We need a new model for NFT markets

One of the main reasons I was drawn to Web3 was the concept of a new ecosystem where creators are fairly compensated for their work. Verifiable ownership of digital assets, on-chain provenance, and the ability to immutably create and record: Web3 has the potential to completely disrupt the wonderful but exploitative industries of art, technology, finance, music, and more.

To me, this seemed like the future. I still feel this way. Despite the current actions of the markets, I am confident that as an industry we will correct course and remember why we are building this together.

For me, the discovery of Web3 was a completely life-changing moment.

I became increasingly frustrated operating within systems with many barriers to innovation and progress. I was co-director in a creative production agency. I spent the rest of my time organizing support systems at the community level for women and gender diverse people to access everything from mutual aid to workshops. I was passionate about my work, but had begun to doubt the effectiveness of its impact and was looking for ways to challenge systems I felt were failing while building something new.

The day I found out about Web3, I felt like I had found the answer.

I found that in Web3, I could build a community around shared ideas, values, and intentions. The concept of royalties meant that, after the initial minting of a piece (or pieces) of art, a creator could support himself with the profits he received from the asset changing hands. They could continue to benefit from the value they created and also continue to build. A new exchange of value between creators and consumers had emerged, acting as a launching pad for creators to accelerate the development of their projects without relying on external funding.

Decentralization in Web3 covers a lot of things. But related to this issue, it is the distribution of opportunity, wealth and power. Creators should have the power to determine their royalty percentage and how (and where) their work is sold, and merchants can choose whether or not to collect those pieces. Decentralization should No signify the distribution of power to the merchants exploit the artist

We should all have the ability to choose how we participate in this ecosystem. We should not have the ability to determine what other people should or should not receive for the value they bring to the world.

How royalties benefit us all

The circular value exchange created by royalties on Web3 has transformed the lives of many artists. It has also provided funding and capital for almost every major NFT collection up to this point and has shaped the landscape of this industry. Today, there isn’t a project in this space that hasn’t had its early development facilitated by royalties in some way.

The valuations of the companies that have sprung up in the last two years, as well as the valuations of the markets themselves, are due to royalties and fees. These payment structures sent strong signals to the Web2 industries, encouraging them to participate. They also solidified confidence in continued investment in the space and elevated us beyond insular tech developers and cryptocurrency traders by creating culture-changing communities.

It is also important to note that this model has particularly benefited underrepresented people in art, technology and finance. These pay structures allowed them to build something themselves without needing to go through the guarded landscape of venture capital. It is a disappointing but very real fact that less than two percent of venture capital funds are awarded to women, and even less so for black women and women of color. And alone eight percent of venture capitalists are women.

The systems and structures in Web2 are not designed so that everyone receives the same opportunities, and the inherent biases affect all levels of development. Having a system that breaks down those walls and allows people (like me) to make immediate breakthrough despite obstacles has been a paradigm shift and has felt like the catalyst for some very significant social change.

The problem we are facing

The problem we are facing right now is the disruption of the important circular dynamic between creators, collectors, dealers and markets. Third party platforms (in this case, marketplaces) have the ability and authority to step in and disrupt this direct relationship. They would replace this more equitable exchange of value with a short-term gain for a few, ultimately bringing us back to the unfair and non-transparent exchange of value that currently exists on Web2.

This benefits only markets and dealers, but completely removes the benefit previously given to artists and collectors. To remove aspects of an ecosystem is to invite imbalance and chaos. And without a discernible long-term strategy to benefit all involved, this feels like a race to zero.

Currently there aren’t many places to buy art that benefits the creator on a large scale. The markets with the highest volumes now only serve traders. This has changed the association of many projects from “culturally valuable” to “marketable”, undermining the positive value and impact that many projects have brought to the world.

It removes the artist/creator’s ability to use royalties to facilitate additional significant changes, which many projects did before this one, such as ed balloon Run Ed, run. In Ed’s case, 50 percent of the royalties from the project went toward buying art from black and brown artists.

This is no longer possible due to current policies.

Swapping and flipping is an undeniably important part of this space, but it’s not the foundation of value, and reducing the artistic expression of brilliant people here to marketability subverts the value of creative expression itself. We can also exchange colored squares.

Solutions and the way forward

Collaboration is one of the fundamental pillars of this space. Typically, you see creators on Web3 operating from a space of plenty rather than scarcity. Your opportunity does not mean my lack of opportunity. Your worth is not my lack of worth. Instead, we generally work collaboratively and strengthen each other as we go, opening doors for others to do the same. Unlike Web2, most creators in the space recognize the importance of this and embrace it to power their communities.

At this particular time, as a by-product of the bear market and the increasing greed of traders, we are seeing the major players in the space abandon the concept of collaboration.

What we are seeing in this race to zero is multi-billion dollar companies burning the bridges of trust with artists and creators by establishing new policies that are in direct opposition to the benefit of the creators who made their platforms valuable in the first place. A market cannot exist without creators producing art to sell.

An obvious solution to this is for people to create their own markets and own the trade that comes from trading and collecting their creations. This is a good solution for larger, more established businesses and creators, but it removes the discoverability aspect, fractures market attention, and creates homogeneous communities without collaboration or crossover. These solutions are also not easily used by emerging creators, furthering the ever-widening gap between smaller artists and larger communities.

Another solution is the adoption of creator tools and resources. There are several smaller markets that offer structures that benefit artists; however, these markets do not have the volume or attention that artists often desire. There are several amazing companies that focus on developing resources for creators to stay sovereign over their work, and I encourage anyone reading this article to check them out.

What we really need, and what I know a number of people are working on, is a new market model that benefits all ecosystem participants equally. One that embraces the creator, the merchant, the collector and the culture. The concept of royalty payment is essentially a social contract. So how do we encourage people and organizations to honor that contract?

I am a firm believer that positive reinforcement is the best way to encourage anyone to do anything. Therefore, we must choose carefully which platforms we use and engage with, and support those that align with our values. Instead of scolding others, we should encourage those who share our goals.

final thoughts

A lot of people may read this and feel that creators shouldn’t rely on royalties for income. And actually I agree. Deadfellaz and most of the other projects that released in 2021 are no longer dependent on royalties and have established many streams of income. However, we were only able to do so with the initial fuel from royalties.

The reason I’m speaking out is not for Deadfellaz or myself, but for non-established projects and up-and-coming artists. I believe they should be given the same opportunity that we were given when we launched in 2021. For the Web3 ecosystem to continue to exist, we are required to maintain healthy entry points for others to emerge. We cannot disrupt the status quo and continue to expand this industry if we close the doors behind us when a select few reach certain heights.

And if we’re supporting a landscape where centralized platforms dictate an artist’s ability to build, we’re further marginalizing already underrepresented creators. For many, royalties have meant paying rent, buying groceries, or accessing equipment they couldn’t before. For most people, it doesn’t mean making millions.

Action and Dialogue is needed to instill change, so I will continue to use the platform and visibility I have, along with my peers, to speak out in hopes of setting the standards for our industry with humanity in the center, while we support people in building solutions. To the executives reading this who are responsible for recent events, I encourage you to take stock of why you started working in this space and focus on building bridges rather than burning them.

Betty He is the co-founder and director of Deadfellaz, a collection of 10,000 zombie-themed NFTs living on the Ethereum blockchain. He has become one of the leading voices in the NFT space in the fight to protect creator royalties..