Digital collectible creators, including Yuga Labs Inc. (known for Bored Ape Yacht Club and CryptoPunks NFTs) and LSLTTT Holdings Inc. (maker of Pudgy Penguins), are taking a stand against prominent NFT exchanges, Blur and OpenSea. The protest is in response to a significant reduction in royalties on these platforms, which has impacted creators' earnings.

Royalty Slump: A Reversal from NFT Market Highs

In an attempt to stimulate trading amid a decline in NFT prices and activity after the pandemic-induced surge, popular NFT platforms Blur and OpenSea lowered the royalty rates for token transactions.

Comparing September royalties of $2.4 million to the peak of $269 million in January 2022, the decline is evident. Monthly trading volumes, once at a record $17 billion, have drastically decreased, as per Token Terminal figures.

Yuga Labs Takes a Stand

Yuga Labs has responded by blocking the trading of its latest project, Mara, on Blur and OpenSea. The company declared that only exchanges respecting royalties would be allowed to list their NFTs. This move follows recent layoffs within the company due to challenging market conditions.

Pudgy Penguins CEO, Luca Netz, echoed the sentiment, stating, “There’s a coup going on in the marketplace business.” Netz intends to either establish his own exchange or collaborate with platforms that uphold proper royalties, indicating a growing discontent among NFT creators.

Blur’s Low-Fee Model Sparks Controversy

Blur, launched a year ago with a low-fee model, quickly surpassed OpenSea, prompting the latter to adopt a similar approach. With a minimum royalty rate of 0.5%, Blur and OpenSea combined account for about 70% of NFT volumes, according to Token Terminal data. This low-fee model has been criticised for incentivizing trading while diminishing artists' income.

Royalties in NFT trading serve as a crucial source of passive income for creators. However, the reduction in these payments by major platforms has sparked a conflict between sustaining market activity and supporting the livelihoods of NFT artists.

Netz emphasised the need for a visionary approach from marketplaces, stating, “NFT designers must deliver good collections, but from a marketplace standpoint somebody needs to come in with a vision.” Pudgy Penguins has diversified into merchandising, generating $7 million in product sales compared to $300,000 in NFT royalties this year.

The rift between NFT developers and major trading platforms is fueling speculation about the end of the market's golden era, characterised by high-profile sales like Beeple's $69.3 million Everydays NFT in 2021.

Boycotts and Challenges to Dominant Platforms

The resistance against royalty reductions and fees has led to discussions around the viability of boycott strategies for NFT projects. While some creators are considering creating their own marketplaces, the dominance of Blur and OpenSea in trading and liquidity poses a significant challenge.

Ally Zach, a research analyst at Messari, notes, “Users are increasingly resistant to paying royalties, and fees in general,” highlighting the uncertainty surrounding the long-term viability of boycott strategies.

Yuga Labs’ decision to trade its collections exclusively on royalty-enforced marketplaces and Pudgy Penguins’ contemplation of establishing their exchange reflect concrete actions by creators to address their concerns. The debate over royalties is emblematic of a broader struggle between decentralisation and the dominant roles played by Blur and OpenSea.

Royalty Reductions and Decentralisation Dilemma

Jake Brukhman, CEO of Coinfund LLC, expressed concerns, stating, “We’re kind of failing in a core area of blockchain because blockchains were meant to democratise these things,” pointing out the contradiction between the central role played by major platforms and the ethos of decentralisation inherent in blockchain technology.

Yuga Labs' Mara Collection Limited to Royalty-Enforced Platforms

In a specific move, Yuga Labs restricted the trading of its Mara collection on platforms like Blur and OpenSea, emphasising that only royalty-enforced marketplaces, such as SudoSwap V2 and X2Y2 decentralised marketplaces, would be eligible.

Blur and OpenSea continue to face pressure to balance trading costs, even as resistance to royalties grows. The tension between sustaining market activity and adhering to decentralised principles underscores the challenges faced by major NFT platforms in navigating the evolving landscape.