BAYC Founder Joins Royalty Conversation
Wylie Aronow, a co-founder of Yuga Labs and Bored Ape Yacht Club, entered the royalty conversation with a lengthy Substack post published on Tuesday morning from his personal platform.
Aronow, who goes by GordonGoner on social media, started his post with two "facts" about royalties and the NFT ecosystem:
1) The NFT ecosystem would be a tiny fraction of what it is today if it weren't for creator royalties.
2) The leading marketplaces of the past couple years would be nowhere if they hadn’t supported them.
While both points could be argued by those on either side of the royalty argument, Aronow specifically is well-equipped to make the second claim.
The Bored Ape Yacht Club NFT collection alone has traded more than 679,000 ETH on the OpenSea marketplace, generating nearly 17,000 ETH for OpenSea since the collection launched. Even at current ETH prices that is more than $24 million in marketplace fees for OpenSea.
Yuga Labs opted to utilize a 2.5 percent royalty on the Bored Ape collection, generating roughly the same amount of ETH in secondary trading volumes as part of the creator royalties.
"Basically we said: If OpenSea was going to take that much off the top for other people wanting to join the club we created, why shouldn’t we?" writes Aronow..."It’s a gift to be directly supported by the market’s continued demand for your work."
Demand though may no longer result in royalty payments for creators as marketplaces aim to maintain market share.
In August Ethereum-based NFT marketplace X2Y2 made royalty payments optional on its platform. Then in October, Solana's leading NFT marketplace followed suit.
And while OpenSea in particular has spoken out on protecting and enforcing creator royalties, many of web3's strongest voices are not satisfied - including Aronow.
Aronow's Proposed Solution
Instead of enacting blacklists for trading collections on marketplaces that don't enforce royalties, Aronow's proposed solution involves allowlists "that enable trading between normal wallets and specifically allows marketplaces that respect royalties."
His proposed solution works like this:
When a transfer comes in, check if it’s a regular wallet (EOA) making the request, or a smart contract
If it’s an EOA (again, a normal wallet), then you let it go through. Marketplaces don’t use EOAs, so this is either someone making an over-the-counter trade, or moving their own NFTs around. You can’t tell the difference; let it through.
If it’s a smart contract that has initiated this transfer, check against an oracle of contracts that are known to respect royalties. If it matches, let it go through. If not, nope.
The aforementioned process ensures that the transfer of an asset is merely a normal wallet trade or a smart contract interaction with a verified "good actor" or royalty-respecting contract.
This does have some potential drawbacks though, according to Aronow. Most notably that new NFT marketplaces will be difficult to spin up because their smart contracts would need to be allowlisted and the allowlist must be ever-maintained by an oracle.
And to those claiming that this process is not decentralized in spirit...."That’s bullshit," says Aronow...."It’s not impossible to create a healthy allowlist process, especially if all normal wallet-to-wallet transfers are enabled by default and can’t be prohibited."
This is a developing story, Lucky Trader will add to it as more details emerge.