LooksRare Joins the Optional Royalty Trend: What Does It Mean for NFT Creators?

The world of NFTs is constantly evolving, and the latest shift involves a hot topic: creator royalties. LooksRare, a major player in the NFT marketplace arena and the third largest on Ethereum, has just announced a significant change. They’re making creator royalty fees optional, following in the footsteps of other platforms and sparking debate across the Web3 space. What does this mean for NFT creators, traders, and the future of the NFT ecosystem? Let’s dive in.

What’s Happening at LooksRare?

LooksRare, known for being a prominent NFT marketplace on Ethereum, has decided to move away from mandatory creator royalties. In a recent blog post, they announced that they will no longer enforce these fees. Instead, they’re offering creators 25% of the platform’s protocol fees. Protocol fees are essentially operational costs charged by LooksRare, amounting to 2% of each transaction.

This decision comes as the NFT market faces ongoing challenges and increased competition. LooksRare explained their rationale by pointing to the rise of marketplaces that don’t enforce royalties, stating:

“The growth of zero-royalty marketplaces has eroded the general willingness to pay royalties throughout the NFT space,”

While this might seem like good news for NFT traders, it raises serious questions about the income of NFT creators. LooksRare themselves acknowledge this, adding:

“Good news for traders, but with a big downside: the move away from royalties has removed an important source of passive income for most creators.”

Why Are Royalties Such a Big Deal?

NFT royalties are a mechanism designed to support creators. Traditionally, when an NFT is resold on the secondary market, the original creator is supposed to receive a percentage of the sale price – this is the royalty. It’s intended to be a source of ongoing income for artists and creators, incentivizing them to contribute to the NFT space. These royalties are typically embedded in the NFT’s smart contract.

However, the crucial point is that on-chain enforcement of these royalties is not currently standard practice. Marketplaces have found ways to bypass these fees, leading to the current situation where optional royalties are becoming more common.

LooksRare’s New Approach: Protocol Fee Sharing

Instead of mandatory royalties, LooksRare is proposing a different model. They will give creators 25% of their 2% protocol fees. Let’s break down what this means:

• Protocol Fees: LooksRare charges a 2% fee on every transaction on their marketplace.
• Creator Share: Creators can now receive 25% of these protocol fees from sales of their collections.

This is presented as a way for creators to still benefit from sales on LooksRare, even without enforced royalties. But is it enough? Let’s consider the potential pros and cons.

Optional Royalties: Benefits and Challenges

The shift towards optional royalties is a complex issue with both potential benefits and significant challenges.

Potential Benefits:

• Lower Trading Costs: Optional royalties can lead to lower overall costs for NFT traders, potentially making marketplaces more attractive for buying and selling.
• Increased Trading Volume (Potentially): Lower costs might encourage more trading activity, which could benefit marketplaces in terms of overall revenue (even if creator royalties are reduced).
• Marketplace Competitiveness: In a competitive landscape, offering optional royalties can be a way for marketplaces to attract users and gain market share.

Significant Challenges:

• Reduced Creator Income: The most significant challenge is the potential decrease in income for NFT creators. Royalties are a vital source of revenue for many artists, especially in the Web3 space where traditional income streams can be less accessible.
• Sustainability of the Creator Economy: If royalties become optional and are widely disregarded, it could undermine the creator economy within the NFT space. Will creators be incentivized to continue creating if their passive income is significantly reduced?
• Devaluation of NFTs?: Some argue that optional royalties could devalue NFTs in the long run. If creators are not consistently compensated for secondary sales, the perceived value and long-term investment potential of NFTs might be affected.
• Ethical Concerns: Many in the NFT community believe that paying creator royalties is an ethical imperative, recognizing the value and effort creators put into their work. Making them optional raises ethical questions about fair compensation.

Magic Eden and the Trend

LooksRare isn’t the first major marketplace to make this move. Magic Eden, a prominent NFT marketplace on Solana, switched to optional royalties in mid-October. This decision led to a significant drop in royalty payments on Solana, with the vast majority of sales no longer including creator royalties. Magic Eden cited similar reasons to LooksRare – the competitive pressure from marketplaces with optional or zero royalties.

The Bigger Picture: A Struggle for Profitability?

This trend towards optional royalties reflects a broader struggle for profitability within the NFT marketplace sector. The NFT market has seen a significant downturn in recent months. October’s NFT sales are projected to decline for the sixth month in a row. Secondary sales in September were down approximately 90% from the peak in January. In this challenging environment, marketplaces are looking for ways to attract users and maintain their business, and optional royalties appear to be one tactic being employed.

What Does This Mean for the Future of NFTs?

The move towards optional royalties is a contentious issue within the NFT space. Some believe it’s a necessary adaptation to market conditions, while others see it as a detrimental step that could harm creators and the long-term health of the NFT ecosystem.

Here are some key questions to consider moving forward:

• Will optional royalties become the norm? If major marketplaces continue down this path, it could become the industry standard.
• How will creators adapt? Will they need to find alternative income streams, explore different NFT models, or push for on-chain royalty enforcement solutions?
• What will be the impact on innovation in the NFT space? Will reduced creator incentives stifle creativity and innovation in the long run?
• Can a balance be found? Is there a middle ground that can support both marketplace competitiveness and fair creator compensation? Perhaps innovative royalty models or community-driven solutions will emerge.

Conclusion: Navigating the Shifting Sands of NFT Royalties

LooksRare’s decision to make creator royalties optional marks another significant turning point in the NFT landscape. While it might offer short-term benefits for traders and marketplace competitiveness, the long-term implications for creators and the overall NFT ecosystem are still uncertain. The debate around NFT royalties is far from over, and the coming months will be crucial in determining how this trend shapes the future of digital ownership and the creator economy in the Web3 world. It’s a space to watch closely as the NFT market continues to evolve and seek a sustainable path forward.