OpenSea Again Changes Course on NFT Royalties

In brief

• OpenSea has announced various changes to its enforcement of creator royalties following complaints from some creators and builders.
• The firm has extended the deadline by which creators of new NFT projects will need to use its tool to have royalties fully enforced, along with other changes.

Leading NFT marketplace OpenSea recently took action on royalty fees, releasing a tool that creators can use to ensure that newly launched NFTs can’t be traded on platforms that reject royalties. But the approach and implementation didn’t sit right with everyone, and now OpenSea is again changing its policies following complaints from some Web3 builders.

Creator royalties are fees that are associated with the sale of NFTs, typically set between 5% and 10% of the sale price, paid by the seller to the creators of a given NFT project. For projects that generate significant trading volume, these fees can be a substantial source of revenue. And the rejection of these fees in recent months from NFT traders and most marketplaces has threatened that revenue.

In a tweet thread today, OpenSea revealed a number of tweaks to its own approach to NFT royalties, including the formation of the Creator Ownership Research Institute (CORI), a group that will oversee curation of the list of Ethereum marketplaces blocked by what's known as the "Operator Filter" tool as well as policies related to its development.

2/ The revolutionary potential of creator fees has been under attack for months. Marketplaces that do not respect creator fees have been rapidly growing in prominence, and creators, in turn, have seen their effective creator fees severely diminished.
— OpenSea (@opensea) December 8, 2022

CORI includes OpenSea, along with a number of other NFT marketplace and smart contract builders, including Nifty Gateway, Zora, Manifold, SuperRare, and Foundation. The firms will use a multi-signature wallet—the kind that requires more than a single actor to sign a transaction—to make changes to the registry, and OpenSea tweeted that it is also “expanding governance of the registry to include more stakeholders, including—critically—voices in the creator community.”

That’s just one piece of OpenSea’s changing approach in the face of criticism regarding the rollout of its blocklist tool. Another has to do with how rapidly it required the tool for new projects. On November 8, just days after announcing the tool, OpenSea began enforcing creator royalties on new NFT projects that implemented its code into their smart contracts. A smart contract contains the code that powers autonomous decentralized apps (dapps), including NFT projects.

The following day, OpenSea said that it would also continue to enforce royalties on all NFT projects that were minted before that date, following backlash from creators over prospective changes. But any project that deployed on or after November 8 without the Operator Filter tool implemented would no longer receive royalties from trades on OpenSea.

That detail may have been unclear to some creators. In other cases, creators have opted not to utilize the tool, as they see it as an affront to decentralization or a monopolistic move by a market leader acting against rivals that were threatening its dominance.

Earlier Thursday, Art Blocks founder and CEO Erick Calderon described OpenSea’s approach as a “bully move” in a tweet thread, and called the tool “malware.” An Art Blocks project launched this week without the tool equipped, and OpenSea had not required traders to pay creator fees, prompting Calderon’s response.

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OpenSea said today that it will instead adjust its enforcement deadline to January 2, 2023, which means that new projects launched on or after November 8 that did not implement the blocklist tool will now have creator royalties enforced on the marketplace anyway.

OpenSea specifically mentioned Manifold, a partner in the formation of CORI, as a smart contract maker that had been negatively impacted by the changes. Manifold recently tweeted that it was “working with OpenSea and fighting to get creators’ royalties enabled” on projects that were deployed between November 8-30 using its contract code.

“This has been a very hard month for the community, and we acknowledge that at times the choices we made were hasty and unaccommodating to some creators’ needs,” OpenSea tweeted in the thread. “There are ultimately no perfect solutions to the industry’s drift away from respecting creator fees.”

4/ In addition to theses changes OpenSea has pledge their support for on-chain royalties meaning support for EIP-2981 and https://t.co/5wI4yWdRvM will be coming. A win for royalty adoption all around
This also means that token level royalties may be possible in the future.
— manifold.xyz (マ,マ) (@manifoldxyz) December 8, 2022

If NFT creators launch projects on or after January 2 without the Operator Filter tool enabled, then they will be able to set a royalty fee that will be “optional for collectors to comply with,” OpenSea tweeted. That will mark the first time that OpenSea has made royalties optional for traders, albeit solely for that particular subset of future collections.

The Operator Filter tool will also be updated to require creators to use Ethereum’s EIP-2981 standard to be “their objective source of truth for creator fee preferences,” OpenSea tweeted. That requirement will take effect as of January 2.

OpenSea acknowledged in the thread that it had “heard compelling pushback from creators on the lack of an alternative mechanism for earning creator fees on OpenSea outside of leveraging our enforcement tool.”

Creator royalties have been under attack in the NFT space in recent months. New platforms cut out royalty fees or made them optional in an effort to attract traders, and the growing momentum cut into the market share of leaders that had already enforced them. Top Solana marketplace Magic Eden followed suit and made royalties optional for buyers to pay instead.

Last week, Magic Eden launched its own similar Solana blocklist tool, saying that it would enforce royalties for only those collections—while blocking marketplaces that don’t support it. Existing projects on Solana still do not have royalties enforcement protection on Magic Eden.