for 86% of the sales volume on Solana NFT marketplaces over the past month, according to data from Hello Moon. The second, third and fourth most popular marketplaces on Solana by sales volume (Solanart, YAWWW and Hadeswap) are also 0% royalty. Together they account for 99% of NFT sales on Solana.

Despite its decision, Magic Eden still supports creator royalties and it is committed to finding ways to make royalties enforceable, co-founder and COO Zhuoxun “Zedd” Yin told The Block in an interview.

Prisoner’s dilemma  

Creator royalties have long been touted as one of the top use cases for NFTs, allowing creators to make money on secondary sales. But there’s no way to make people cough up on the protocol level. Instead, collecting royalties has traditionally been left to NFT marketplaces themselves. If markets don’t collect, creators don’t get paid.  

Several royalty-free marketplaces have emerged over the last few months on both Ethereum and Solana. The most prominent is X2Y2 on Ethereum. In the last few months, it has taken around half of the share of marketplace volume on the chain, although it’s not clear how much of this is wash trading, which is the practice of buying and selling the same NFT over and over to create a false impression of greater marketplace activity. By some calculations X2Y2 and another marketplace, Sudoswap, have less than 20% of the market share when adjusted for wash trading.

Nevertheless, they proved popular, taking market share from giants like Magic Eden and OpenSea. “In my view, this is sort of a classic prisoner’s dilemma situation… We felt that in the absence of technically enforceable solution at the protocol level things would continue to trend basically toward optional royalties anyway,” Yin said. 

Not everyone agrees. Some believe that the move toward 0% royalties could even be a chain-specific issue. Despite X2Y2’s gains on Ethereum, Fidenza artist Tyler Hobbs recently told Decrypt that “the Ethereum space is really much more serious” and that “creators will put up much more of a fight.” 

“We did not want to go down this path. We tried to avoid this as long as possible because we knew that this decision is something that would be fairly controversial,” Yin added.

Source : Theblock

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