Taking royalties as a knife, the NFT trading market is about to change

Written by: 0xLaughing, Rhythm BlockBeats

X2Y2 about Custom Royalty Tweet

On August 26, the NFT trading platform X2Y2 released Wen announced the launch of the "Custom Royalty" feature, which will allow buyers to choose the royalty they want to pay for their contribution to the NFT project (100%, 50% or 0% of the corresponding ratio), when Choosing to pay 50% and 0% will return some of the royalties (these royalties were originally paid to the project party or creator) to the buyer.

As soon as the news came out, there was a heated discussion: Some people criticized and opposed the cancellation of X2Y2 and sudoswap The behavior of royalties believes that this is an infringement of the copyright and copyright of creators and artists, and at the same time will seriously affect the capital flow of NFT project parties, and subsequent development may be unsustainable; supporters believe that royalties are "robbed" and should belong to NFT traders. The profit is an additional and unnecessary expense. At the same time, the royalties should not be paid to those "soft rug" project parties. If you "do nothing", you should not continue to enjoy the royalties.

Suddenly, the "creator economy" that originally created a win-win situation has become a life and death zero and game. Looking back carefully, you will find that the NFT trading market has long since changed from a blue ocean gold rush to a red ocean fight.

This article will start from the difference in royalty payments, changes in the NFT trading market, The incident is explained in detail from the perspectives of the opposing side and subsequent solutions.

How are royalties paid in reality and in the blockchain?

From the real world to the copyright of the blockchain

According to Wikipedia, royalties, also known as copyright royalties, are the fees charged by the original creator or copyright holder of intellectual property rights to others who use their intellectual property rights Monetary benefits. Those who use intellectual property rights such as copyrights, licenses, copyrights, trademarks, patents, etc. may be required to pay royalties. Generally speaking, in order to obtain the right to reproduce or perform a work, a payment is made to the inventor or creator of the work as a royalty.

Christie’s auction house has clear regulations on resale rights

In China's current "Copyright Law" and in the relevant provisions of foreign artists' resale rights/resale rights, there are regulations on providing royalties to the original author/artist after resale. For example, Christie's Regulations clearly state that the seller and its agent (auction house) shall bear the royalties jointly and severally. collection agency.

It can be seen that for the resale of works of art, the payment of royalties has always been due meaning. However, due to the characteristics of traditional artworks in reality, such as the difficulty of distinguishing the authenticity of the works, the different laws of different countries, the difficulty of tracing the source, and the low transparency of information, it has always been difficult to implement the collection of royalties.

When art enters the blockchain and encrypted art is presented in the form of NFT, it is very easy Solve these problems well:

The non-tamperable modification of the blockchain and the transparency on the chain ensure the asset confirmation and security of the encrypted art carried by NFT. Traceable source, authenticity can be distinguished.

"Code is Law", the smart contract ensures that the royalties can be distributed to the original creator/artist/project party in a simpler and more convenient way.

This is a historical subversion of the traditional art field.

Changes in NFT trading market royalties

Trading platform as a third party Responsible for transferring royalties to creators/project parties

Buying and selling on mainstream NFT trading platforms An NFT usually has two "extra" fees, transaction fees and royalties, both of which are paid by the seller. The transaction fee is collected by the NFT trading platform, and the royalties are collected by the NFT project party/creator.

This section takes an NFT transaction process as an example to describe the "Cancellation of Royalty" event It mainly involves the trading process on the three NFT trading platforms of OpenSea, sudoswap, and X2Y2.

(For ease of calculation, assume that the selling price of this NFT is 100E, the royalty is 5%, and the transaction fees of the three NFT trading platforms are 2.5%, 0.5%, 0.5%)

OpenSea (transaction fee 2.5%, royalties from NFT project party/creator settings)

1. Sellers pending orders The selling price is 100E, and the buyer pays 100E

2. OpenSea’s transaction fee is 100*2.5%=2.5E, and the NFT project party charges a royalty of 100*5%=5E

3 .The seller finally received 92.5E, and the buyer finally paid 100E

sudoswap (transaction The handling fee is 0.5%, which bypasses the setting of NFT project parties/creators charging royalties)

1. The price of the seller’s pending order is 100E, and the buyer pays 100E

2. The sudoswap transaction fee is 100*0.5%=0.5E, no royalty

3. The seller finally receives 99.5E, and the buyer finally pays 100E

X2Y2 (The transaction fee is 0.5%, and the royalty is changed from the NFT project party/creator's setting to the buyer's decision whether to pay)

