Quick take:
- Immutable has extended its enforceable royalties feature to Ethereum.
- The Layer 2 Ethereum scaling protocol wants to protect $1.8B worth of creator royalties on the platform.
- Immutable is taking a different direction from the one taken by several NFT platforms that have made NFT royalties optional or gotten rid entirely.
Immutable has taken its campaign for the protection of creator royalties to Ethereum. The Layer 2 Ethereum scaling protocol is expanding its enforceable royalties feature to the platform to protect over $1.8 billion worth of creator royalties.
Immutable’s announcement seems to be a shift against the current, with more non-fungible (NFT) marketplaces opting to make NFT royalties optional for traders, or removing them in their entirety.
The latest NFT marketplace to jump on that bandwagon was LooksRare, which last week said it was enabling support for zero-royalty trading, in exchange for a share of protocol fees. And like its Solana-based rival Magic Eden, LooksRare also said traders will be given an opportunity to pay royalties to creators if they choose to.
An NFT is a blockchain-based digital representation of proof of ownership of virtual merchandise, digital collectible, JPEG, artwork or video clip. An NFT royalty is a form of commission earned by creators every time their NFT is sold in the secondary market.
Enabling zero-royalty NFT trading encourages traders to trade more, which can incentivise wash trading (the practice of buying and selling NFTs with the intention to increase sales volume), especially on incentivised platforms offering volume-based rewards.
Immutable wants to ensure that creators retain the right to determine if they should receive royalties for the secondary sale of their NFTs.
However, enforcing creator royalties is still a challenging task, with platforms forced to use some level of centralized control. This also makes it difficult to implement without impairing standard transfer functionality.
NFT platforms are built on web3, a next-gen internet that leverages emerging technologies like decentralised apps, blockchain, and artificial intelligence to power decentralised communities.
Because decentralisation is a strong selling point for products like NFTs and blockchain games, leaning toward centralised mechanisms to enforce NFT royalties almost feels like double-speak to advocates of decentralisation.
Current NFT royalty standards like EIP-2981 have tried to remain in the good books of these advocates, serving as decentralised mechanisms for marketplaces to discover intended royalties. However, with no enforcement mechanism in place, NFT royalty payout is left to the discretion of the marketplaces.
Immutable uses a community-governed (decentralised) whitelist and blacklist mechanism for smart contracts to enforce royalty fees.
According to Immutable’s announcement on Friday, “NFT creators will be able to use these lists to control the smart contracts which can transfer or receive NFTs from their collection, ensuring that users will only be able to trade through royalty-respecting contracts. To ensure that these lists are not a centralising factor, the lists will be governed by $IMX token holders.”
The Blacklist/Whitelist mechanism allows creators to choose where their NFTs lie in the protection spectrum. Blacklist represents less/zero protection whereas Whitelist represents higher/full protection.
“Our vision is an ecosystem where creators have a choice over their royalty model and level of enforceability, and users can vote with their feet when it comes to the projects they feel strike the best balance. Soft-enforced royalties only serve to punish users who are trying to support projects and massively reduce the confidence creators and game studios can have in their revenue streams. Royalties, structured correctly, provide significant long-term incentive alignment,” said Alex Connolly, Co-Founder & CTO of Immutable.
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