OpenSea, once the leading marketplace for non-fungible tokens, was built on a promise of perpetual royalties for digital artists. Then came upstart Blur, whose no-fee, trader-friendly platform put the focus on pricing and costs.



It only took a few months to kill the art world’s <a href="https://www.forbes.com/sites/digital-assets/2023/03/17/what-blurs-success-reveals-about-nft-marketplaces/?sh=19e61c2a189f">utopian dream</a> of long-lasting income streams for content creators.



As of September 1, OpenSea, once the leading marketplace for art linked to non fungible tokens, rescinded its policy of mandatory royalty payments to NFT creators. The decision came after it lost its dominance to no-fee competitor Blur, which only appeared on the scene in October but then quickly gobbled up market share by not charging platform processing fees and became the top NFT trading site in February. Overall NFT trading volume has plummeted from about $5.36 billion in January 2022, according to The Block, to $410 million in August. OpenSea’s share of the struggling NFT market has plummeted to under 30%.



Besides the lack of platform fees, Blur does not force sellers to abide by royalty agreements, which creators who launch their works on OpenSea and a few smaller marketplaces can require on transactions in their artworks after the initial sale. OpenSea, which did police such arrangements, said it would no longer do so after August 31, and it seems unlikely that many buyers will offer the payments.



Without the guarantee of a long-term royalty stream, the appeal of creating works linked to NFTs lessens, and prices for the kind of computer-generated art often linked to the tokens are plunging anyway. So why should artists bother with NFTs?



“Making art is an act of risk-taking,” says Amy Whitaker, associate professor of art business at New York University. “It makes sense, therefore, for artists to share in the upside that they helped to create.” She termed OpenSea’s decision to abandon royalties “unfortunate.”



Digital works encoded onto blockchains rose in popularity in 2021 after the artist Beeple sold a collection of images previously published on his Instagram page for $69 million. Seeing the big bucks to be made in a seemingly simple process–just upload a digital file to an NFT marketplace, which would encode it, for a fee, onto a blockchain–hundreds, if not thousands of artists joined in. NFT aficionados, including artists and collectors, claimed that blockchain-linked art would democratize access to a murky and difficult-to-break-in market, making the opaque system of well-connected galleries and deep-pocketed buyers obsolete. The decentralized system for royalty payments, they contended, would also ensure that artists would directly participate in the appreciation of their works, typically earning a 10% cut on each subsequent sale.



Each marketplace maintained its own policy for awarding royalties to artists. Beeple for example, famously would sell his “drops” for $1 each, but as they were bid up and resold on NFT marketplace Nifty Gateway for hundreds of thousands of dollars, he earned tens of thousands in royalties on each transaction.



In its brief life, NFT-linked art has largely been digital, often in series of similar images with various unique features that make some more collectible than others. But anything can be linked to a token–traditional art, real estate, even musical instruments–and then tracked on its associated blockchain. So, the technology could speed transactions and cut out middlemen in many industries.



<abbr>T</abbr>he fight for royalty payments has largely played out in the court of NFT marketplaces, websites that allow creators and sellers to list their pieces in primary and secondary transactions. In order to better compete with Blur, OpenSea launched what it called its operator filter, which allowed creators of NFTs to prohibit their tokens from being sold in marketplaces that did not enforce royalties. In other words, the filter blocked OpenSea’s competitors and required collections to trade either on its own marketplace or others that did enforce royalty payments, keeping them away from Blur.



Market forces did not cooperate with OpenSea’s strategy. Free trades and optional royalty payment policies quickly drew sellers, which in turn attracted buyers. Since prices and volume were controlled by traders, seeking quick, if marginal, returns, voluntarily paying royalties to artists were easily dismissed by them.



