alt: a couple of people that are standing in front of a store
title: NFT resale royalties backlash

Discover how OpenSea’s shift from mandatory royalties to an at-will tipping model is affecting NFT artists and sparking industry-wide responses.

Introduction

The Non-Fungible Token (NFT) landscape has experienced significant shifts recently, with one of the most notable changes coming from OpenSea, the largest NFT marketplace. In August 2023, OpenSea announced the suspension of its mandatory artist resale royalties, replacing them with an optional tipping system. This decision has ignited a substantial backlash within the NFT community, raising concerns about the future of artist compensation and the overall integrity of NFT marketplaces.

The Change in OpenSea’s Royalty Policy

OpenSea’s original policy mandated that a percentage of every resale transaction be paid to the original creator. This model ensured that artists continuously benefited from the increasing value of their work, fostering a sustainable income stream. However, starting March 2024, OpenSea will allow sellers to voluntarily tip artists instead of enforcing these royalties. The platform’s Operator Filter, which enabled users to set their desired royalty percentages, will be phased out by August 31, 2023.

This shift aligns with broader industry trends towards cost-cutting measures amid a declining NFT market. The rapid decline follows the peak of Web3’s booming popularity in 2021, leading marketplaces like OpenSea to reassess their business models and operational expenses.

Industry Reactions and Backlash

OpenSea’s policy change has not gone unnoticed in the NFT community. Influential figures and major NFT projects have voiced their disapproval:

Mark Cuban, a prominent investor, criticized OpenSea’s decision as a “HUGE mistake” that undermines trust in the platform and negatively impacts the industry.
Yuga Labs, the creators behind renowned NFT collections like Bored Ape Yacht Club and Cryptopunks, announced plans to phase out their projects on OpenSea starting February 2024. Daniel Alegre, Yuga Labs’ CEO, emphasized the importance of protecting creator royalties to ensure artists are adequately compensated for their work.
Betty, founder of the DeadFellaz NFT project, called for an industry-wide boycott of OpenSea on social media, accusing the platform of contributing to systemic problems by abandoning its commitment to artist royalties.

These responses highlight the deep-seated concerns within the community about the diminishing support for creators and the potential long-term repercussions for the NFT ecosystem.

Impact on NFT Artists

The removal of mandatory royalties poses significant challenges for NFT artists:

Reduced Income Stability: Artists previously relied on a steady stream of royalties from secondary sales to sustain their creative endeavors. The optional tipping model introduces uncertainty, potentially decreasing their overall earnings.
Erosion of Trust: Mandatory royalties were a foundational promise of NFT marketplaces, ensuring that creators remained beneficiaries as their works appreciated in value. OpenSea’s policy shift may lead to distrust among artists, prompting them to seek more reliable platforms.
Market Dynamics: With platforms like Blur maintaining mandatory royalties, OpenSea’s competitors may become more attractive to artists seeking assurance of ongoing compensation.

Comparison with Other NFT Marketplaces

While OpenSea has opted to eliminate mandatory royalties, other marketplaces continue to uphold this commitment:

Blur: Currently the biggest NFT marketplace by volume, Blur enforces a minimum 0.5% royalty fee on most collections, ensuring that artists receive a portion of resale profits.
Rarible and Nifty Gateway: These platforms also support creator royalties, maintaining the traditional model that benefits artists over multiple sales cycles.

In contrast, OpenSea’s move may position other marketplaces as more artist-friendly alternatives, potentially redistributing the NFT market once dominated by OpenSea.

Coda: A New Solution for Artist Compensation

In light of the evolving NFT marketplace dynamics, platforms like Coda are emerging as innovative solutions to address the challenges faced by artists. Coda specializes in the tokenization, sale, and exchange of intellectual property (IP) rights, particularly in the music industry. Here’s how Coda stands out:

1. Fractional Ownership and Royalty Rights Tokens™

Coda allows artists to tokenize their works, enabling fractional ownership. Supporters can invest in these tokens, providing artists with immediate funds while sharing in the profits generated from their creations through automated royalty distributions via smart contracts.

2. Zero Upfront Costs for Artists

Unlike traditional platforms that may require financial barriers, Coda offers a cost-free entry for artists to tokenize their IP rights. This democratizes access, allowing more creators to participate without the burden of initial expenses.

3. Enhanced Transparency and Security

Utilizing blockchain technology ensures transparent and secure transactions. Smart contracts facilitate trustless interactions, reducing the complexity associated with managing IP rights and ensuring that artists are fairly compensated.

4. Community Engagement and Artist Discovery

Coda fosters a supportive environment where artists and supporters can engage directly. This promotes community building and enhances the discovery of emerging talents, aligning with the broader goals of maintaining sustainable artist compensation.

The Future of NFT Royalties

OpenSea’s policy change marks a pivotal moment for the NFT industry. As platforms reassess their royalty structures, the emphasis is shifting towards more flexible and sustainable models that prioritize artist compensation without compromising platform viability. Solutions like Coda demonstrate the potential for innovative platforms to fill the gaps left by traditional marketplaces, offering artists more control and assurance over their revenue streams.

Emerging Trends:

Decentralized Finance (DeFi): Integration of DeFi principles to create more resilient economic models for creators.
Regulatory Clarity: As tokenization of IP rights gains traction, clearer regulations will support the growth and adoption of platforms like Coda.
Collaborative Investments: Increased opportunities for fans and investors to co-own and profit from creative works, fostering a more inclusive and participatory ecosystem.

Conclusion

OpenSea’s decision to abandon mandatory royalties has sparked significant concern among NFT artists and industry stakeholders. While this move reflects broader economic pressures within the NFT market, it underscores the urgent need for platforms that prioritize fair and sustainable artist compensation. Emerging platforms like Coda offer promising alternatives, leveraging blockchain technology to ensure transparency, security, and equitable revenue distribution. As the NFT landscape continues to evolve, the emphasis on supporting creators will be crucial in maintaining the integrity and growth of the digital art ecosystem.

Ready to support artists and explore innovative IP rights management? Discover Coda today.