In the present bear market, the NFT sector has seen fierce rivalry across platforms. Trading platforms offered by X2Y2 have recently introduced zero-royalty features. There have been intense debates over whether or not NFT royalty should exist.<h2>The controversy over NFT royalty</h2>One by one, X2Y2 and other NFT platforms have begun to revoke creator royalties. The competition for market share in the NFT market is what gave rise to this trend, which has generated a great deal of concern and discussion in the industry.Several NFT trading aggregators entered the market before June 2022. The emergence of aggregators reduced the information asymmetry between listings on different trading platforms, and thanks to their low transaction fees, they also assisted X2Y2 in significantly increasing its market share. According to Nansen, Gem, an NFT aggregator, was the source of the majority of recent X2Y2 transactions. To say that the aggregator is essential to maintaining a healthy trading volume on X2Y2 is not an exaggeration.SudoSwap began operations in July 2022 and disrupted the market with few transactions and no royalties. According to Dune Analytics, X2Y2 and SudoSwap account for 5.3% and 8.7%, respectively, of the total trading volume on the NFT market in the 3rd week of August 2022. It is clear that in less than two months, SudoSwap has caught up to X2Y2, decreasing the latter's share in the market.SudoSwap was abruptly integrated into Gem on August 26, 2022, early in the morning, giving Gem users the ability to buy NFTs with no royalties. Many NFT collections, such as Azuki, Pudgy Penguins, and other high-profile projects, are now listed on SudoSwap rather than X2Y2, and the former has supplanted the latter as the market leader.<img src="https://cdn.builder.news/news/11ed4092107fd1f9a8e6023f659fee92.jpg" alt="Top Ethereum Marketplace Volume Share" title="Top Ethereum Marketplace Volume Share" width="600" height="380" class="lykafe0">Top Ethereum Marketplace Volume Share. Source: Dune AnalyticsSince SudoSwap was continuously lowering the floor prices on Gem, new NFT trading platforms like Element are rapidly emerging, X2Y2's advantage from the buildup of long-term token incentives and low prices was eliminated. "Royalty cancellation" would be the only way to overcome this downturn. Royalties will be entirely up to buyers' choice as a feature, according to an official announcement made by X2Y2 on August 26. This is still essentially a "royalty cancellation" strategy.With this feature, platform users can select the percentage of royalties they want to pay for supporting NFT projects (100%, 50%, or 0%); if they decide to pay 50% or 0%, the buyer will receive half or the entire royalties.After the release of this feature, Pransky, a whale in the NFT space, declared his opposition to the elimination of royalties. Some project teams have even threatened to halt providing NFT buyers with future airdrops and other perks on X2Y2. Supporters of the cancellation, however, strongly believe that royalties are redundant costs that "steal" profits that should have gone to NFT traders. Supporters added that royalties should not be given to soft rug projects because doing so would be like a free ride for the creators if the project fell through. The original win-win creator economy has abruptly changed into a zero-sum game, and a heated debate over NFT royalty reforms is currently taking place.&gt;&gt;&gt; Maybe you should read:&nbsp;<a href="https://www.builder.news/crypto-insights/sudoamm-sudoswaps-game-changer-p5n9g" alt="SudoAMM - Sudoswap’s Game Changer" title="SudoAMM - Sudoswap’s Game Changer" target="_blank" rel="" class="">SudoAMM - Sudoswap’s Game Changer</a><h2>Divided opinions from different parties</h2>Average users, marketplaces (like X2Y2, etc.), NFT collectors and project teams, key influencers of NFT and project parties/artists, and NFT collectors and project teams are the four stakeholder groups that make up the majority of the responses to NFT royalty reforms.The removal of royalties, or "customized royalties," is supported by almost all trading platforms. The elimination of royalties on NFT is comparable to the removal of transaction fees on FT exchanges — a move intended to draw more new users and increase trading volume. On the other hand, artists and projects see no royalties as exploitation. A pro-royalty culture is similar to a tipping culture, which should endure, according to this group, which claims to be the protectors of the NFT ecosystem.Average users have differing opinions, with some favoring the elimination of royalties and others opposing it. Supporters of such a move argue that the project has already charged a fee upon release and royalties would be an absurd additional expense given the current bearish trend where selling prices are frequently lower than initial purchase prices. Users opposed to such a move argue that if the project has diligent creators and the NFT floor price is gradually climbing, royalties are plausible as a means of financial incentive for further development.Following the defense that NFT sellers could start new series derived from the original that would generate new revenue streams, or grant authorship for advertising purposes to increase revenue streams, other justifications are also on the table. The vast majority of typical users favor zero royalty.More dialectical views are held by important NFT influencers. A "soft landing" and gradual reform of royalties are possible, according to some influential groups. As an incentive for artists to create, royalties, for instance, could be implemented for 1/1 artworks while being changed for other categories. Some significant influencers, like Punk6529, are still opposed. He compares royalties to tips, contending that both are social customs and rewards for creators.Overall, the current NFT market is too small, the trading regulations are unclear, the projects' quality varies, and it is challenging to balance user demands. The opinions of the four groups regarding whether it is appropriate to cancel royalties were influenced by all of these market factors.