We created Enshrine with a mission to help content creators monetize in new and unique ways. We decided to develop our platform using Web3 technologies because they have the potential to fundamentally change the balance of power between technology platforms and the creators that use those platforms.
The recent creator royalty policy changes on platforms like Opensea, the largest NFT marketplace by trade volume, are concerning to say the least, and fly in the face of everything that the Web3 community has been promising creators for the last several years.
This is a watershed moment for the Web3 community, and we want the record to show:
We unambiguously and emphatically take the side of creators and the royalties that they are entitled to.
Opensea’s Royalty Announcement and Justification
OpenSea, the largest NFT marketplace, has made a major policy change that could have a significant impact on creators. The company announced on August 17, 2023, that it will make creator royalties optional on secondary sales. This means that buyers will no longer be required to pay royalties to creators when they resell their NFTs.
Under the previous policy, creators could set a royalty fee of up to 10% on all secondary sales of their NFTs. This meant that they would receive a percentage of the sale price every time their NFT was resold. The new policy makes creator royalties optional, meaning that buyers can choose whether or not to pay them.
Here are some additional policy details:
- The new policy applies to all new NFTs listed on OpenSea starting August 31, 2023.
- Existing NFTs that were listed before August 31, 2023, will continue to have mandatory creator royalties until March 29, 2024.
- Creators can still set a royalty fee on their NFTs, but buyers will no longer be required to pay it.
- Buyers can choose to pay the creator royalty, but they are not obligated to do so.
OpenSea has said that it made this policy change in order to make it easier for buyers to purchase NFTs. The company argued that the previous policy was confusing and made it difficult for buyers to understand how much they would have to pay.
However, some creators have criticized the change, arguing that it will hurt their income and make it less worthwhile to create NFTs. They argue that the new policy will allow buyers to profit from the resale of their NFTs without giving anything back to the creators.
Why Opensea’s Policy Is Harmful: An Economic Argument
Opensea claims that these changes will stimulate demand for NFTs and, therefore, benefit creators through the form of more token sales. However, they have failed to produce any evidence to support this claim.
If we take a step back and look at the issue from a macroeconomic standpoint, Opensea is saying that creator royalties (or to buyers, just another form of trading fees), is suppressing the total market demand for NFTs.
Could this be the case in the short term? Sure.
NFT speculators and traders are the most sensitive to fees, as every additional fee cuts down on their profit margin. Since the downturn in the NFT market, trading volume has plummeted across every platform. With very little new money flowing into the Web3 space, the current trading volume of NFTs is circulating between existing NFT owners.
So, in the immediate term, reducing fees, whether that be in the form of platform fees or creator royalties, should stimulate demand. But who does this increased demand benefit? Certainly not creators that earn a significant amount of money from royalties.
What about in the long term? In our opinion, no.
The future success of the Web3 and NFT spaces is dependent on widespread adoption of the technology and an influx of new money into the ecosystem. Is widespread adoption of Web3 going to be hampered by creator royalties? We don’t think so.
Widespread adoption is going to be driven by practical use cases that are either cheaper than Web2 alternatives or use cases that provide new functionality that Web2 ecosystems don’t support.
So, who does this policy support in the near term?
Simple – platforms like Opensea.
Why Opensea’s Policy Is Harmful: A Practical Argument
We believe that Opensea’s policy is near-sighted and harmful to the future success of the Web3 space.
It is our job to convince creators that the benefits of Web3 outweigh the benefits of traditional Web2 platforms. One of the most compelling reasons for creators to sell their work through NFTs is the ability to earn royalties for their work regardless of what platform their work is resold on.
While there is a myriad of other reasons to monetize through the Web3 ecosystem, universal royalties are, by far, the most compelling capability (at least in our conversations with creators).
The notion of royalties is not something that exists in the Web2 space and is the main reason that creators rely on subscription revenue on platforms like Patreon. If royalties are no longer enforced, we’re essentially taking away creators’ abilities to replicate a recurring revenue stream in the Web3 space.
We’re already fighting an uphill battle against negative coverage of the Web3 space and the general public’s unfamiliarity of Web3 platforms. The last thing that we need is for creators to lose faith in the concept of universally enforced royalties.
Today is the first day that newly listed NFTs on the Opensea platform will not have mandatory creator royalties. And while the future is uncertain, we believe that we will feel the repercussions of Opensea’s policy change across the industry for years to come.
Marketplaces like Rarible have come out and vehemently defended universal royalties. It is critical that other platforms, both large and small, come out strongly in the same way that Rarible did.
Here at Enshrine, we remain focused on creators and their ability to establish new, recurring revenue streams through Web3 technologies. We have and will continue to support universal royalties in the strongest way possible.