Bored Ape Founders Offer ‘Allow List’ Solution to NFT Creator Royalties Debate

The ongoing discussion around non-fungible token (NFT) creator royalties just took an interesting turn! Ever wondered how the creators of your favorite NFTs get compensated when their digital art changes hands in the secondary market? It’s a hot topic, and the founders of the Bored Ape Yacht Club (BAYC), one of the most recognizable NFT collections out there, have weighed in with a potential solution.

Why are NFT Creator Royalties Such a Big Deal?

To understand the buzz around BAYC’s proposal, let’s quickly recap why creator royalties are so important in the NFT space. Think of it like this: when a traditional artist sells a painting, they usually only make money on the initial sale. NFTs, however, introduced a game-changing concept – creator royalties. This means that artists can earn a percentage of each subsequent sale of their NFT on marketplaces like OpenSea or LooksRare.

As Greg Solano and Kerem Atalay, along with Wylie Aronow – the masterminds behind BAYC – eloquently put it in their recent blog post:

“For as much as NFTs have been about users truly owning their digital assets, they’ve also been about empowering creators.”

They emphasize that creator royalties are not just a nice-to-have; they are a fundamental pillar of the NFT ecosystem, attracting artists and creators by offering a sustainable way to benefit from their work in the digital realm.

OpenSea’s Royalty Shift: A Cause for Concern?

Recently, OpenSea, a leading NFT marketplace, announced a shift in their approach to royalty enforcement. This announcement, as the BAYC founders noted, followed a trend among other marketplaces moving away from mandatory royalty enforcement. For many creators, this felt like a step backward, potentially undermining the creator-centric ethos of NFTs. It signaled a possible move towards removing creator royalties for older NFT collections on their platform, a decision that sparked considerable debate within the NFT community.

BAYC’s ‘Allow List’ Solution: How Does It Work?

In response to these concerns, the BAYC founders didn’t just express their opinion – they proposed a tangible solution! Their idea revolves around leveraging smart contracts and “allow lists” to ensure creator royalties are respected. Let’s break down this concept:

• Smart Contract Encoding: The core of the solution lies in embedding an “allow list” directly into the smart contract of an NFT collection.
• Restricted Trading: This “allow list” would specify which NFT marketplaces are authorized to facilitate trades of that particular NFT collection. Only marketplaces that commit to respecting creator royalties would be included on this list.
• Wallet-to-Wallet Freedom: Crucially, the BAYC proposal emphasizes the importance of maintaining the core principle of NFT ownership. Therefore, direct wallet-to-wallet transfers would remain unrestricted and free of royalty enforcement. This ensures users can still freely move their NFTs without incurring extra fees when simply transferring between their own wallets or gifting to friends.

Decoding the Technical Details: A Simplified View

Let’s simplify how this “allow list” system might function in practice:

1. Transfer Request Initiation: When someone attempts to transfer an NFT, the smart contract first needs to identify the nature of the sender’s wallet.
2. Wallet Type Check: The system distinguishes between regular user wallets and smart contract wallets (which marketplaces use).
3. Regular Wallet Transfers: If the transfer is from a regular wallet to another regular wallet, the transaction proceeds without royalty checks. This ensures seamless wallet-to-wallet transfers.
4. Smart Contract Wallet Transfers & Oracle Check: If the transfer involves a smart contract (like a marketplace), the system consults an “oracle.” This oracle acts as a real-time registry of smart contracts associated with marketplaces known to honor creator royalties.
5. Royalty Compliance Verification: The oracle checks if the marketplace’s smart contract is on the “allow list” – meaning it’s verified to respect royalties.
6. Transaction Approval: If the marketplace is on the “allow list,” the NFT transfer is approved. If not, the transfer is restricted, effectively preventing trading on marketplaces that bypass royalties.

Benefits of the BAYC Proposed Solution

This approach offers several potential advantages:

• Creator Empowerment: It directly addresses the concerns around diminishing creator royalties, providing a mechanism to protect artist earnings.
• Marketplace Accountability: It encourages NFT marketplaces to support creator royalties to be included in the “allow lists,” fostering a more ethical and sustainable ecosystem.
• Preservation of Ownership: By allowing free wallet-to-wallet transfers, it respects the fundamental principle of NFT ownership and user autonomy.
• Community Driven: This solution empowers creators and communities to collectively decide which marketplaces align with their values regarding royalties.

Challenges and Considerations

While promising, the “allow list” concept also presents some challenges:

• Oracle Reliability: The effectiveness hinges on the reliability and impartiality of the “oracle” that maintains the list of compliant marketplaces. Who manages this oracle and how is its integrity ensured?
• Adoption Hurdles: Widespread adoption would require NFT collections to implement this smart contract modification. Convincing existing collections to retrofit this feature and new collections to adopt it from the outset will be crucial.
• Marketplace Fragmentation?: Could this lead to further fragmentation of the NFT marketplace landscape? Will users be inconvenienced by having to check marketplace “allow lists” for different collections?
• Evolving Standards: The NFT space is rapidly evolving. Will this solution be adaptable to future changes in marketplace dynamics and royalty structures?

Looking Ahead: A Potential Path Forward?

The BAYC founders’ “allow list” proposal is a significant contribution to the ongoing NFT royalty debate. It offers a concrete, technically grounded approach to address creator concerns while attempting to balance the principles of ownership and marketplace dynamics. Whether this specific solution gains widespread traction remains to be seen. However, it undoubtedly injects a fresh and innovative idea into the conversation, potentially paving the way for a more sustainable and creator-friendly NFT ecosystem.

What do you think about BAYC’s proposed solution? Is this the direction the NFT space should be heading? The discussion is far from over, and the evolution of NFT royalties will continue to shape the future of digital art and collectibles.