OpenSea’s trading volume plummeted to 27% in August as Blur’s skyrocketed from a mere 5% to 60% in the same time frame, according to data from&nbsp;<a href="https://www.theblock.co/data/nft-non-fungible-tokens/marketplaces" target="_blank" rel="noreferrer noopener">The Block</a>. Even OpenSea Pro, OpenSea’s no-fee aggregator and direct competitor to Blur which launched in April, has been unable to take market share from Blur, accounting for only 33% of trading volume on NFT aggregators in August (63% of trades happened on Blur), according to data from<a href="https://dune.com/hildobby/nft-aggregators" target="_blank" rel="noreferrer noopener">&nbsp;Dune Analytics</a>.



But the playing field is not level for OpenSea. With no marketplace fee, Blur is living mostly on its $11 million in&nbsp;<a href="https://www.forbes.com/sites/digital-assets/2023/04/13/forget-art-lets-trade-how-a-10-person-startup-came-to-dominate-nft-markets/?sh=227ffacc2680">venture capital funding</a>&nbsp;and a&nbsp;<a href="https://docs.blur.foundation/tokenomics" target="_blank" rel="noreferrer noopener">hefty</a>&nbsp;supply of blur tokens, reward tokens given out to its founding team and traders as rewards for using the platform. While Blur has attempted to grow its customer base with the launch of its lending products (Blend) and more uses for its token, how long its dominance will last will depend on its reliance on its token model, which could make it susceptible to regulatory action.



Ultimately, OpenSea has not only lost market share to Blur, but it is taking a smaller piece of a smaller pie. After peaking at $16 billion in January 2022, NFT trading has plummeted, with only $559 million worth exchanged in August in 3.2 million transactions, a more-than-<a href="https://www.forbes.com/sites/digital-assets/2023/08/03/stan-lee-becomes-nft-superhero-illustrating-a-downward-shift-in-prices/?sh=6de9fb6d5ae5">60% volume decrease</a>&nbsp;from last year, according to industry research firm&nbsp;<a href="https://dappradar.com/blog/blockchain-industry-regains-traction-as-2-million-unique-active-wallets-interact-daily/#Chapter-4" target="_blank" rel="noreferrer noopener">DappRadar</a>. Even then, only 15% of unique active wallets contributed to August’s NFT transactions. In July, only 4% of wallets traded the NFTs.



Few transactions and even fewer users (measured by the number of unique wallets) points to a new normal in NFT trading which is bad news for digital artists: traders rule the market, and most refuse to pay royalties.



Blur’s predecessors, aggregators like X2Y2 and LooksRare which listed NFTs available in various marketplaces, set the standard for royalty-free marketplaces geared toward traders by offering quick no-fee transactions. Others, like Magic Eden, the largest marketplace for NFTs on the Solana blockchain, and Ethereum-based OpenSea, had to respond to draw customers back to their platforms, lowering costs one way or another. Magic Eden took the first step, moving to a royalty-optional model in&nbsp;<a href="https://twitter.com/MagicEden/status/1581101016686399491?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1581101016686399491%7Ctwgr%5E9d190b061a3b95519526e7d4bab1ea7a5ea8bfbb%7Ctwcon%5Es1_c10&amp;ref_url=https%3A%2F%2Fwww.coindesk.com%2Fbusiness%2F2022%2F10%2F15%2Fmagic-eden-moves-to-optional-royalty-model%2F" target="_blank" rel="noreferrer noopener">October</a>&nbsp;as trading declined, preceding OpenSea by two weeks.



<abbr>T</abbr>he royalty policy changes at OpenSea and other marketplaces should send a loud wake up call to Bored Ape Yacht Club maker Yuga Labs. Since it debuted in April 2021, Yuga has received $58 million in royalties from the resales of its Bored Ape collection. Its Mutant Ape Yacht Club and “Otherdeed” collection brought in nearly $100 million more. Chiru Labs, which designed the anime-inspired Azuki collection, and&nbsp;<a href="https://www.forbes.com/sites/mariagraciasantillanalinares/2022/09/13/reddits-ohanian-leads-54-million-doodles-capital-raise/?sh=84266a63bf38">Doodles</a>, purveyor of pastel-forward illustrations are also likely to take big revenue hits.