<h2>The moves of NFT Platforms</h2><h3>Sudoswap</h3>When SudoSwap first debuted in April of last year, it was an OTC trading platform that let users set their own order expiration times and choose which buyers they wanted to do business with. There were no transaction charges or royalties in the beginning. Early SudoSwap users were primarily OTC buyers and sellers who settled on a price elsewhere and traded on the platform in order to take advantage of security features like buyer identification and specified expiration. This is comparable to some secure OTC exchanges in the FT market, which have substantially lower market transaction volumes than OpenSea. Since SudoSwap was founded, there have never been any royalties, making SudoSwap the "originator" of no royalties.With the introduction of the market-making strategy sudoAMM, the trading concept of the platform has changed. The price range that users customize for greater capital efficiency provides the platform's liquidity. To support NFT trading, sudoAMM offers users both linear and joint (linear + exponential) curves. A comparatively small slippage must be guaranteed for AMM in order to increase matching efficiency and improve price discovery. The prerequisites are no royalties and minimal transaction costs. Following are some examples:Considering a BAYC with a 100ETH&nbsp; market price, a 5% royalty, and a 1% slippage that is agreed upon by both parties, then<ul><li>The Buyer: Set the purchase price between 99 ETH and 101 ETH (the formula: 100*(1-1%) to 100*(1+1%);</li><li>The Seller: Set the selling price between 103.9 ETH and 106 ETH (the formula: (1+5%) *100*(1+1%) to (1+5%) *100*(1+1%))</li></ul>Employees from SudoSwap had in fact had numerous discussions with Gem about royalties prior to SudoSwap's integration with Gem. Gem had assumed that SudoSwap did not incorporate royalties at the front-end simply because there was not enough labor available or there were technical issues, but this was untrue. Given that it is well known that OpenSea purchased Gem, it would be accurate to state that Sudoswap was incorporated into Gem with the help of a major NFT trading platform (OpenSea).In conclusion, the following list explains how SudoSwap could continue to offer zero royalties:<ul><li>Before the SudoAMM mechanism was implemented, the OTC project had too little trading activity to be noticed by the market, and its zero royalty would presumably not attract attention either.</li><li>AMM with zero royalty consequently became a crucial factor after SudoAMM was implemented because slippage, which is made up of transaction fees and royalty, needed to be minimized in order to improve matching efficiency.</li><li>OpenSea, the leader of NFT trading, has given its support and approval.</li></ul>In essence, SudoSwap, a former OTC market, can be credited as the "originator" of zero royalties in the NFT world because it launched with no royalties. Zero royalty is the way forward due to concerns with raising matching efficiency and reducing slippage.<h3>X2Y2</h3><img src="https://cdn.builder.news/news/11ed4092107fed5ea8e6023f659fee92.jpg" alt="X2Y2" title="X2Y2" width="600" height="649" class="lykafe1">The X2Y2's decision to stop paying royalties was justified in part for two reasons:<ul><li>For the comfort of the users: In other words, to give users the freedom to decide how much royalties to pay to NFT project parties.</li><li>For keeping abreast of the market:&nbsp; mainstream aggregators will soon offer comparable features, and X2Y2 introduced the feature to keep up with customer demand.</li></ul>In reality, X2Y2 did not immediately abolish royalties; rather, it abruptly announced a feature called "customized royalty," which is, in fact, the removal of royalties. X2Y2 maintains a higher moral position by acting in users' best interests and keeping up with the times. There are two less obvious causes for this action, though.The first is that following SudoSwap's integration with Gem, the floor prices of many well-known projects (such as AZUKI and Pudgy Penguins. SudoSwap dominated the market, which significantly reduced X2Y2's ability to compete. Secondly, the NFT market experienced a bearish period from June to August. While major platforms were still suffering from the recession, X2Y2, a second-tier NFT trading platform, took advantage of the opportunity to significantly increase its market share by launching "customized features." As a result, it is possible to interpret X2Y2's official claims as rhetoric in favor of paying no royalties and a reaction to their rivals' actions. Simply put,<ul><li>As an NFT aggregator with minimal transaction costs, X2Y2 was able to gain some market share and maintain it.</li><li>In July and August, the SudoAMM mechanism swiftly surpassed X2Y2 in market share thanks to its inexpensive transaction fees (as low as 0.5%, the same as that of X2Y2) and the absence of royalties.