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1. The selling price of the seller's pending order is 100E, and the buyer pays 100E

2. The X2Y2 transaction fee is 100*0.5%=0.5E. If the buyer chooses not to pay the royalties, they will receive a royalties refund of 100*5%=5E

3. The seller finally receives 94.5E, and the buyer finally pays 95E

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Sudoswap and X2Y2 successively canceled royalties. What is the underlying reason?

sudoswap: With OTC market genes, minimizing slippage is the smooth operation of the sudoAMM mechanism

Previously published in NFT's AMM made sudoswap" introduced the former OTC predecessor of sudoswap and the current sudoAMM mechanism in detail.

sudoswap was originally created by 0xmons released OTC in April 2021, it supports ERC20, ERC721 , ERC1155 and other tokens can be traded in any combination. Users can customize the order expiration time and designate any or specific buyers for transactions. In addition, there are no transaction fees and royalties for transactions through sudoswap.

As an NFT over-the-counter trading market, it is a niche market, and most traders After negotiating the price, sudoswap was chosen in order to prevent one of the buyers and sellers from going back on their word to ensure that the transaction is safe. Before the official launch of sudoAMM, its trading volume and daily active people were almost negligible compared to trading platforms such as OpenSea.

The emergence of sudoAMM has changed the situation of the NFT market. sudoAMM is a centralized liquidity AMM similar to uniswap v3. Liquidity providers can freely choose a price range to provide liquidity, which improves capital efficiency. At the same time, the bonding curve (linear and exponential) is used to facilitate the transaction of NFT, and the automatic adjustment of the quotations of buyers and sellers improves the flexibility of traders and liquidity providers.

sudoAMM allows NFT transactions to have higher matching efficiency and better price discovery, The realization of low-slippage transactions is achieved by extremely low transaction fees and sacrificing royalties.

sudoswap improves transaction matching efficiency by reducing slippage

Take the above picture as an example, assuming that the fair value of an NFT series is 100E, the acceptable slippage fluctuation for both buyers and sellers is 1%, and the royalty is 5%. At this time, the buyer wants to buy at a price of around 100E, and the seller also hopes to receive the full payment of 100E after the sale. Therefore, the buyer will set the Offer at 99E~101E, while the seller will set the selling price at 104E~106E, and the matching efficiency is very low.

When the royalties are cancelled, this slippage is reduced, and the flow of buyers and sellers It is easier to achieve matching within the respective upper and lower threshold ranges, which improves the matching efficiency.

Summary:

Sudoswap was formerly an over-the-counter trading market, and later became an NFT trading platform, because it Compared with the entire NFT trading platform, the market size of NFT is very small, so the issue of canceling royalties has not been paid much attention. Now, as a potential strong competitor of the new NFT trading platform and the initiator of the “cancellation of royalties”, this issue has to be brought to the table.

As for its sudoAMM transaction mechanism, in order to maximize its ability to match transactions Efficiency requires minimizing slippage (composed of transaction fees and royalties) as much as possible. Transaction fees are already very low (only 0.5%), so compressing or canceling the royalty ratio is a necessary condition for the smooth operation of this system.

X2Y2: There was an NFT aggregator in the past, but now the advantages are lost

NFT transaction aggregators such as Genie and Gem are solutions for NFT liquidity Emerging, they can aggregate data from multiple NFT trading markets, and are committed to solving the problem of incompatibility of pending order data between platforms, which optimizes the user's trading experience.

Before thisbrand effect has always been the best solution for NFT liquidity , that is, OpenSea, as the NFT trading platform with the largest trading volume, has a very obvious first-mover advantage. Even though it has the highest handling fee, it is still the first choice for users when trading NFT. Even if platforms such as LooksRare and X2Y2 use token subsidies and low transaction fees to motivate users to trade, the "vampire attack" has little effect.

Current sources of X2Y2 trading users (source: nansen)

The emergence of the variable NFT transaction aggregator has allowed X2Y2 to "borrow Dongfeng". According to  nansen data, most of the current X2Y2 user transactions come from NFT aggregation Device Gem, which shows the close connection between the two.