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<h2 class="wp-block-heading" id="h-top-10-royalty-generating-nft-collections">TOP 10 ROYALTY GENERATING NFT COLLECTIONS</h2>



<h4 class="wp-block-heading" id="h-through-august-2023-profile-picture-collections-have-received-the-most-in-total-royalties-since-launch-garnering-millions-in-fees-from-secondary-trading-but-when-it-comes-to-effective-royalty-rates-metaverse-and-gaming-nfts-with-rates-of-8-to-9-are-the-winners">Through August 2023, profile picture collections have received the most in total royalties since launch, garnering millions in fees from secondary trading. But when it comes to effective royalty rates, metaverse and gaming NFTs, with rates of 8% to 9%, are the winners.</h4>



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Even prior to OpenSea scrapping royalty payments, 10% royalties were more of a goal than a reality. According to Nansen, the average royalty for the highest earning collections was between 2% and 4%. Top-performing gaming collectibles were earning 5% to 10%.



Though they stand to have the most dollars to lose, some big creators are insulated by the brand recognition they’ve garnered, including shows at traditional&nbsp;<a href="https://www.centrepompidou.fr/en/magazine/article/the-centre-pompidou-in-the-age-of-nfts" target="_blank" rel="noreferrer noopener">museums</a>, and can still claim the big bucks on primary sales. Chiru Labs, for example, raised $38 million ahead of its much-anticipated “Elementals,” although investors ultimately thought that collection of characters with&nbsp;<a href="https://twitter.com/wizardofsoho/status/1673772462289350657?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1673772462289350657%7Ctwgr%5E1f3046daac6098742355f02bd7c2633d1e660522%7Ctwcon%5Es1_c10&amp;ref_url=https%3A%2F%2Fdecrypt.co%2F146464%2Fazuki-nft-prices-plummet-collectors-blast-identical-elementals-art" target="_blank" rel="noreferrer noopener">almost identical designs</a>&nbsp;was a flop.



The most dire consequences of the loss of royalties are likely to fall on the smaller creators whose monthly payments have been in the hundreds or low thousands of dollars but who have included the income in their financial planning, according to Calderon.



At the $6.7-million collection Rektguy, the loss of royalties is having tangible results, says co-founder Ovie Faruq. “We&#8217;ve used royalties to pay a moderator, to put-on real-life events, to build different competitions and build our website and community,” he says. “So, when you strip that out, it changes the business model.”



Combined with the evaporating royalties, NFT participants face new U.S. regulatory issues. The Securities and Exchange Commission last month required Los Angeles-based&nbsp;<a href="https://www.forbes.com/sites/digital-assets/2023/08/31/sec-opens-a-new-can-of-worms-with-nft-enforcement-action/?sh=4aba9c3921ab">Impact Theory</a>, a digital media studio which raised $30 million from its NFT sales since 2021, to revise the smart contract underlying its Founders Keys NFTs to&nbsp;<a href="https://www.sec.gov/files/litigation/admin/2023/33-11226.pdf" target="_blank" rel="noreferrer noopener">eliminate</a>&nbsp;any royalty payment the company may receive from future secondary market transactions. The SEC alleges the company sold unregistered crypto securities through its sale. Because Impact collects and profits from the royalties (set at 10%), rather than the digital artist, the SEC contends, its NFTs are securities. This week, the SEC also fined the creators of the Stoner Cats collection&nbsp;<a href="https://www.sec.gov/news/press-release/2023-178" target="_blank" rel="noreferrer noopener">$1 million</a>&nbsp;over the sale of unregistered securities.



Impact Theory’s NFTs offered a number of exclusive opportunities to holders, including discounts and early access to videos and gaming content. To settle charges that it was selling unregistered securities–the first SEC enforcement action against an NFT issuer–Impact Theory also agreed to destroy its remaining supply of the tokens and pay a $6 million fine.