</li><li>Taking advantage of this, X2Y2 allegedly "customized functionality" was released within 10 hours following SudoSwap integration, purportedly "to suit market demand." By simultaneously gaining awareness and enhancing its competitiveness in the bear market, it was able to accomplish two goals at once.</li></ul><h2>A long vision</h2>The "impossible trilemma" of the blockchain appears to apply to the NFT market as well. The demands for the financial gain of NFT traders, NFT trading platforms, and NFT innovators and project owners cannot possibly be met simultaneously. What direction will NFT royalty reform take, then? Let's start with a few often mentioned potential directions<h3>3 possible NFT royalty reforms</h3>First, NFT royalty reform may result in a "soft landing" where PFP project development relies only partially or not at all on royalties. In particular, the 10K series of PFP projects enables the publisher to retain a portion of the NFT (for example, 10%) initially and then support the NFT appreciation through ongoing build empowerment, creating a win scenario for both users and project owners. For instance, Project A adopts 0% royalty + 5% NFT, while Project B adopts 0% royalty + 5% NFT.<iframe width="550" height="400" src="data:text/html;charset=utf-8,%3Cblockquote%20class%3D%22twitter-tweet%22%3E%3Cp%20lang%3D%22en%22%20dir%3D%22ltr%22%3E10k%20pfp%2C%20free%20drop%3A%3Cbr%3E%3Cbr%3EProject%20A%20-%200%25%20royalty%2C%20creator%20keeps%205%25%20of%20NFTs%3Cbr%3EProject%20B%20-%205%25%20royalty%2C%20creator%20keeps%200%25%20of%20NFTs.%3Cbr%3E%3Cbr%3EBoth%20get%20100%20ETH%20floor%20with%20100k%20ETH%20volume.%20%3Cbr%3E%3Cbr%3E*A*%20has%20made%200%20ETH%2C%20now%20sells%20500%20NFTs%20at%20100%20ETH%20each%20to%20make%2050%2C000%20ETH%3Cbr%3E%3Cbr%3E*B*%20made%205000%20ETH%3Cbr%3E%3Cbr%3Ediscuss%20%uD83D%uDC47%3C/p%3E%26mdash%3B%20j1mmy.eth%20%28@j1mmyeth%29%20%3Ca%20href%3D%22https%3A//twitter.com/j1mmyeth/status/1558461254498385924%3Fref_src%3Dtwsrc%255Etfw%22%3EAugust%2013%2C%202022%3C/a%3E%3C/blockquote%3E%0A%3Cscript%20async%20src%3D%22https%3A//platform.twitter.com/widgets.js%22%20charset%3D%22utf-8%22%3E%3C/script%3E%0A"></iframe> We observe that the project owner receives 50,000 ETH in the royalty-free scenario, which is more than the 5,000 ETH underneath the royalty-applicable scenario, assuming ceteris paribus (for example, the project owner continues to construct and empower the NFT with the same upfront money). PFP projects could eventually try to go from "low royalty + partial NFT" to royalty-free.Second, with 1/1 art projects, many different people contributed to the final product, which justifies some amount of support and supports the claim for royalty collection.Third, the low royalty structure will be changed to subscription or buyout structures for 1/1 art projects, which are really consumer commodities rather than collections. This is another revolution in NFT economic models. Limited preservation of NFTs cannot repay the cost of construction since the floor price for NFTs as tools is low and the quantity given is also modest (e.g., OG Pass for certain NFT analysis platform), which reduces the likelihood of future issuance of an NFT series. As a result, the royalty for NFT as tools can be dropped and replaced with another type of cost structure, such as subscriptions with renewable Pass cards.In general, royalties are a problem without a universally applicable solution, and the present NFT royalty reform may mark a turning point in the development of NFT business models.<h3>3 possible trends</h3><ul><li>Trend 1: With more high-quality supplies, business models will be increasingly numerous. According to the aforementioned analysis, various royalty models could support various NFT projects. Some could preserve a portion of the NFT, others could develop new projects based on existing IP (like MAYC and lands on Otherside based on BAYC), and still, others could impose subscription fees or yearly fees to the B/C side to increase the revenue stream. All of these point to the possibility of expanding and improving the NFT projects' commercial models.</li><li>Trend 2: New NFT contracts with built-in royalties will be introduced, and certain NFT projects with required royalties will use the new contracts. Initially, there was no royalty provision in the NFT contract per se, but in the early stages of OpenSea, royalties were successful in luring authors to join and release NFT on the platform; as a result, a platform-level royalty of up to 10% was established. Some creators/projects proposed to send those zero-royalty NFT platform contract addresses to the blacklist in their own NFT contracts after the royalty reform went into effect, but the trading platforms were able to wrap a layer outside the author's contract address to override the project's blacklist.</li><li>Trend 3: The long tail of the NFT industry will consist of zero-royalty enterprises. This presumption is based on the 80/20 rule, which states that in the NFT market, respectable projects and projects with large royalties constitute a minority; the majority will still vote with their feet, and only a small number of wealthy customers would be ready to pay royalties.</li></ul><div class="pr-block-special">Disclaimer: This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.</div>

In the present bear market, the NFT sector has seen fierce rivalry across platforms. There have been intense debates over whether NFT royalty should exist.

NFT royalty: should it exist anymore?