An NFT market maker set 0% royalties, sparking concerns about the future of artist compensation

Sudoswap, a decentralized marketplace for non-fungible tokens (NFTs), sparked controversy with its automated market maker (AMM), with chatter about the potential consequences of its fee structure reaching fever pitch over the weekend.

The AMM allows people to buy and sell on any market automatically without individuals having to wait for interested buyers or sellers. This therefore allows instantaneous NFT sales at a low cost, due to the fact that Sudoswap removed artist royalties from its fees.

Sudoswap’s removal of artist royalties made sense to some who support economic leanness above all else, while others felt this could set a race to the bottom, where artists can lose a valuable source of income.

Despite their prevalence in music and publishing industries, royalties are not a set fixture within the NFT space. They’re a “social concept,” The Block researcher Eden Au said, that are not enforced at a smart contract level.

Thus, NFT royalties must be enforced on a marketplace level. The world’s largest NFT marketplace OpenSea set a 2.5% royalty fee. Other projects like Yuga Labs’ Meebits and Bored Ape Yacht Club set royalties at 5% and 2.5% respectively.

However, NFT utility has expanded beyond the profile picture art focus of 2021. Royalties for utility NFTs that trade quickly, such as for video games, may disincentivize trading, Au adds.

Since AMMs are designed to quickly facilitate sales, royalties can act similarly to transaction fees on Ethereum as they make people think twice about how often they trade, the NFT artist Haley explained. Artists should be properly compensated for their work irregardless of the cost to the consumer, they added. 

“It’s extremely exploitative and against the culture and precedents established by early crypto artists,» they told The Block. «We must maintain royalties for everyone or ensure that similar solutions are built into new services in the NFT space.»

Beyond removing financial support from creators, some NFT collectors suspect that Sudoswap’s move to axe royalties could lead to cascading effects among NFT marketplace fee structure and user behavior.

“We will likely see competition between platforms drive fees down over time,» the NFT collector Chris Nichols told The Block. «I suspect these lower fees will attract people flipping larger collections more than those buying one-of-one art from individual artists.”

While it remains unclear whether more NFT marketplaces will opt to chop artist royalties, NFT buyers still have the choice to pay or avoid NFT royalties if it aligns with their beliefs.

NFT royalties are “simply the best alignment of incentives between founders and holders (right now),” Frank, the founder of the Solana-based NFT project DeGods, wrote on Twitter. “If you want to remove royalties, that’s fine. Just don’t be mad when mints become more expensive and more projects rug.”

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