LooksRare Irks NFT Creators by Dropping Mandatory Royalty Fees

LooksRare, an NFT marketplace that made a big splash in its debut earlier this year, has dropped the mandatory royalty fees it previously charged to token buyers, the company said Thursday.

That could be bad news for NFT creators who depend on royalty income.

Lost Income

Before the change, the owner of an NFT collection could set their own royalty fees, which buyers would have to pay. Now collectors have the option to forgo royalty fees.

To ease the sting of the lost income, LooksRare plans to pass on a quarter of its 2% staking fee to creators. People who stake LooksRare’s LOOKS token will now pocket a 1.5% payment.

No surprise, LooksRare’s move irked NFT creators.

“The [average] royalty paid is around 6%,” said NFTstatistics.eth, the handle for the director of research at PROOF Collective, the organization behind Moonbirds. “I wouldn’t say that giving artists 0.5% (a 90%+ cut) while keeping your own fee at 1.5% (a 25% cut) is a competitive solution that benefits creators.”

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The Defiant

Collectors took a different view. “Creative solution, probably the best one I’ve seen so far,” one Bored Ape holder said on Twitter.

LooksRare’s approach differs from competitors like X2Y2, which simply removed royalty requirements in August and Magic Eden, which did the same earlier this month.

It’s worth noting that the 1.5% goes to LOOKS stakers, not LooksRare directly. And NFTstatistics.eth acknowledged that all marketplaces are struggling to cope with a race-to-the-bottom pricing spiral on royalty fees.

Revenue Source

Royalty fees have been a contentious topic in the NFT space for months. Influential investors like a16z’s Chris Dixon have heralded NFTs as a revenue source for artists who have struggled to monetize their work.

Conversely, as the bear market has ground on, a series of marketplaces have either moved to make royalties optional or launched without enabling them at all, cutting into creators’ income.

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The Defiant

Some creators are fighting back. Somi Arian, founder of InPeak, the web3 education platform, has said NFT creators have huge overhead costs and royalties are vital source of income.

“I want to make this VERY CLEAR!,” she tweeted in October. “If anyone buys a token from a marketplace that does not honour creator royalties, I will ban that token and effectively, you lose your money!”

The pressure on LooksRare may have increased with last week’s launch of Blur, a Paradigm-backed exchange which functions both as an NFT exchange and aggregator which pulls listings from other exchanges.

“I want to make this VERY CLEAR! If anyone buys a token from a marketplace that does not honour creator royalties, I will ban that token and effectively, you lose your money!”

Somi Arian

Blur elected not to make royalties mandatory, but launched with a mechanism which airdrops larger rewards to traders who did pay those fees. The project has generated over $1M in volume since Oct. 20, the day after it launched, according to a Dune Analytics query.

LooksRare’s daily volume is still ahead of Blur’s and and averaging over $4M in the past week, according to another Dune query. But volume for LooksRare has fallen off a cliff with that $4M mark, more than 99% below the all-time high daily mark of $842M reached in January when the project launched.

LooksRare Daily Volume. Source: Dune Analytics

With LooksRare’s move, all eyes will be on OpenSea, which is still the largest NFT marketplace by volume and has yet to make royalties optional. Bryan Brinkman, a well-known NFT artist, thinks OpenSea has an opportunity to earn significant goodwill should it keep mandatory royalties on its platform.

Pressure on OpenSea

“OpenSea primed to be the hero if they keep royalties in place,” he tweeted. “All the others will race to non-existence.”

With volume dwindling from around $15M in August, to about $9M in October, according to a Dune query by venture capitalist Richard Chen, OpenSea too must be feeling the pressure.