Why NFT Creators Are up in Arms Over Royalties – and Rightly So

For weeks, leading NFT marketplace OpenSea has been grappling with backlash from creators after it made significant changes to its resale royalty policy that rocked the creative community and left many in it feeling betrayed.

The reaction followed OpenSea’s Feb. 17 announcement that it was making enforcement of resale royalties optional on a swath of NFT collections — more like a tip if buyers felt like paying for it. Imagine essentially being promised, and relying upon, an ongoing 10% royalty on every resale of your creative work, but then having that pulled away. Many creators felt that OpenSea had reneged on a fundamental tenet of their deal, and the blowback was swift. After all, the blockchain’s promise of continuing royalties represents the single most critical benefit of NFTs to creators. 

In a recent conversation, OpenSea’s chief business officer Shiva Rajaraman told me he regretted this reality, but chalked up most of the hate directed toward it to confusion. Impacted NFT collections were those without OpenSea’s “operator filter” — “a couple lines of code” that enable on-chain enforcement and are apparently easy to add. But those creators who launched their collections at a time when they had no reason to believe that on-chain enforcement was necessary — and when no operator filter code was even available to them — are now, for the most part, simply out of luck. 

Rajaraman reassured me that OpenSea remains absolutely committed to preserving royalties on all new collections coded with its operator filter, or alternative enforcement tools from companies such as Manifold — code that basically designates which other marketplaces can sell collections created on OpenSea. But when I later asked the company whether its latest assurance to creators was now ironclad, it seemed to hedge its bets. Yes, a company spokesperson told me, so long as its commitment was coupled with a way to ensure that NFT collections couldn’t be sold royalty-free on other marketplaces — an answer that seemed to take us right back to the type of thinking that got the company into hot water with creatives in the first place. 

To its credit, the company openly acknowledged that it changed its resale royalty policy in direct response to competitive headwinds. Competing marketplace Blur, which uses 0% transaction fees as its calling card, is reported to have leapfrogged over the market that OpenSea created. According to The Information, Blur now holds approximately 80% of global NFT trading volume, using its race to the bottom no-fee strategy as its way to the top. In a tweet, OpenSea bemoaned the fact that “the majority of volume… has moved to a zero-fee environment” and that this unfortunate new reality “required” a change to its own policies.

I asked OpenSea how many creators are impacted by this change. The company responded that it doesn’t share that data, and ultimately the precise numbers are less important than what OpenSea’s new policy represents. Creators who had invested their time and trust in OpenSea based on what they believed to be a guaranteed, locked-down stream of resale royalties now abruptly found themselves dependent on the good graces of resellers. And in a nascent Web3 world populated by significant numbers of profit-maximizing speculators, “good graces” can be hard to come by. 

We’ve seen this movie before. When a company’s sales volume and market share drop precipitously — as OpenSea’s apparently did here — unbridled investor pressures and priorities almost always win. And here, profit-maximizing priorities of OpenSea buyers and sellers trumped those of the creators who built that value and the investors’ marketplace in the first place. 

Of course, it’s easy to Monday-morning-quarterback OpenSea’s decision to change the rules of the game while the players are still on the field. The company faced massive pressures and substantial lost sales volume being a “white knight” amidst competing “take no prisoners” players in this great NFT land grab. Undoubtedly, there were no easy (or even not-so-easy) solutions. 

Nonetheless, from the perspective of the creative community, it was incumbent upon OpenSea to do something that placed creator interests first. And I’m not sure that abruptly announcing a significant policy change on Twitter was the way to go. Real outreach to, and proactive engagement with, the creative community was what was needed. After all, if creators aren’t incentivized to play in this new Web3 sandbox, then there will be fewer sandcastles built. It’s typical short-term thinking. Zero percent fees may taste great now for buyers and sellers. But creators need, and deserve, to be fed too.

In any event, OpenSea’s rough waters serve as a cautionary tale. Web3 and NFTs continue to confuse and confound most of the world. We’re in the early innings of the commercial blockchain after all. And such confusion frequently leads to skepticism — skepticism that begets a tendency to write off the overall Web3 opportunity rather than learn and embrace it. That’s why NFT’s headline promise to creators — ongoing baked in royalties — is so critical. Royalties give creators something new and transformational. And here’s the thing: The blockchain’s unique power to deliver the goods is real. 

NFTs were never intended to be pump-and-dump, get-rich-quick schemes. Their true power and promise rest in delivering real ongoing value, connection and community — and, most importantly, a revolutionary new way for artists and creators to take back so much value lost to Web2 middlemen like Facebook, YouTube and the app stores. NFTs offer a bold new way for creators to directly connect with their audiences to enable a reciprocal exchange of value, as I wrote in TheWrap last fall. 

OpenSea, a long-time respected innovator in the world of Web3, had the power to lead here, take a stand for creators, and move NFTs closer to their ultimate promise. Instead, faced with rough seas, the captains abandoned ship.

For those of you interested in learning more, visit Peter’s firm Creative Media at creativemedia.biz and follow him on Twitter @pcsathy.