If the SEC is looking at royalty payments as a potential criterion for treating the tokens like securities, NFT studios, collectors and even the marketplaces they’re traded on could be susceptible to the same kinds of enforcement actions the agency has been taking against cryptocurrency companies. The way the Impact Theory NFTs were structured may have made them especially susceptible.



“There&#8217;s a pretty good argument for the artists receiving royalties downstream, based on certain case law,” says James Walker, co-lead of Perkins and Coie’s fintech enforcement and compliance team referring to the way the entertainment industry compensates musicians, actors and screenwriters, for example. “But there’s a stronger argument [that NFTs are securities] when you have a company [like Impact Theory] that isn’t involved in the creation that is getting royalties downstream from certain NFTs issued.&#8221;

Collage of woman falling through the metaverse

Requiem For Royalties: NFT Exchanges Abandon Recurring Compensation For Artists

Edose Ohen had an unconventional childhood. By elementary school, he was given a programming book by his father and told to study it, sparking an interest in information technology (IT) and robotics. Entrepreneurship was also in his blood. By the age of 12, Ohen was selling sweets to his classmates to make extra money. By the time Ohen got to college, he started a marketing company to promote events at the school, which progressed to organizing high-end events for his fraternity.
“My father has always been an entrepreneurial man and I believe the lessons he taught me earlier on in my life was my foundations for my entrepreneurial paths. He shifted me towards IT at a very young age, so I always knew I would be in IT. I also always knew I was going to be in oil and gas because I idolized my father and he was an oil and gas man,” says Ohen.
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After graduating at the University of Houston with a degree in management and information systems, Ohen’s prediction came true. His first job combined his IT skills with his passion for the oil and gas industry.
“I graduated in 2009, which was the height of the economic recession in the States, so I sent out my resumes to hundreds of companies and I did not receive any feedback. Finally, there was a mid- to large-sized international oil and gas company, and it just so happened that the hiring manager went to my university and we had some synergies. So I started working as a system administrator and four years later I worked my way up to an IT manager.”
Ohen began to feel like he had reached a glass ceiling. It was time to do something different.
“In 2013, I started my MBA, concentrating on supply chain and operation management. When I was doing my MBA I was watching a show on CNBC called ‘How I Made My Millions’ and it was one of my favorite shows. There was a segment about these guys who opened a gourmet doughnut shop. I was like why would you open a gourmet doughnut shop?”
“I watched them and I was like these guys had a plan. So I said let me go to the top 10 doughnut shops out there and every single one of them had a line outside the door. I looked around and I couldn’t find anybody that did it in my area, so I said why not?” says Ohen.
Ohen got some close family and friends together and raised $300,000 to start his new dream, Glazed The Doughnut Cafe.
“It took about two years to get it off the ground. We had about 2,000 people come to the grand opening and the first six months was a total disaster. We could not keep up with demand and we could not create enough products.”
“I had this perfect staffing plan and perfect projection and it was absolutely terrible. It stabilized after year one and we just recently opened our second location which is also growing,” says Ohen.
The biggest challenge for Ohen was managing his own expectations.
“I was so adamant about my business plan. I had all this predictive analysis saying we anticipate we are going to need flour because we plan on selling so many doughnuts a day and trying to force that to happen. But the thing is, you don’t know, you can’t tell. Somebody can wake up and say I want a doughnut today or not, so just trying to understand that there is a complete difference between what you think can happen and what actually happens was difficult.”
With his doughnut business set up, Ohen was ready for his next move.
“One thing I learned from my father was that he always preached diversification. Mitigation from the effects of the economic cycle was how he survived for so many years and thrived in business,” says Ohen.
That sparked the move into IT infrastructure and services. Ohen set up Alfa Dando, which is the parent company to his internet business. The first brand under that portfolio is Wireless NG.
“We have a company called Wireless NG that we are looking to roll out in Abuja and Benin City. It is focused on information technology solutions, network engineering, procurement, design, wireless communication, and radios,” he says.
For the past three years, Wireless NG has provided communication platforms for the Nigerian Gas Pipeline and Transportation Company and Ohen hopes to create a nationwide network soon.
Ohen is building a diversified empire and, unlike his doughnuts, there doesn’t seem to be any holes in his plan.

