Another NFT Marketplace Goes Zero Royalties in 'Race to the Bottom'
Another domino has fallen amid the rising trend of NFT marketplaces bowing out of enforcing creator royalties, with Ethereum marketplace LooksRare announcing today that it will no longer require traders to pay these fees on transactions.
LooksRare wrote in a blog post that it will “no longer support creator royalties by default” when traders sell NFTs, it will instead allow buyers to “opt-in to pay optional royalties.” That’s a similar approach to what Solana NFT marketplace Magic Eden did when it announced its own move to make creator royalties optional earlier this month.
LooksRare also said, however, that it will direct 25% of its protocol fee—the fee that it charges sellers to transact their NFTs—to creators. LooksRare charges a 2% total fee on the sale price, which means that 0.5% of the sale price will now be directed to creators in place of their respective royalty rates.
🧵 Starting today, #LooksRare will no longer support creator royalties by default, and instead, share 25% of the LooksRare Protocol fee with creators/collection owners.— LooksRare (@LooksRare) October 27, 2022
Many NFT creators set a royalty that sees a small amount of any secondary sale—typically between 5% and 10% of the price—automatically sent to the original artist or creator by the marketplace in question. However, these royalties are not fully enforceable on-chain using current NFT standards, creating loopholes that some marketplaces have used to lure traders.
On Ethereum, marketplaces like Sudoswap and X2Y2 have either eliminated or made creator royalties optional in recent months amid the ongoing crypto and NFT bear market.
The effect has been more pronounced on Solana, where leading marketplace Magic Eden—which has about a 90% market share within the Solana network—caved and followed suit after other marketplaces did the same. Many of these moves have just come in the recent weeks, although many NFT artists and creators have pushed back against the “race to the bottom” to reject royalties.
“The growth of zero-royalty marketplaces has eroded the general willingness to pay royalties throughout the NFT space,” LooksRare wrote in an announcement today. “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.”
Along with stripping out required creator royalties and giving creators a share of protocol fees, LooksRare has also shifted its overall trading rewards model to primarily benefit NFT sellers on the platform. Now, 95% of token rewards generated via trading will go towards sellers with 5% going to buyers, in an effort to reduce net trading fees for sellers.
LooksRare launched in January and made a big splash with a rewards model that gives users its LOOKS token and ETH for trading and using the platform. The marketplace racked up billions of dollars’ worth of Ethereum NFT trading volume—but it quickly became clear that users were manipulating sales through a process called wash trading.
In the NFT space, wash trading occurs when users sell NFTs at artificially inflated prices back and forth between their own controlled wallets, typically in an effort to either manipulate rewards models or raise the visibility of a certain project. Similar token-gaming schemes have unfolded on marketplace X2Y2 since its own launch earlier this year.
In late January, NFT analytics platform CryptoSlam reported that about 87% of LooksRare’s trading volume to that point—over $8.3 billion worth—appeared to be due to wash trading.
LooksRare has lost significant traction over the course of the year as newer marketplaces with their own reward models, like X2Y2 and Blur, have launched. With wash trades excluded, DappRadar reports that LooksRare has handled less than $11 million worth of legitimate Ethereum NFT trades over the last 30 days.
OpenSea, the leading NFT marketplace across all blockchains measured by trading volume, still honors creator royalties. It has generated $316 million in NFT trades over the last 30 days, per data from DappRadar.Source