NFTs Marketplace Overview
The NFT market has experienced explosive growth from the beginning of 2022 until now with new trends constantly appearing and successfully attracting new cash flows. Although there is still public pressure on factors such as "no features", "meme", "speculation", etc. But despite criticism, NFT ecosystems are still growing. very active, especially the platforms and tools that combine artistic elements. As a result, the market has reached nearly 70 billion USD in trading volume with more than 36 million transactions – not small numbers. (Data obtained in secondary market only, actual data may be larger).
But NFTs cannot escape the general market situation either. The recent negative volatility has adversely affected investors. Indeed, the liquidity of NFT is very low compared to other coins/tokens, which leads to the fear of money inflow.
The trading volume of the whole market from about mid-June until now has only fluctuated at 15M$ - 33M$, down more than 18 times since the peak on May 1st.
This caused a lot of talk in the community of "digital photography" players. And most recently, the controversy about the royalty fee.
What is the royalty fee?
The royalty fee is the portion of your purchase/sale that pays the developer of that NFT collection for the transfer of the intellectual property rights. Typically, royalties for NFT collections will range from 5%-10% of the transaction's value.
How do royalties affect an NFT collection?
Basically, the royalty fee will help the team generate a profit proportional to the trading volume. However, since the free-mint movement emerged, the number of projects has increased dramatically, resulting in a "make a quick buck" situation of the "digital artist" team. They create projects, draw grandiose futures, but after eating the first wave of growth, they quit or left. Then bring a lot of money to run away or start drawing new project to continue that loop.
This gradually makes the NFTs market like a "dumping ground" combined with low liquidity, causing danger to users as well as bringing negative prejudices from the community. Especially in the context that NFTs are gradually becoming a culture, a hobby of collecting, not purely a speculation.
In addition, another factor affecting users is that when selling their NFT, it is mandatory to calculate a percentage of royalties if they want to optimize profits. This causes a small inconvenience in terms of user experience, but in general, increases the floor price of that collection a bit.
Example A wants to sell an NFT for 1ETH but the royalty fee for that collection is 5%. In order to sell the desired amount, A must calculate and hang NFT for 1.06ETH so that after selling it can collect assets worth about 1ETH.
Since the factor is proportional to the volume of transactions, the influence of royalties coming from small collections of NFTs does not feel so important in user transactions. However, in high-value NFTs, it is different, an NFT transaction worth 100ETH with a royalty fee of 5%, after buying, investors are sure to take a loss of 5ETH.
This causes investors to develop illegal activities.
The first is P2P/OTC trading from one wallet to another. This model worked quite well until the development teams added "no tax evasion" code to the NFT contract making this P2P/OTC form impossible to use with their collection. This leads to the emergence of the next form.
The next form is Wrapped NFTs. User deposits NFTs he owns into escrow Pool then mints a new NFT with wrapped contract version. Wrapped NFTs will be freely traded without any restrictions including royalties and holders of Wrapped NFTs will have the right to get the original NFTs deposited in the escrow Pool.
In the long term, controlling contracts makes investors not really own their NFTs but see them as a centralized asset, which goes against the decentralized and anonymous nature of Blockchain.
So has anyone implemented the removal of royalty fees from NFTs?
The Sudo Swap - The first AMM NFT removes the royalty fee, the X2Y2 exchange is proposing to consult users on removing the royalties or reducing the royalty fee
At the forefront of royalty free is SudoSwap with its unique new NFT AMM mechanism. This platform has received a steady growth of users and volume over the past 2 months, proving to have attracted great interest from the community.
Recently, the NFTs exchange X2Y2 is also creating debates about the removal of royalty fees for NFTs transactions on their platform. This causes the platform to receive a variety of opinions including strong opinions and objections.
While debate is raging pls note this is far from finished product & updates are already in the works:
— X2Y2 (@the_x2y2) August 27, 2022
1. We will enforce royalty for 1/1 art & similar
2. Implement 'holders only' voting system allowing holders to decide, as a group, whether to enable/disable optional royalties
It can be seen that the issue of royalties is a top concern of the NFTs community, this trend can completely change the "digital photo" game. Eliminate "junk" collections and make the NFTs market grow in terms of both project quality and users.
How to generate income for the developer team if the royalty fee is removed?
According to the author's subjective opinion, if the project team's royalty fee is removed, it can generate income in the following ways:
Development of Tokenomic NFTs
The team can base on the total supply of the collection to develop tokenomic along with factors such as whitelist sale, public sale, NFT vesting,... change the royalty income generation according to transaction volume by equal holding part of a collection. From there, the team's income will be proportional to the market capitalization of the project.
To have a high market capitalization will make the team serious about the product, thereby eliminating most of the "junk", "pump" projects that do not bring benefits to users.
Become an NFTs Liquidity Provider
From the development of NFT Tokenomic will make the team hold an amount of NFTs. To optimize earnings, the team can bring these NFTs to provide liquidity at NFT AMM exchanges like SudoSwap or UniSwap to receive rewards from that platform's trading fees.
"Donation" royalty fees from users
At each transaction, users can choose the royalty fee to support the team or not. This makes it possible for users to choose to support the project, enhancing their personal rights while the team is still able to generate income for them.
Conclusion
The removal of royalties is still hotly debated and there is no clear direction from the community and platforms. According to the author's subjective point of view, the results of this process will greatly affect future development projects, increasing quality projects along with a large reduction in the number of inflatable projects value.
However, royalties are the "rice bowl" of Blue-chip collections with high transaction volumes. If the current NFTs markets do not handle this well, in the negative direction, they may separate into an exchange for the team's products. Followed by a decrease in revenue for NFTs exchanges.