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From Gourmet Doughnuts To Grand Deals

United States (US) President Barack Obama announced that private companies are providing $12 billion to his Power Africa program, while US firms will invest more than $14 billion towards banking, construction and information technology on the continent.
The US-Africa Summit held in Washington in August focused on sustainable development, trade, collaboration, investment, and America’s commitment to Africa’s security, its democratic development, and its people.
Obama assured Africa’s head of states, gathered in the Mandarin Oriental Hotel, that the US wanted to help Africa grow; nothing else. With his charming voice, he dismissed the notion that the US wanted something in return. Those who are not gullible know the US doesn’t do anything for free.
The African Union has 54 member countries. If the US really cares, it should help Africa in its entirety. It came as no surprise that Zimbabwe’s President Robert Mugabe didn’t get an invite. Other black sheep were Isaias Afewerki of Eritrea, Omar al-Bashir of Sudan and Catherine Samba-Panza of the Central African Republic.
Some African nations declined to join the global superpower. Sierra Leone and Liberia focused on domestic issues rather than sucking up to the US, while Ebola kept West African countries busy.
Africa is not a charity case and progress can be made on our own terms. Foreign partnerships are vital, but the US is not the only option. China is currently forging trade agreements with several African countries.
Now more than ever, Africa needs education to exploit its resources. Academics Nkem Khumbah and Melvin Foote see this as a more viable option than pumping aid into the hands of corrupt officials.
“There’s a way to make a lasting and low cost investment in Africa’s next generation: Obama must bring education – science and technology in particular – to the forefront of the debate about African development,” wrote Khumbah and Foote in The New York Times.
Africa is experiencing an economic upswing, but its growth is predominantly based on extracting natural resources rather than increasing industrial productivity. Most African nations are far away from making any significant international breakthrough.
This is not rocket science. Power-obsessed African leaders need to understand and implement measures to help their countries grow.
Dambisa Moyo, a Zambian-born economist and author of Dead Aid: Why Aid Is Not Working And How There Is a Better Way for Africa, says donations to Africa provide many points to debate – millions march for it, governments are judged by it and celebrities promote the need for it. Calls for more aid to Africa are growing louder, with advocates pushing for the roughly $50 billion of international assistance that goes to Africa each year to be doubled.
Some, however, argue that aid has made the continent poorer and economic growth slower. The aid culture has left countries more debt-laden and vulnerable to the vagaries of currency markets. This leads to Africa being an unattractive destination for investment.
According to Moyo, despite the aggressive debt-relief campaigns in the 1990s, African countries still pay nearly $20 billion in debt per annum, a stark reminder that aid is not free. In order to keep systems going, debt is repaid at the expense of education and health care. Calls to write off the debt are hollow when it is met with a fresh infusion of aid. We are trapped in a vicious cycle.
“In 2005, just weeks ahead the G8 conference that had Africa at the top of its agenda, the International Monetary Fund published a report entitled ‘Aid Will Not Lift Growth in Africa’. The report cautioned that governments, donors and campaigners should be more modest in their claims that increased aid will solve Africa’s problems. Despite such comments, no serious efforts have been made to wean Africa off this debilitating drug,” Moyo points out.
Obama might have good intentions but Africa, the sleeping giant of the world, needs to wake up and guard its assets: both human and natural resources. It needs to protect itself from the toxicity of foreign aid.

Tag: Information Technology

FORBES AFRICA SOCIAL MEDIA

Requiem For Royalties: NFT Exchanges Abandon Recurring Compensation For Artists

From Gourmet Doughnuts To Grand Deals

Why Aid Is Bad For Africa