Is OpenSea a Criminal Enterprise?

Royalty-stiffing is a form of art theft that threatens the health and reputation of the entire Web3 space. Prove me wrong.

Sorry to offer a bit of righteous anger this week. I was prepared to release another post about the exciting potential for art and technology to combine, but my phone buzzed itself and myself out of our respective sleep modes this morning with news that a multibillion-dollar company, to preserve its market share, would be taking money from creators’ pockets and food from the mouths of our children.

From NFT Now:

Today (Feburary 17, 2023), the world’s largest NFT marketplace, OpenSea, made major waves throughout Web3. Without warning, they unveiled significant changes to their creator royalty and fee structure — changes that will have a dramatic impact on both collectors and creators who use the platform.

Just moments ago, the company published a Twitter thread on their feed. In it, they stated that the 2.5 percent fee that is tacked on to every transaction on OpenSea would be dropped to zero for a limited time. But the announcements didn’t end there. Following up on a controversial plan that the company unveiled back in November, the marketplace said it will be moving projects that don’t use on-chain enforcement tools — which is basically every project created before 2023 — to optional royalties.

In other words, buyers are now free to decide whether or not they want to honor a creator’s royalty preferences. This is a serious problem for many project creators, as royalties from sales are how most generate revenue following their initial token sale.

Finally, OpenSea stated that marketplaces with similar policies would not be blocked by the platform’s operator filter.

We call these companies “marketplaces” rather than “stores” for a reason. Essentially, they are like the big, empty, open spaces in the middle of town that offer a place for artisans, farmers, and performers to shill their wares.

Web3 marketplaces don’t make or own the products in their inventory. They don’t buy or sell anything themselves but provide the service of being a venue for the commerce of others. But unlike a physical marketplace space, Web3 marketplaces don’t have to compete with each other for creators, since they can all right-click-save the same collections directly from the blockchain.

Think of Web3 marketplaces as search engines, but for tokens rather than URLs. Where Google will mediate a transaction to bring a website into your browser, OpenSea will mediate a transaction to bring a token into your wallet. Buyers in marketplace-mediated transactions pay the sales price, gas fees, and secondary royalties in a trustless process that bypasses a human checkout counter. This gives each marketplace the same near-zero transaction costs regardless of what’s being sold or for what price.

The extra bit a marketplace makes is a convenience fee justified by whatever features make the buying experience better through them than through some other marketplace. While Web3 marketplaces don’t compete with each other for creators, the competition for buyers is fiercely contested on the basis of higher-value services or lower costs.

All of that is perfectly fine. Except that what makes costs lower for an increasing number of buyers in an increasing number of marketplaces is the option to stiff creators out of their royalties.

Hence the thesis of this opinion piece:

Buyers who steal from artists are thieves.

Marketplaces that enable art theft are criminal enterprises.

If royalty-stiffing makes buyers feel like they’re getting a bargain, drives market share to royalty-stiffing marketplaces, and isn’t prevented by any law currently on the books, no one can feign surprise when the invisible hand of capitalism gives creators a sudden and undeserved smackdown.

But no matter how inevitable the rise of royalty-stiffing was, and no matter where the market forces are pointing for the future, we all become complicit when we let an injustice pass without comment.

To be clear, royalty-stiffing isn’t “technically” art theft because the ERC-721 and ERC-1155 standards don’t “require” the payment of the secondary royalties “requested” by artists, storytellers, musicians, and other creators who “need” compensation for their hard work in order to “survive.” But it sure feels like theft to the people who made the things that are being transacted and enjoyed without due compensation.

The expectation of secondary royalties has been a major factor that encouraged many creators to enter the Web3 space in the first place. It made the space thrive, and dependence on marketplaces to uphold this expectation has been built into every business model of every project that’s included secondary royalties.

Many projects were even offered as free mints with the expectation that secondary royalties would cover their costs. This has made it possible for buyers to get cool stuff without cost, for flippers to make a risk-free profit, for marketplaces to collect fees from secondary sales, and for creators to have a chance to generate residual income. Under a royalty-stiffing norm, those free mints will all go away and the Web3 space will be poorer for it.

I live in the United States, where there’s “technically” no “legally binding” requirement to tip your restaurant waitstaff. But the practice of tipping is enforced by the social expectation one gets when having to look into the smiling face of a human person who brings food to your table, puts up with your nonsense, caters to your special requests, and clears away your dirty dishes.

What would you call a restaurant that padded its profits by allowing patrons to stiff their waitstaff? What if that were the main value proposition of the restaurant over the place across the street that absolutely required patrons to pay whatever tiny tip the server requested? And what if, in this analogy, neither restaurant had a kitchen and the servers were cooking the food in their homes and delivering it to whichever establishment it was ordered from?

If secondary royalties are a social expectation that marketplaces have been enforcing at their whim, a shift toward royalty-stiffing, if allowed to stand, will harm countless creators in the Web3 space and discourage countless others from being onboarded.

Creators who remain in the space will be forced to find other means to enforce their rights and interests. Some will attach end-user licenses to their NFTs, withholding rights from copies obtained without full payment of secondary royalties. Probably someone will program a smart contract to burn a token when anything less than the required secondary royalty is paid for it. This will require buyers to do extra research to determine whether someone, somewhere along the chain of an NFT’s custody, nerfed the utility or rendered the token worthless by stiffing its creator.

The end result will be a less joyful, less creative, and more frustrating environment that harms everyone. But with multiple marketplaces engaged in a race to the bottom, there’s very little anyone can do about it.

Prove me wrong. Please.

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--The Mythoversal Cryptoversal