For weeks, leading NFT marketplace OpenSea has been grappling with backlash from creators after it made significant changes to its resale royalty policy that rocked the creative community and left many in it feeling betrayed.

The reaction followed OpenSea’s Feb. 17 announcement that it was making enforcement of resale royalties optional on a swath of NFT collections — more like a tip if buyers felt like paying for it. Imagine essentially being promised, and relying upon, an ongoing 10% royalty on every resale of your creative work, but then having that pulled away. Many creators felt that OpenSea had reneged on a fundamental tenet of their deal, and the blowback was swift. After all, the blockchain’s promise of continuing royalties represents the single most critical benefit of NFTs to creators. 

In a recent conversation, OpenSea’s chief business officer Shiva Rajaraman told me he regretted this reality, but chalked up most of the hate directed toward it to confusion. Impacted NFT collections were those without OpenSea’s “operator filter” — “a couple lines of code” that enable on-chain enforcement and are apparently easy to add. But those creators who launched their collections at a time when they had no reason to believe that on-chain enforcement was necessary — and when no operator filter code was even available to them — are now, for the most part, simply out of luck. 

Rajaraman reassured me that OpenSea remains absolutely committed to preserving royalties on all new collections coded with its operator filter, or alternative enforcement tools from companies such as Manifold — code that basically designates which other marketplaces can sell collections created on OpenSea. But when I later asked the company whether its latest assurance to creators was now ironclad, it seemed to hedge its bets. Yes, a company spokesperson told me, so long as its commitment was coupled with a way to ensure that NFT collections couldn’t be sold royalty-free on other marketplaces — an answer that seemed to take us right back to the type of thinking that got the company into hot water with creatives in the first place. 

To its credit, the company openly acknowledged that it changed its resale royalty policy in direct response to competitive headwinds. Competing marketplace Blur, which uses 0% transaction fees as its calling card, is reported to have leapfrogged over the market that OpenSea created. According to The Information, Blur now holds approximately 80% of global NFT trading volume, using its race to the bottom no-fee strategy as its way to the top. In a tweet, OpenSea bemoaned the fact that “the majority of volume… has moved to a zero-fee environment” and that this unfortunate new reality “required” a change to its own policies.

I asked OpenSea how many creators are impacted by this change. The company responded that it doesn’t share that data, and ultimately the precise numbers are less important than what OpenSea’s new policy represents. Creators who had invested their time and trust in OpenSea based on what they believed to be a guaranteed, locked-down stream of resale royalties now abruptly found themselves dependent on the good graces of resellers. And in a nascent Web3 world populated by significant numbers of profit-maximizing speculators, “good graces” can be hard to come by. 

We’ve seen this movie before. When a company’s sales volume and market share drop precipitously — as OpenSea’s apparently did here — unbridled investor pressures and priorities almost always win. And here, profit-maximizing priorities of OpenSea buyers and sellers trumped those of the creators who built that value and the investors’ marketplace in the first place. 

Of course, it’s easy to Monday-morning-quarterback OpenSea’s decision to change the rules of the game while the players are still on the field. The company faced massive pressures and substantial lost sales volume being a “white knight” amidst competing “take no prisoners” players in this great NFT land grab. Undoubtedly, there were no easy (or even not-so-easy) solutions. 

Nonetheless, from the perspective of the creative community, it was incumbent upon OpenSea to do something that placed creator interests first. And I’m not sure that abruptly announcing a significant policy change on Twitter was the way to go. Real outreach to, and proactive engagement with, the creative community was what was needed. After all, if creators aren’t incentivized to play in this new Web3 sandbox, then there will be fewer sandcastles built. It’s typical short-term thinking. Zero percent fees may taste great now for buyers and sellers. But creators need, and deserve, to be fed too.

In any event, OpenSea’s rough waters serve as a cautionary tale. Web3 and NFTs continue to confuse and confound most of the world. We’re in the early innings of the commercial blockchain after all. And such confusion frequently leads to skepticism — skepticism that begets a tendency to write off the overall Web3 opportunity rather than learn and embrace it. That’s why NFT’s headline promise to creators — ongoing baked in royalties — is so critical. Royalties give creators something new and transformational. And here’s the thing: The blockchain’s unique power to deliver the goods is real. 

NFTs were never intended to be pump-and-dump, get-rich-quick schemes. Their true power and promise rest in delivering real ongoing value, connection and community — and, most importantly, a revolutionary new way for artists and creators to take back so much value lost to Web2 middlemen like Facebook, YouTube and the app stores. NFTs offer a bold new way for creators to directly connect with their audiences to enable a reciprocal exchange of value, as I wrote in TheWrap last fall. 

OpenSea, a long-time respected innovator in the world of Web3, had the power to lead here, take a stand for creators, and move NFTs closer to their ultimate promise. Instead, faced with rough seas, the captains abandoned ship.

For those of you interested in learning more, visit Peter’s firm Creative Media at creativemedia.biz and follow him on Twitter @pcsathy.