Creator royalties have been a mystery yet unsolved in the growing NFT space.
Royalties have been a way for Web3 creators to make additional income and sustain themselves in the long run, reserving a certain percentage from every secondary sale of an NFT back to the original creator.
The primary sale is always the target, but there are a handful of NFT projects that make a reasonable amount of income from royalties earned in secondary sales.
Royalties are important for creators but it is not built in as a compulsory option around the NFT ecosystem. Even when built into the NFTs smart contract, it is up to the NFT marketplaces to acknowledge this fee and enforce it on the user.
Take OpenSea for example.
OpenSea acts as an intermediary and sends a royalty payment (typically 5%) to the artist after every transaction along with a 2.5% fee.
Sudoswap has been the center of attention recently after they announced their new marketplace protocol that comes with a zero percent royalty for NFT artists.
Announcing the public release of sudoAMM!
— sudoswap (@sudoswap) July 8, 2022
sudoAMM is a new marketplace protocol that changes the way we think about NFT liquidity and trading.
It is highly flexible, gas-efficient, and fully on-chain. pic.twitter.com/NBK4UI6fQI
The fire the announcement set is still blazing, and the debate is ongoing in the NFT space.
What is Sudoswap?
Sudoswap is an Automated Market Maker (AMM), and it works like traditional decentralized exchanges but supports swaps between ERC-721 (NFTs) tokens and ERC-20 tokens.
The platform lets users sell their NFTs without having to wait for a bid or buyer.
Sudoswap founder Owen Shen explained on a podcast back in May that “Each user who wants to sell an item deposits one or more NFTs into a pool which they control the pricing over, and the actual purchases happen across all the pools”.
He added that “You can set a pool with a higher pricing, but it’s the same as listing an item at a higher price. Users will buy elsewhere if there is a cheaper item on the market.”
Each NFT listing on Sudoswap is its own pool, and the seller is responsible for providing liquidity.
Users are free to set prices, values and other parameters for their pools. They can even sell NFTs on bonding curves that slowly increase as more purchases take place in the pool.
Sudoswap also announced that they are cutting down their transaction fees to 0.5%. With the average transaction fee across NFT marketplaces being around 7.5%, it’s no wonder why users are flocking to use it.
However, it’s coming at the expense of the artist. Where most popular marketplaces charge about 2.5% in fees, and another 5% set by the artist, SudoSwap leaves the artist with 0%.
SudoSwap’s Rise to Fame
Over the last few months, the total value locked (TVL) on Sudoswap has grown from $120,000 to nearly $3,000,000 according to DeFi Llama.
Source: DeFi Llama
Their liquidity pools have appreciated by over 2,400% with more and more users contributing daily.
There have been over 60,000 NFT trades on the AMM since early July, with 16.5 million in trade volume according to Dune Analytics.
Source: Dune Analytics
In retrospect, OpenSea has processed over $800 million in trades within the same time period. However, there are some positives from having no intermediaries involved that benefit Sudoswap and set it up for long-term success.
Royalty-Free Trading on Sudoswap
The decision to remove artist royalty on Sudoswap could be a problem in the long run and could undermine the utility of NFTs.
For example, BAYC makes about $3,600 from secondary market sales on each of their tokens. Over the last 30 days, they have made up to 1.3 million in royalties with 368 BAYC trades over the time frame.
Community Response
I am 100% certain that "not paying royalties" is not a sustainable competitive advantage for Sudoswap.
— 6529 (@punk6529) August 13, 2022
If it "works" in any significant way it will be copied.
So people should state their views on royalties assuming every market evolves to a common approach
NFT royalties shouldn’t exist because it’s “the right thing to do”.
— Frankⓨ (33.3%) (@frankdegods) August 14, 2022
It is simply the best alignment of incentives between founders & holders (right now).
If you want to remove royalties, that’s fine. Just don’t be mad when mints become more expensive and more projects rug, lol.
Ngl the discussion of creators and artists receiving royalties feels like a distraction from the fact that marketplaces themselves make an insane amount on fees.
— BETTY (@betty_nft) August 13, 2022
Trying to kill royalties is trying to kill the NFT ecosystem. Projects & artists need them to survive. The space can’t advance without sustainable creators
— ThreadGuy.eth ? (@notthreadguy) August 13, 2022
i think the creator royalty argument is actually a lot simpler than people make it out to be.
— beeple (@beeple) August 13, 2022
There is ZERO way to FORCE royalties technologically so creators will have to build a collector base that WANT to honor these royalties…. It’s really that simple. ?