One of Solana’s most prominent NFT marketplace Magic Eden has announced its plans to switch to a no-fee model following the likes of X2Y2, Solanart, Hadeswap, and Yawww. The marketplace made this announcement in a Twitter thread on Friday night, and it has since taken effect.
This move comes following data compiled by the NFT marketplace, and Data Aggregator Tiexo revealed that Magic Eden’s Solana market share had declined recently.
What Are Optional Royalties?
The optional royalty model means that NFT collectors can decide whether or not they want to make royalty payments. Magic Eden will list all collections with their full royalties by default. Therefore, traders will make the full royalty payment except if they opt not to do so by changing the settings on the royalty section.
Royalty fees are a percentage of the sale price NFT creators receive whenever their creation is resold on NFT marketplaces. Furthermore, an NFT collector may not be able to receive the benefits that creators provide if they decide not to pay the royalty fee.
On the other hand, the sellers would get the exact amount they list the NFT at, and the proceeds will go into their wallets.
This controversial move by Magic Eden is aimed at attracting more NFT traders to the platform but at the expense of NFT creators who make a livelihood from these royalty payments.
According to them, they are simply adapting to the trend as the market has shifted towards optional creator royalties. “We have been actively trying to avoid this outcome and spent the last few weeks exploring different alternatives. Unfortunately, royalties are not enforceable on a protocol level, so we have had to adapt to shifting market dynamics.” The company’s tweet read.
Magic Eden further hinted in the Twitter thread that this move might not be permanent as the company looks to test the waters; “We hope that this decision is not permanent,” Magic Eden said in the announcement.
Magic Eden Launches Hackathon to Compensate Creators
To “support” NFT creators, the NFT marketplace has also launched a $1M Creator Monetization Hackathon. Through this, the company will work with creators and ecosystem partners who want to develop solutions for royalty enforcement and alternative business models.
Magic Eden is also waiving its 2% platform fee as a show of goodwill. They will not be making any percentage from any NFT sale on the platform for the foreseeable future.
They further reiterated that they hope this decision is not permanent. “Again, we hope that this decision is not permanent.” The last part of the Twitter thread read.
What Optional Royalties Mean For The NFT Space
An optional royalty model puts the will of NFT traders above the creators, and one could argue that it is unfair to project founders who put in much work to bring these projects to life. Besides, creatives earn royalties for their efforts in real life, so why should it be different in the Metaverse?
What does this mean for the NFT space? Is there a silver lining? How would NFT creators react to this move? One thing is for sure; This controversial trend could have significant consequences. Below are some possible effects:
More Traders, Less Creators
Magic Eden and other NFT marketplaces that have adopted an Optional Royalty Model have one goal: To attract more NFT traders. But this decision comes at a price; NFT creators will begin to blacklist these marketplaces, and traders won’t be able to list or sell some collections on the blacklisted marketplaces.
NFT marketplaces adopting an Optional Royalty Model have shown the importance of NFT traders to the ecosystem, but it seems they fail to realize the role creators play in all of this. It is like a love triangle! Without the creators, there are no digital assets to trade in the first place, and if there are no NFTs to sell, what is the whole point of ‘Market’ in ‘Marketplace’?
This bold move by Magic Eden and other marketplaces that have adopted an Optional Royalty Model could end up biting them where it hurts most. Only time will tell.
No Royalty = More Innovation?
With an Optional Royalty Model, project founders would have to devise new means to generate revenue. Likewise, marketplaces like Magic Eden need to develop alternative monetization models if they plan to waive their platform fees forever.
The web 3 space is all about innovations, and it would be nice to see what founders and marketplaces come up with. The Hackathon idea by Magic Eden could bring about alternative revenue models like collection advertisements, NFT rentals, and other unique ideas.
Furthermore, this could ironically bring more liquidity into the NFT space as project founders would look to external sources for investment and also develop a business model that is more sustainable than what we have now. Project founders will begin to look beyond seeing their NFT project as a get-rich-quick scheme and more as a business that could go public someday.
Rug Pulls Could Reduce
Regarding get-rich-quick schemes, rug pulls could reduce to an extent since NFT creators are no longer motivated by the royalties made from resales. An optional royalty model can weed out NFT creators whose sole aim is to cash grab and make a fortune quickly from mints and royalties.
No royalties takes out the most popular income stream for these NFT projects, forcing them to be a real business providing real value in the space. Royalties have been thought of as a big part of incentives for the team behind the project, but removing the simplest form of income might just put enough pressure on creators to build real businesses.
Stronger NFT Communities
NFT founders and creators that continue to build, irrespective of whether or not they make royalties from their creation, could bring about stronger communities for these projects. NFT collectors are more likely to invest and have faith in NFT projects that have proven that they are in it for the long run and intend to provide as much utility as possible for community members.
Stronger NFT communities could lead to a new narrative where NFT traders turn a new leaf and become HODLers rather than flipping these Jpegs for quick cash.
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