In the past
Since its launch in 2017, there’s no question that Opensea has been the dominant NFT marketplace. It has captured the vast majority of NFT volume over the last 5 years, and although its sales have decreased in current times, it still pulled in over 144 million dollars in trading fees last quarter. Of this, 76% went to NFT artists and creators. While Opensea is still the go-to secondary platform for the time being, a new marketplace called Sudoswap is threatening to disrupt the status quo.
NFT creators can charge whatever royalties they want on Opensea. The average royalty falls in the range of 2.5-10%. This is how they share in the upside of their collections, and what incentivizes them to add value after the original release of their NFTs, also called the mint. Other popular marketplaces also enforce creator royalties. These platforms all take royalties themselves, with Opensea on the high end at 2.5%
Sudoswap doesn’t give royalties to NFT creators. They also only take a 0.5% fee. Because of this, savvy investors have started looking to Sudoswap to get the best price possible.
Sudoswap also introduces an innovative feature in liquidity pools for NFTs. People can create these pools by depositing any cryptocurrency or NFT into them, and setting a fee for users of the pool. People who create a liquidity pool also set a “bonding curve”, where the price of the NFT increases or decreases every time an NFT is sold or put up for sale. These changes can be linear or exponential. As a result, instant liquidity is provided at a small cost for sellers, and the price is automatically adjusted for supply and demand.
It’s important to mention that Sudoswap is a decentralized marketplace, and is set to airdrop a governance token soon. This will allow Sudoswap token holders, and by extension the crypto community itself, to dictate the future of the platform. The NFT community has been pushing for a switch to a decentralized marketplace for a long time.
Next step for NFT creators
This all raises the question: what’s next for the NFT space? It’s common sense that over time, Sudoswap and other anti-royalty marketplaces that follow in their footsteps will begin to capture more of the market. We’ve already seen another large marketplace, X2Y2, give buyers the option to not pay royalties as well. There are a few ways this could play out.
The most likely possibility is that collections begin to blacklist anti-royalty marketplaces. This does not guarantee that collections will receive royalties. Direct trades will still be possible, and it would be naïve to think new marketplaces wouldn’t pop up in their place. In the end, NFT collections would have to go the other route, and whitelist specific marketplaces. This would stop all competition against the chosen platforms.
Another possibility is that collections begin to create their own marketplaces for people to trade their NFTs on. This would make it much less convenient to buy NFTs, as there would be no way to aggregate them all in the same place. If this becomes the accepted practice, it also creates a high barrier to entry for new collections. Creating a marketplace is an expensive and time consuming task.
Passing legislation to ensure royalties is also being discussed. This goes against a core belief of web 3 culture: a free market outside the reach of government entities. The crypto space doesn’t like regulation, and this would set a unpopular precedent of subjective government interference in the space.
Looking long term
There are a few other long term possibilities. One is that creators will stop relying on marketplaces altogether, and enforce their royalties through other means. This hasn’t been tested on a large scale yet, and could be impossible. In theory however, collections could enforce royalties through the smart contracts themselves.
This could work as long as the transactions define a clear payment for the NFT, like on Sudoswap. A “free” transfer could get around this, with payment provided for something unrelated in the eyes of the smart contract.
Some also predict that anti-royalty marketplaces will die out. They are looked down on by the NFT community, and a subsection of influential collectors believe that investors will do right by creators, and buy NFTs on a royalty friendly platform. This implies a faith in humanity’s collective ability to overcome the tragedy of the commons, and look beyond their immediate self interests. If history is any indication, this is unlikely.
It could also turn out to be impossible to enforce creator royalties. This would mean that NFT creators would have to rely on the mint for all profits, completely shifting the way the market currently operates. It would also mean that there would be no aligned incentives between holders and founders of a project, which could prove disastrous for the space. While this wouldn’t discount the future benefits of digital ownership and NFT technology as a whole, it would mean that certain use cases could see their demise. At the very least, it would revolutionize the current standard.
Regardless of what the future holds, NFT projects released up to now weren’t prepared for this possibility, and are currently missing out on royalties because of Sudoswap. The number seems set to increase as well, and this will force both future and existing creators to react. The question is how, which only time can answer for sure.