Later, OpenSea directly acquired Gem, the largest NFT trading platform and the largest NFT aggregator Forming an offensive and defensive alliance has carried out the Matthew effect to the extreme. However, no other strategic adjustments were made after the acquisition. Gem’s operations remained relatively independent. OpenSea did not “harm” NFT trading platforms such as X2Y2 due to competition, and each maintained a “peaceful development” route.

sudoswap trading volume continues to rise

However, in July, sudoswap With the original sudoAMM, it was born, featuring low transaction fees (0.5%, the same as X2Y2) + zero royalties, and a unique automatic market maker system for NFT.

In less than two months, the performance is amazing: according to  Dune data shows that the total transaction volume of sudoswap has exceeded 27 million US dollars, and the number of daily active users (addresses) once exceeded 1,900. Over 110,000 NFTs were traded.

Most of the low price pending orders on Gem come from sudoswap

However, the expansion of sudoswap has not stopped. According to relevant reports, in the early morning of August 26, someone discovered that sudoswap has been integrated To NFT Aggregator Platform Gem.

Although the integrated Gem of this function has been "vaccinated" in advance, the pending order chart shown in reality is far more impactful than imagined: many The floor prices of NFT collections are all on sudoswap, and blue-chip projects such as Azuki and Penguin are no exception.

The floor price was "captured", and the growth rate of users and transaction volume of sudoswap has not yet been seen signs of slowing down; new NFT exchanges such as Element are recruiting, zero transaction fees, while integrating trading platforms and aggregators. They will further expand their popularity with the passage of time and the development of the project. The advantages accumulated by the long-term token incentives and low-price incentives in the early stage of X2Y2 will disappear instantly. If no adjustments are made or there are better solutions It should only be a matter of time before the original market share is eroded and swallowed.

< blockquote style="text-align: center;">According to  Dune data, the sudoswap market The transaction volume is rapidly catching up with X2Y2

The cliff has appeared, in this market environment, At noon on August 26, X2Y2 announced the launch of the "Custom Royalty" function mentioned above.

Summary:

X2Y2 has taken advantage of the development of NFT aggregators to obtain a certain amount of recognition by virtue of low transaction fees and good interactive experience. market share. And sudoswap, a "new variable" that does not follow common sense, broke the original "old pattern", and its rapid development directly threatened the survival of X2Y2. In order to survive in this Red Sea battle, X2Y2 chose to play this card of "infringement of creator's rights".

"Win-win co-creation" has become a "zero-sum game", has the creator economy lost?

After sudoswap, X2Y2 and other NFT trading platforms announced the cancellation of the royalty mechanism, seems There is an "NFT Impossible Trinity": the profit of NFT speculators, the profit of NFT trading platforms, and the continuous incentives of creators/project parties. The three can only satisfy two of them at the same time. This may make the entire NFT ecosystem develop in a different direction.

"soft rug" chills investors, "one size fits all" may make follow-up operations useless

The term "soft rug" is often used to describe those who abandon construction projects after release And the NFT project side of the community, "doing nothing" and still enjoying the royalty dividend has caused dissatisfaction in the community. The community and the project side distrust each other and stand on the opposite side. Many voices supporting the "cancellation of royalties" come from here.

However, it is now a bear market in the NFT market, and the overall macro environment is not optimistic , "floor price drop" and "not pulling the market" are also regarded as the performance of "doing nothing". At the same time, many projects are committed to developing projects with a long period of time. The pace of the encrypted world is fast. Once the progress of the project is slower than the holder's expectation, it will be defined as "doing nothing". When the holder makes a profit, he is more tolerant of the royalties, and regards the royalties as part of the cost; when the holders lose money, the psychology of seeking benefits and avoiding disadvantages will want to minimize losses, and then the royalties are assimilated into a part of the loss.

Yuga Labs founder Wiley Aronow once said bluntly on the Full Send podcast: "We never look at the floor price, I don't care, the only thing I care about is the number of wallet holders, which is why each founder only has one boring ape."

Pessimistically speaking, the main goal of some players in the NFT market is not to support their favorite These traders hope to surf and speculate in the NFT dividend tide, earn a living to improve their lives, and leave with a purse when the tide recedes. It is understandable that they want to maximize the profit/minimize the loss of each transaction. The floor price is also very important for investors. For projects that are still under construction, please give them more time. If you support"Cancellation of Royalty", choose "one size fits all" for all NFT projects, resulting in a cut-off of funds and unsustainable follow-up development, then a win-win situation will be created The creator economy will be ruined.

The creator is the source of NFT

A number of artists objected to the "Cancellation Royalty”

The “elimination of royalties” violates the legal rights of creators and artists, and the payment of royalties has always been due. A number of artists have spoken out about this, and encrypted KOL Pranksy bluntly stated in response to X2Y2’s official announcement of “custom royalties”: “You have not considered the creators and projects that you should be grateful for and live on.”

