Multiple chains NFT marketplace Magical Eden announced on Saturday that it would launch a new one Ethereum platform by the end of the year in collaboration with Bored Ape Yacht Club creator Yuga Labs – with a firm commitment to honoring creator royalties on NFT sales.
The companies said in a statement that Magic Eden will have a “contractual obligation” to pay Yuga Labs its share of the secondary market sales of its future NFT collections.
“We’re very happy to put our money where our mouth is,” said Jack Lu, co-founder and CEO of Magic Eden Declutter.
Lu said Magic Eden’s overhauled Ethereum marketplace would use new ones smart contracts-that contain the code that gives permissions decentralized apps (dapps) – with technical innovations that will ensure royalties are paid out during secondary market sales.
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Technical details will be revealed before the market launches, but Lu did confirm that the ERC-721 Ethereum non-fungible token (NFT) standard will indeed be in use. Royalties are imposed on NFTs minted with certain “marketplace contract features.”
The change will not affect how merchants interact with Magic Eden, Lu said; For example, it does not mean that they have to identify themselves via know-your-customer (KYC) checks.
Royalty Disputes
a creator royalty is a small fee set by the artist or company behind a project and deducted from the sales price of any subsequent sale of an NFT. The fee typically ranges between 2.5% and 10% of the sales price, and such fees were initially widely honored by marketplaces as a way for creators to profit long-term from their tokenized creations.
But in the second half of 2022, as NFT sales declined, some startup marketplaces began using solutions to lets traders skip such maker fees, or pay smaller amounts. Major players then followed suit to keep pace, with prominent marketplace OpenSea eventually deciding to do so stopped enforcing royalties last August after previously agreed to honor such reimbursements.
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Yuga Labs criticized OpenSea in late 2022 when it publicly said it had considered moving away from royalties and came out swinging again last August after the decision became final. The Bored Ape creator said it planned to stop supporting OpenSea’s marketplace contracts with new collections and those collections with upgradeable contracts.
“The genesis of this was clearly what we saw happening in the overall secondary royalties ecosystem,” Daniel Alegre, CEO of Yuga Labs, told me. Declutter. “The gauntlet that OpenSea unfortunately dropped made it very clear to us that we, as a company at the forefront of the NFT space, needed to stand up for content creators.”
A press release from Yuga Labs and Magic Eden announcing the news appears to subtly take aim at OpenSea, noting that the companies have “made it unequivocal that respecting creator royalties is non-negotiable, making a clear position amid a sea of other marketplaces turning their backs on creative entrepreneurs.”
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“Going forward, Yuga Labs will only partner with marketplaces for new collections that uphold these principles, ensuring fair treatment of creators,” the release said.
Alegre said that Magic Eden – and it is in a working group with Yuga Labs in OMA3 (Web3’s Open Metaverse Alliance) to improve royalty standards – has pledged to address any loopholes or workarounds with this new technology solution.
And this isn’t an exclusivity deal with Magic Eden either. The companies say other marketplaces may choose to use the same types of contracts introduced by this partnership, and that Yuga Labs hopes these will be widely adopted. Additionally, other NFT creators can mint their projects by using the contracts to provide similar protection.
Shifting strategies
Magic Eden, best known for its original version Solanais one of the above-mentioned marketplaces that switched to optional royalties last year after pressure from emerging rivals. The platform too launched an Ethereum NFT marketplace last fallbut ultimately took it offline ahead of its planned revival.
Lu acknowledged that Magic Eden has “gone through our own changes” regarding royalty enforcement on Solana, but that it always wanted to support creators – it just wanted a “technical solution” to that. Such solutions originated on Solana over the past year, and now Magic Eden is one of the builders trying to implement such standards on Ethereum as well.
“We want to be on the right side of history here,” Lu said.
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Alegre said he is confident that this approach of supporting marketplaces that enforce royalties will work, and that Magic Eden will work to address any shortcomings of the technology once it is available in the wild. But he also admitted that Yuga has another potential way to encourage traders to use such marketplaces: denying future benefits to those who buy NFTs elsewhere.
Yuga’s CEO said the company will “provide value to holders engaged on the platforms that make the most sense.” When asked if there will be any consequences for NFT buyers who purchase Yuga assets on marketplaces that don’t enforce royalties, Alegre said his team is “still thinking about what exactly that means.”
Landed in HK, pumped for day 1 of #ApeFestHK and to support @yugalabs on this
I had to pick this, this beautiful boy with Magic Eden colors to celebrate.
We’ve been cooking non-stop lately at @MagicEden across all ecosystems – Rare Sats & BTC Amsterdam, Tokenized Pokemon Cards &… https://t.co/sPXt17U83a pic.twitter.com/wMmLRlunub
— Jack Lu (@0xLeoInRio) November 3, 2023
“You can imagine situations where we say, ‘Look, if the last transaction was made on a particular platform, then certain benefits in continued engagement or ongoing experiences may not actually accrue to the holder of that asset,’” Alegre explains out. But he said Yuga would rather not “put the onus on the consumer” to deal with that because it becomes “complicated.”
“The ideal way is to make sure you’re working with the right partner,” he said of Magic Eden, “and that you’re sending as much traffic to that partner as possible.”
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That ability to limit benefits and gains for NFT holders is tentatively being presented as a potential backup plan – a nuclear option, if necessary. But Alegre and team instead hope that Magic Eden’s approach will prove to be the solution to combating creator royalty enforcement.
“We are confident in the capabilities of Magic Eden,” said Alegre Declutter. “We clearly value this partnership and have full confidence in Jack and his leadership team. And for now, that is the approach we are going to take.”