In the NFT world built on the basis of encrypted art, creators are the source of life. In order to survive the fight in the Red Sea, the NFT trading platform chose to infringe on the copyright of creators. Discourage the enthusiasm of artists to create and project operations, and the win-win and co-creation efforts of the community and creators may be ruined.

The "NFT Impossible Triangle" is actually solvable, which requires the holder, The community, project parties, and even the NFT ecology can work together towards the co-creation vision of Web3, but the bear market in the encrypted world, the unknown road ahead, and the blockers who incite "zero-sum games" have added some difficulty to it.

In response to the crisis of "cancellation of royalties", what solutions do creators/NFT project parties have?

The royalty payment of NFT on the Ethereum network is not executed in its supporting smart contract, It is implemented at the trading market level, that is, calling the interface of the NFT trading platform, and the trading platform is responsible for forwarding the royalties collected from buyers and sellers, and then distributing them to creators/project parties. This is why changing royalties can be accepted by the NFT trading platform. "s reason.

There are some solutions to the crisis of "cancellation of royalties":

1. Creators/projects can prohibit their own NFT series from being listed on those zero-royalty trading platforms

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Create a whitelist of tradable NFT markets

Azuki's official team developer cygaar released Tweet said: It is possible to change the NFT smart contract, establish a whitelist of tradable NFT markets, or directly prohibit its NFT collections from placing orders on those NFT trading markets that support zero royalties.

2. Launch your own NFT trading market

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  Truth Labs will launch its own NFT trading market  

goblintown.wtf development company Truth Labs co-founder Alexander Taub on his social platform announced that an NFT trading market will be launched in a few weeks. Its ecological projects goblintown.wtf, The 187, SecretSocietyJHB, grumpls, burgers, etc. will be listed on the market for trading. The royalty for all NFT collections in this marketplace is set at 5%, with no platform fees.

3. Adopt an NFT smart contract similar to EIP-2981 with built-in payment of creator royalties Standard

EIP-2981: NFT Royalty Standards

EIP-2981  is an NFT royalty smart contract standard, which was jointly proposed by Zach Burks, James Morgan, Blaine Malone, and James Seibel in September 2020. EIP-2981 allows asset contracts (such as NFTs that support ERC-721 and ERC-1155 interfaces) to send NFT creators or rights holders a certain percentage of royalty amounts to be paid each time an NFT is sold or resold.

EIP-2981 implements standardized royalty information retrieval and is a "global ", "cross-market", "backward compatible""on-chain royalty" agreement. NFTs using EIP-2981 will enable accurate royalty payments no matter which marketplace they are sold or resold on. But it also has some problems: For example, only some mainstream NFT trading markets (such as LooksRare, Coinbase NFT) currently support this contract standard, while OpenSea, X2Y2, etc. do not support it for the time being.

4. Function and rights sanction

  Coniun announced the "Cancellation of royalties" counterattack  

At noon on August 27th, Coniun released tweets announced its sanctions against those NFT trading markets that support zero-royalty: delete links to zero-royalty-related trading platforms within the Coniun platform, cancel project offerings on X2Y2, revoke  justaped.in  is a service provided by X2Y2, and the platform functions of NFT PASS purchased without paying royalties will be banned unless the copyright fee is paid . For the NFT trading platform that canceled royalties, Coniun blew the horn of counterattack with practical actions.

Conclusion

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The farce of "cancellation of royalties" is an unexpected result of the NFT trading platform fighting in the Red Sea in the bear market environment. Sudoswap, the instigator, acted as a shield before. When low prices and subsidies cannot become a moat, Facing the crisis of survival, X2Y2 chose to sacrifice the creators who are the source of living water, in the name of "punishing soft rug" reform, to harm the reality of NFT ecology, the logic of which is not self-consistent.

X2Y2 can be called "be prepared for danger in times of peace", but I believe it is contrary to the spirit of Web3 and does not respect Creators and artists, unjust teachers with eyes full of interests will eventually fail.

< p>In the historical torrent of "creator economy", some people join in the introversion and add fuel to the fire of "bad money driving out good money", while some choose to work quietly to make the cake bigger, focusing on long-term effectiveness and the future of the brand. This is a consensus hard fork of speculators and idealists, and the road to Web3 utopia will be long and difficult.

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